Amazing Mental Rot

March 19, 2007
From the Florida Sun-Sentinel:
BOCA RATON – Retired Federal Reserve Chairman Alan Greenspan, speaking at a Futures Industry Association annual conference here on Thursday, said the problems of the subprime mortgage market had more to do with home prices than easy credit.
      "If we could wave a wand and housing prices go up 10 percent, the subprime mortgage problem would disappear," he said.

     What kind of a rock does this fucking idiot Alan Greenspan live under?

     The median price for a house in my region of the US (northeast) was $380,000 in the third quarter of 2006. Median annual income, meanwhile, was about $46,000. If, by some miracle (in a land of negative savings) someone with an income of $46,000 had managed to save enough to make a 20 percent down payment ($76,000) on the aforesaid median-priced house and got a 30-year mortgage for the remainder ($314,000) at 7 percent interest, his monthly payment would be $2089. Add to that $250 a month in local property and school taxes and insurance and that brings it up to $2339. That adds up to $28,068 a year in house payments. Let's say the poor bastard pays $8,000 a year in combined income tax and FICA witholding. That leaves him with a grand total of $9,932 for everything else. Then there's the yearly cost of owning a car, including installment payments, insurance, gasoline, and maintenance: around $6,000 a year. Oh yeah, if he's a prudent fellow, he's got health insurance, let's say a practically useless high-deductible policy costing $3,000 a year. That leaves approximately $57 a week for groceries, laundry, the collection plate at church, and everything else. (Too bad he can't afford cable TV and the Internet.)

     So, if housing prices went up 10 percent, how fucked would Mr. Median Income be?

     Of course, the scenario above was based on the most conservative type of mortgage. If Mr. Median Income had gotten a creative mortgage, let's say a no money down, interest only, payment option, adjustable rate mortgage, he would have been a little more solvent until the re-set. Then after enjoying the place for a year or so, he'd either have to sell it pronto, or default on his payments. And because all his payment option shortfalls would have been back-loaded onto the principal, the mortgage obligation would be more like $400,000 now. This is a bummer, selling into a down market.

      I guess Alan Greenspan is right. If the price of houses only went up 10 percent a year, or every half a year, or maybe every month, guys like Mr. Median Income could stay ahead of the game. Of course, sooner or later under conditions of perpetually rising house prices, houses would have to be priced out of everybody's range except for Donald Trump, Paris Hilton, and a handful of other lucky, beautiful people who dwell in the perfumed ethers above the pathetic lumpenprole median zone. Perhaps by then, Mr. Median Income would have won the grand prize on American Idol -- or better yet, crapped out and won an Oscar for best supporting actor instead -- and then he would be a beautiful, rich-and-famous celebrity with the ability to buy as many houses as he ever wanted.

     I wonder if the new Fed Chairman, Mr. Ben Bernanke is as wise as Mr. Greenspan? Let's hope so.

Comments

[Laura Louzader]

I am in median income territory and I have sat here for 5 years waiting for a rollback in house prices so I can get a conservative mortgage on a reasonable condo for 2.5X my income.

The last bleeping thing I need is another 10% price hike.

Most first time buyers with incomes under 80K a year are either priced out of the market or are staggering under the load of oversized payments, escalating utilities AND new tax hikes based on the new inflated property values

The market should have been permitted to tank before prices got to these levels, and if it weren't for the really skanky lending practices of the past 5 years, prices would never, ever have reached these levels.

Greenspan sees things from the angle of someone at a very elevated level who thinks the rest of us should be happy to live in unheated shacks.

...which will happen quite soon enough in any case.

At last prices are tanking fast and bad here in Chicago, and I couldn't be happier. Too bad about all the idiots who bought at the inflated prices and assumed mortgages 5X thier incomes. I feel sorry for those who were genuinely ignorant but most were arrogant middle-class people with enough education and savvy to know better.

[Jerry Johnson]

Laura, take a look at the attached. Amazing Mental Rot it is.

http://www.safehaven.com/showarticle.cfm?id=7160&pv=1

Greenspan got into the pickle 20 years ago and had to increase the Ponzi tranches till we are in our current final or next to final predicament. It is easy to see how it all came about.

The Republicans felt they had finally secured a long term hold on power and it looked on October 20, 1987 that they had another 1929 crash on their watch. Do whatever it takes. Dr. Greenmold obliged and it worked. He had to see that it fueled an immediate craze. He bought thirteen years of dot com absorption of liquidity. That was just after Congress undid ERTA with the 1986 tax act. The money buried in commercial real estate had to bail but it took time to undue real esate shelters. Greenmold's liquidity helped the shelter bail out so that together the two flood rivers created the dot com market. Exponential growth in bust potential here. Boom comes the Dot com blowout and the money exiting dot com and the stock market went into the real esate boom now a super nova bust in my view. Greenmold is likely near hysterical about it but he became the sorcerer's apprentice long ago.

Fiscal policy is not about what is beneficial if it follows a catastrophe. FP is about prolonging the life of parties in power. Think of it like the cancer survivor that is unable to admit survival is a hoax.

The truth is our FP is run by a committee and the result is as good as the courage of the committee. The courage to face the facts they cannot admit to for fear of loss of faith followed by political ( physical?) courage.

The top leadership is mostly weaklings under the bravado. Would a personality like Peter the Great survive to the top today. Some near the top maybe, but not many. Likely they wind up in jail not being ratters.

We abhor the real leader.

[Don Marti]

Mr. Median Income is making the house payments, and Ms. Median Income is paying for everything else. All that has to happen is... (1) they stay together (2) they both keep their jobs and (3) house prices keep going up. Easy, right?

[Wayne]

My crappy insurance - $2,700 deductible, and my back is excluded from any coverage because I happened to have an MRI on it once - actually costs $3,600 hundred a year. That would leave your theoretical lumpenprole with $7 for groceries and whatnot. Gotta love that invisible hand . . .

[Kickaha]

"If we could wave a wand and housing prices go up 10 percent, the subprime mortgage problem would disappear," he said.

And if I could shit gold coins, I would never have to work another day in my life. How can such a dull-witted comment come from somebody once entrusted with the helm of the U.S. economy?

[gene]

Jim sounds like this is pissing you off, if so your in good company. The twilight zone makes more sense than this reality we now find ourselfs in.

[Laura Louzader]

Read Mauldin's excellent and terrifying article, Jerry, and am reminded of how shaky the job market is. Thanks for the link.

A cascade of foreclosure and bankruptcies will not make our jobs more secure, and it's cold comfort to consider that a few former multimillionaire bonus babies will be broke and unemployed along with the rest of us.

I have always said that Greenspan was nothing but a bubble maker. Too bad we didn't have a person like Volcker in the Fed 5 years ago.

Unfortunately, the situation is so far gone and housing prices are so overinflated that the only cure is a really sharp, rapid retrenchment in prices. Hopefully, a significant portion of these loans can be converted to 40-year-fixed and help a large number of people avoid foreclosure. You'd really rather overpay for the place than have a foreclosure on your record.

[Joey Ramone]

Why are people still consulting Greenspan on these matters? He is no longer the Fed Chairman. He could be paid to say these things for all we know.

[President Camacho]

Joey, of course Greenspan could be paid to say these things. That is what he was paid to do while he was the Fed Chairman.

[Jerry Johnson]

Laura, I bet there are all kinds of mortgage recapitalization solutions out there. But bankers being bankers , I doubt they will arrive in time.

All they really have to do to avoid a truly bad fix is apply some ingenuiety. The key will be sound servicers who can do the recap. Since the mortgage holders want future interest, why not roll the loss that would be incurred anyway from foreclosure legal costs, sale costs, and holding costs against principal and put the mortgage out 40 years. If necessary, roll the reduction into a recovery share whenever the house is sold, if it is there. This way, the debtor does not wind up with a cancellation of debt income problem. This way the borrower has more cash to give the lender rather than the Feds.

These new mortgages in relatively short order would become marketable. Of course, the bugaboo will be the security agreements. It gets desperate enough and instead of losing 25-30% they will lose all.

Unfortunately, we both know creativity is not the strong suit of bankers. In fact, my bet is that some large servicer platforms will fall before the banks wise up that their only chance for recovery is via creative and intact servicers.

[edgar]

Greedscam, oh man, I'm all ranted out about that guy. Can't - muster - one - more - putdown. Overload, overload. It sounds like the old green wienie wants BB to flip the switch on the economy from suck to blow. Good luck with all that. I plan to paper my bedroom with hundred dollar bills in the near future. Well, that, and wipe my a$$. Good luck to all. edgar out.

[Joey Ramone]

just want to add Edgar, that the problem is far more severe. If our currency does has a real risk of hyperinflation, China will dump its reserves which will effectively start a major war. The recent dip in the Dow was predicated by a small sell off of US-backed holdings by China. A small taste of what is in store for us in the future you describe.

[Scott]

Why are people still consulting Greenspan on these matters? He is no longer the Fed Chairman. He could be paid to say these things for all we know. -Joey

While the figure isn't official, it has been reported to be $100,000 for the referenced speaking engagement.

When I heard this story on the radio Friday morning I thought hmm. particularly when one of the commentators said something to the effect that Greenspan spoke gibberish throughout his tenure as FED chairman now he is spilling his guts. I think they liked him better when no one could understand him.

[Joey Ramone]

also, I'm not sure if you want to blame Greenspan for everything. His job is to maintain financial solvency of a socio-economic system that never worked in the first place. In general, the issue is for all 'Western Developed Nations' the issue of massive immigration. The situation tends to divide opinion along age and economic lines. The older, slightly richer favor immigrants because they offer low cost labor and no demanding of workers rights etc. The young are being put out of jobs, the bar has been raised so high they are now in an economic class along with recent 3rd world immigrants. NY has an interesting situation, a common scenario is for latin americans to jump the border, work lower-class menial jobs, have kids here who gain enormous educational and minority entitlements, and then move to NY where the Liberal atmosphere welcomes them as equals. This is what is happening people- open your eyes. SUNY schools are filled with people who can hardly speak english who have their education subsidized by American tax payers.

similar problems exist for most European states as well- the proposed solutions to post WWII problems were almost universally open-door immigration.

[Laura Louzader]

The future homeless might be able to squat in all the foreclosed $12MM mansions newly built in Lincoln Park after some of the hedge fund "bonus babies" here in Chicago get put out of them by the sheriff.

That, or they will become headquarters and safe houses for all the doomsday religious cults and revolutionary cells that will spring up after employment rates in this country hit 40% and we have Argentina-style inflation and currency collapse.

[Joey Ramone]

hey President Camacho, GREAT NAME!

You do know that the 'powers that be' had a hand in killing promotion for Idiocracy? I bit too real for them I guess, and funny enough to appeal to a large group of people. Same goes for 'V for Vendetta'.

http://www.youtube.com/watch?v=YkEIx0vwHZ8

[Joey Ramone]

Laura Louzader: employment rates in this country hit 40% and we have Argentina-style inflation and currency collapse.

I predict that the Fed is about to commit the biggest financial boondoggle in history. If we inflate, were screwed( foreign holdings ). If we deflate, were screwed( huge debt ). If we say- America, you've got work it off, were not going to get voted for again! I expect acts of war in the near future, letting the country have a nervous breakdown is not an option.

and Jim, I appreciate your sentiments for a return to the 'Great Society', and this may appear possible from your perspective in Saratoga... but the situation is far, far worse nationwide. You do know that Bill Gates( philanthropist extraordinaire ) calls for the relaxing of immigration constraints and an increase in temporary white collar work visas? after all he can't turn a profit with all these engineers asking him for stuff like medical insurance, market wages, etc. He can't run his show in India because its a 3rd world dump, and he would rather not pay off the Hindu mafia. who is running this country?

[edgar]

Joey Ramone, I hear ya. Don't worry about a crash though, the PPT is on the job:

http://buttonwood1792.blogspot.com/2007/03/pushing-on-string-new-york-fed.html

[Joey Ramone]

Edgar,

"So even if the original loan is paid back, is it such a good thing that billions are being created out of thin air by the NY Fed operations which end up being added into the money supply over time?"

and people wonder why we have a growing class of wealthy pinheads in this country that seem to defy the laws of natural selection. The 'free market', a faith-based community, has sacrificed the American dream on the altar of the Federal Reserve.

The young are double plus screwed. Our only leaders at this point are pathetic demogouges who can only muster promises of gay rights or legalizing pot. Thank you, Jason West you freaking idiot.

[Joey Ramone]

Another interesting comment I ran across, someone stated that we cannot attain stability in this country until the Fed is put under control of Congress. That just might work, as long as we don't call it what it is: Communism.

Labor politics never died.

[edgar]

Joey Ramone,

You can tell that the dollar and western hegemony is drawing to a close by the way the PTB are behaving. Widespread looting of the treasury, oppressive domestic regulation, the list is endless.

[edgar]

http://wallstreetexaminer.com/blogs/winter/?p=535#more-535

[Joey Ramone]

Edgar,

Things are falling apart without a doubt. But remember America, don't forget to drink your Bud and watch your local sports team, the American Dream is still intact. You can be wealthy with hard work and perseverance, that is until the people who run the Fed decide that they are going to bankrupt you and enfranchise your Indian neighbor who does not pose a threat to their political regime.

[edgar]

"...that is until the people who run the Fed decide that they are going to bankrupt you and enfranchise your Indian neighbor who does not pose a threat to their political regime."

True enough, but at some point the still enfranchised in this country will start to pay attention. It doesn't really bother me what they do, but if I were someone with a substantial stake in the American dream, i.e. professional athletes, movie stars, etc., etc., and most of my wealth was tied up in dollar denominated assets, I would be POed to find out that the green wienie had wiped out my fortune with profligate spending. The neocons time is running out. The sooner they flee to Dubai or Paraguay, the better off we'll all be.

[edgar]

edgar out.