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Friday, March 14, 2008
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78 comments:
...and one more loser cashes in their chips.
Bad business decisions, bad assumptions, bad planning... what else can really be said here?
I think it's more useful to examine data like this in a broader context. Yes, this clearly the culmination of series of bad bets by a single company, but negative outcomes like this ultimately affect all of us in the sense that they damage the entire economy. How does that affect people who have no direct relationship to this company? Can anything be done about that? Should anything be done about it?
There is always some disruption when a large entity collapses but in the long run the market will adjust and other companies will pick up the slack. This is the natural order of things.
In the short term the inclination of many is to try to "save" failed companies out of a mistaken desire for stability, but barring a nearly complete collapse of the financial system such efforts are without merit.
Let failed companies fail and let their more successful competitors purchase their remains and grow. This is the essence of capitalism. Propping up failed for-profit entities encourages risk taking and rewards those that made poor decisions.
The economy is going into a recession and there is going to be some pain and suffering for many as a result. This is unfortunate but unavoidable. I hope everyone is preparing themselves prudently for what is coming.
I think things are going to turn for the better with the democrats in office.
Sure, our taxes will go up, but the blind faith the current administration put in large corporations was absurd.
Maybe there was a time when funding from the top down made sense, but now all it does is reward obscene greed. Never have the ultra rich got so much richer than under the current reign.
Its time to bring that money back to the infrastructure of America - its time to vote for Obama! He will bring back capital gains and hedge fund taxes, withdraw from trade agreements that make no sense, and stop rewarding companies for hiring people overseas.
This will hose a lot of people on Wall Street, but bring jobs and higher wages to the people on main street.
Man I should get a job writing for his campaign, lol!
Counter-argument from Minyanville:
"The really unfortunate thing is that big government will use the situation to gain even more power. The Barney Franks of the US government will come to the rescue to put out the fire when it was the government's arson all along. And it’s working. Why? Because people do not understand the context of things".
Doug,
Harriet's post immediately following yours is right on the money. The problems Obama has good been good at voicing won't be solved by the actions you list. Those things will just make matters worse. Those were the types of actions the European nations used when the money and capital was flowing to the US in the last century. It didn't leave them any better off. It just left them with larger than ever bureacracies living off the average wage earner's production.
The "hosing" Wall Street point was also interesting. It seems to me like the current situation is doing a good-enough job of that.
"He will bring back capital gains and hedge fund taxes, withdraw from trade agreements that make no sense, and stop rewarding companies for hiring people overseas."
I woudnt count on that Doug. Here is why http://www.tnr.com/politics/story.html?id=4d40a39e-8f57-4054-bd99-94bc9d19be1a
It is a fascinating article about his economics advisors all of which are from the Chicago School of Economics. The CSE is very pro free market, and believe firmly in specialization of labor, gains made from trade, etc, etc.
In fact after seeing this, my fears about protectionist & other "big govt" policies were substantially ameloriated. If he gets elected, as long as he keeps listening to CSE guys, it will pretty much be status quo (democratic control of the congress could be another matter though).
I should have mentioned - this article is be a reason WHY I may end up voting for him. As much as McCain talks about cutting spending (which I love), his understanding about economics is so poor it scares me a bit.
Hey did anyone see my post in the other thread?
Foreclosures down 10-25% in February all across NOVA except Loudoun ticked up 1.3%.
You should really post news like this also - its not right to just post bad housing news.
"Hey did anyone see my post in the other thread?
Foreclosures down 10-25% in February all across NOVA except Loudoun ticked up 1.3%.
You should really post news like this also - its not right to just post bad housing news."
I did Doug. The only thing that scares me is Harriets other post from a few days ago:
Forclosures in Fairfax
January 2007: 74
January 2008: 1,330
So it shouldnt be surprising that the did drop given the spectacular rise from a year ago (which really freaked me out). That said, your comment about good news is correct. I just wish I could find more of it these days!
Yes I understand the situation, but if this continues it could signal bottoming out in some areas.
People have been saying that if foreclosures decrease for 3 months strait, that could signal that the price bottom is near.
Im not predicting either way, it could simply be that less ARMs reset this time of year because not many loans are originated this time of year.
If they are still falling in April and May, we may have something going on here.
The problem with that report doug is that it only gives month-month numbers.
Without more information about what seasonal trends and longer term trends look like that data is pretty much useless.
doug
fewer foreclosures, fewer days in feb. 6% fewer days in feb. i'm glad this was a leap year or else we'd have even more people calling a bottom.
Common guys, admit its at least worth following if we get 3 months in a row.
"Common guys, admit its at least worth following if we get 3 months in a row."
As long as you are talking YOY numbers, 3 months in a row is always enough for me to think a trend might be emerging so yes, I would agree with that.
Doug,
(not to hijack . .. but). I understand people's affection with Obama. Unfortunately, none of the current politicians understand jack about economics or the economy in general (and neither do their aids). Sorry folks, the only person in this political campaign who actually understood economics was Ron Paul, but he was "too radical", "lunatic", or "couldn't win".
So Obama, Clinton, McCain, none of them understand, want to admit, or want to solve the problem. One might be slightly better than the other (but that's like asking which kind of poison you want to take), but the fundamental problem will still be there.
(Politics off:-) ).
gte,
I wouldn't be so quick to dismiss any of the contenders (or even the current administration) as not knowing "jack about the economy". Just 'cause someone isn't advocating the same things you would if you "were king" doesn't mean they aren't understanding the economy and steering things were they want them to be. For example, you might think oil at $100 a barrel is a bad thing, but if you and your friends were in the oil business, you might think it's a real good thing.
gte811i said...
"Unfortunately, none of the current politicians understand jack about economics or the economy in general (and neither do their aids)."
GTE - Hate to continue to hijack but you dont like Goolsbee & the guys over at the Chicago School? (did you happen to look at the article) I posted?
http://www.tnr.com/politics/story.html?id=4d40a39e-8f57-4054-bd99-94bc9d19be1a
For context, where I went to lawschool they had a big Law & Economics program. One of our professors was Vernon Smith who won the nobel laureate in Econ about 2-3 years ago. I'll admit, I didnt understand half of what he was talking about, but he ranted and raved about the guys like Thayler & Goolsbee over at the Chicago School.
Thus when I saw this article about Obama picking guys out of the Chicago school, I thought my god, here is a guy (Obama) who knows that he doesnt know much abot econ, so he picks one of the best guys out there to advise him - and a free market guy no less! By contrast, Hillary (who also doesnt know jack) just picks cronies from Bill's admin who are more interested in bolstering their previous positions (during bills term) than doing anything else. Its a fascinating article.
I will agree that for a politician, Ron Paul knew the most of anyone out there - hands down. However, I would take Goolsbee & Thaler over Ron Paul any day.
Doug, crt,
I wouldn't take data for 3 spring months as a trend. The data might show a temporary bounce due to the Fed stimulus, banks'restructuring of debts, etc. But the conditions on the market as evidenced by what is happening to Countrywide, Bear Stearns, Citi, Fannie and Freddie, are such that one shouldn't even start to think about any stabilization for several months at least, if not a few years.
If you look at it as multi-year process, then 3 months of 'foreclosure' data is nothing.
The Fed's bailouts and stimulus will lead to high inflation later and affordability will fall even more. Foreclosures are merely a symptom of a deeper malaise and bubble, not the cause of falling prices.
tedk said...
"The data might show a temporary bounce due to the Fed stimulus, banks'restructuring of debts, etc."
No doubt. Like I said, (and I guess I should have stressed) ,"3 months in a row is always enough for me to think a trend MIGHT be emerging".
Case in point, Arl Alex & DC inventory YOY was HIGHER in 2006 than in 2007 and that continued for at least 6 months. I considered 2006 could have been the bottom for these markets. Fact is, it was not as 2008 is thus far higher YOY than 2006 and 2007. Still 3 months of anything is worth considering.
There will be no real estate turnaround until the middle of 2009 at the earliest. All economic data points to a consumer-led recession, due in large part to excessive debt-income ratios and diminished real estate values. We had our party, now comes the hangover.
The business sector is wise to this. The Duke University Global CFO Survey reflects that 54% of CFOs believe that the U.S. is now in recession, while 24% of the other CFOs believe that there's a high likelihood recession this year. Employment has contracted for the past two months; with CFO's tightening the purse strings, it will only get worse. The financial sector, in particular, is in the process of deleveraging, unwinding, and purging its excesses, e.g., Bear Stearns.
This process will hit hard the large coastal cities that rely upon financial services firms to create high-paying jobs. DC law and lobbying firms won't be immune; I predict one or two major law firms to announce layoffs by summer, which will provide cover for the other image-conscious firms to do the same. Bottom Line: those who are insecure about employment don't buy homes.
Counter-argument from Minyanville:
>
"The really unfortunate thing is that big government will use the situation to gain even more power. The Barney Franks of the US government will come to the rescue to put out the fire when it was the government's arson all along. And it’s working. Why? Because people do not understand the context of things".<
Big government?
It was the government's arson by neglect. It didn't put any fences around mortgage lending practices and allowed the brokers and banks to essentially burn down the credit markets.
This makes me so angry because so much of it was avoidable had government acted. The government could have responded as late as 2005 and still had an impact -- the rate of subprime mortgages increased in 2005 when conventional mortgages became increasingly out of reach. People took bigger risks to buy houses and the entire industry happily paved the way for them do it.
Can you imagine that this country allowed no-documentation mortgages. I can't believe it. I can't just. When I applied for my first mortgage in the 1980s I had to document every penny and I was questioned on everything.
It was utterly laughable that Paulson, the treasury secretary, comes out with a series of reform proposals this week. This week.
So now the anti-big government defenders are scoffing at the idea of regulation. I agree. Let's not only block any bailouts, let's end the existing ones as well. Let's start by ending mortgage interest deduction -- its just a Big Government Bailout anyway.
terminator-x said...
"DC law and lobbying firms won't be immune; I predict one or two major law firms to announce layoffs by summer"
Perhaps - it depends on how flexible those firms are. If they are not, rest assured those lawyers will be snapped up right away as nearly every firm I know has way more work than they can handle.
The interesting thing about law practice is that it thrives on turmoil & volatility (up or down). The lawyers worst enemy is stability (no one needs them when everything is going fine). Everything was great for us during the dot com bubble (ipos & initial offerings) the dot com meltdown (mergers & acquisitions, bankruptcies, etc.) Likewise, it was great during the housing bubble run up (land acquisition, zoning & development) and now the bubble bursting (foreclosures, title policy litigation, etc, etc.)
Essentially, lawyers are like cockroaches after the nuclear holocost - they are the ones best equipped to survive.
Terminator-x said:
DC law and lobbying firms won't be immune; I predict one or two major law firms to announce layoffs by summer, which will provide cover for the other image-conscious firms to do the same. Bottom Line: those who are insecure about employment don't buy homes.
What do you know that I don't know? Yes, people insecure about the short term do not make long term commitments. But as to law firms laying off? I know advertising and finance is losing revenue, but I was not expecting law to drop for another six to nine months.
While I agree with CRT that lawyers will scramble and find new positions, I also agree with Adam Smith when he pointed out that the number of high paying lawers that the economy can support is a function of the health of the economy. It just seems that layoffs by summer at a law firm is earlier than I would predict.
"A rising tide lifts all boats" is also true in the reverse. :(
Import inflation and domestic deflation... At least Europe is sending high end manufacturing to the Carolinas and Ohio. :)
Got Popcorn?
Neil
Who cares about the lawyers?
Were in the middle of a full blown financial market meltdown that hasn't hit bottom. Predict all you want. Layoffs here, layoffs there, layoffs everywhere. It's the most certain bet you can make this year. The layoff indexs in all industries, all sectors, way up.
Adam Smith was a punk.
KOB,
The "Lawyers senerio" was a staple of this blog. It claimed that there were new lawyers being hired in the DC area who would buy houses with money from thier small change pocket. These lawyers were supposably being hired in droves with million dollar hiring bonuses out of law school and because of that some such part of DC would be sold out of homes radda, radda, radda.
Then there was the hushand wife government GS-14's senerio who were going to keep prices high. In Georgetown it was changed into the husband husband duo. The duo, had no kids so school did not factor in location at all. The fact is that the government employees are retiring fast and trying to move away to retirement places, and those places are not Bethesda. Loudoun MAY be a good choice for the retirees.
Now the B.S. theory is that inflation will keep prices high. This theory is that the mortgage meltdown caused the inflation/resession and that it will raise prices on houses or keep them level as wages increase. This may be true, EXCEPT, how long will it take wages to reflect inflation. The government will not reflect this cost of living pay increase until 10 months from now. And industry does not have to give inflation/cost of living increases at all. The houses are overpriced now and sellers cannot wait until 2010 when wages might match prices.
So John. Why aren't prices dropping everywhere? Remember, we've been hearing since at least 2003 that prices were going to drop everywhere ....
kob, what would you have the government do? Bail-out everyone who made a mistake. Look borrowers do not get off scott-free. I don't have a financial degree, but I sure as heck know how to run my finances and I know that even though I could get approved for a 500k loan, there is no way I would take it.
The WHOLE premise of Adam Smith, and the premise for this country in general is PERSONAL RESPONSIBILITY.
Borrowers gambled with homes (not all, but the vast majority from 2003-05 did). Banks have personal responsibility, they stupidly lent money to people who didn't deserve it. They should be appropriately punished-and in economics that means they go out of business. Local governments did the same with investments, and should go bankrupt. The market should be an equal-opportunity punisher as well as rewarder.
The only direct things the federal government did to instigate this mess were the following 1) lower interest to 1% and keeping them low, thus encouraging banks to borrow more. Banks had tons of money that they had borrowed that they wanted to lend out-so they lent to anyone with a pulse. So the fed. gov. indirectly stimulated this by lower interest rates-they didn't have a gun to the banks head saying lend now! . . .they just provided the stimulus.
2) Greenspan in ~2002-2003 publicly saying ARMs were good and J6P should use them-that I think was completely irresponsible.
3) There might have been other things, but I don't know of anything direct, those are the only 2 direct things the fed. gov. had fault at, but I might add that #1 is HUGE!!! Without 1% IR to prop up a weak economy the bubble would NEVER have gotten as big. Free money begets malinvestments, begets bubbles.
As for now, they are only making the situation worse by, rewriting contracts, bailing out banks, etc.
When banks, individuals, and governments realize there is no-one to bail them out, they make smarter decisions. When they know someone will always come and help them when they gamble and lose, they will gamble the house.
Neil said:
""A rising tide lifts all boats" is also true in the reverse. :( "
Another "make your day quote" from Neil. This guy must be great at a party. Invite him over and you know you won't have to worry about lingering guests ... Man, the place will be empty even before the snacks are put out!
A huge socio-economical problem today is that no-one wants punishment. Everyone wants the ability to do whatever they want with only good consequences-never bad ones.
An economic downturn, even a serious one will be good for the country in general. It will pave the way for great growth in the future.
Eventually we will get back to people realizing there is no free lunch and sound economic principles.
Yeah, it would be much better to invite you lance...
We could all enjoy ourselves as we watched you make a fool of yourself trying to make up economic theory without even a basic understanding of the concepts at play.
Then, when nobody bought into your "pan global node" BS we could all enjoy watching you turn back into troll lance where you accuse everyone who isn't willing to grossly overpay for something of being afraid of commitment or simply not worthy of a house...
It would be a great party no doubt... sometime around the end of the night you would start lying about your track record and past predictions before ducking out when confronted with the facts.
==============================
"Didn't someone just post a Washington Post article from today showing (a) established neighborhoods in the District have flatlined in price while (b) transitional neighborhoods continue to go up in price by leaps and bounds? Wouldn't it make more sense to buy in one of these transistional neighborhoods now before the prices rise even further? Or is it "bubblesense" to instead wish upon a falling star that prices will suddenly and magically fall even thought that has NEVER happened in US history before? "Bubblesense" ... I like that new word! It's aking to "Bubblespeak" and "Bubble-economics"! "You click your heels, wish upon a star, and all your dreams come true!" Ignorance truly is bliss, isn't it?!" -Lance, June 28, 2006 8:46 AM
http://tinyurl.com/28hv3z
"Also, our home-loan lending industry is one of the finest in the world. Having learned from the lack of controls and oversight back in the 20s, in today's controls and oversight see to it that very very few buyers who bought won't have been qualified to carry whatever their payments are capped at. I.e., when people get qualified for their loans, they get qualified using the highest interest rate that the loan can ever go to. For example, even if loan rates are 5% when someone buys and rates in general rise, the increase is capped at something like 10% ... and it is that 10% that the buyers would have been qualified at. And I don't believe for a moment that we have a substantial amount of loans out there where the lender was either fraudulent or just simpley didn't verify application information in accordance with either the law or good business practice. I could go on and on as to why the bubbleheads' chickenlittle beliefs are based on complete misunderstanding of many many things ..." -Lance June 26, 2006 9:17 PM
"Eventually we will get back to people realizing there is no free lunch and sound economic principles."
This is the whole problem stated in one sentence.(even if slightly jumbled...)
That is what a bubble is in a nutshell, a financial mania where the market temporarily stops functioning in a rational manner.
People thought housing was a can't-lose bet. Coincidentally lance's quote above is a perfect example of that kind of thinking:
"Or is it "bubblesense" to instead wish upon a falling star that prices will suddenly and magically fall even thought that has NEVER happened in US history before?"- Lance
People thought that suddenly all traditional measures of affordability no longer applied and it made sense to pay twice what their parents would have considered reasonable.
People thought they were entitled to making huge profits on what is less of an investment than a basic necessity.
In the end, as always, the fundamentals re-assert themselves. When it happens it isn't pretty.
What is the most disappointing to me is how the media and every real estate industry insider cheered the bubble all the way up, only to cry about the "crisis" they now face as the bubble bursts.
>The only direct things the federal government did to instigate this mess were the following 1) lower interest to 1% and keeping them low, thus encouraging banks to borrow more.<
gete11i -- I agree with part of your analysis but not all of it.
Wise heads were warning prior 2005 that the mortgage practices were putting risk in the credit markets. Greenspan, aka Mr. Froth, knew there would be causalities but calculated that a broader goal of home ownership was worth it. Instead of applying any brakes (something that would have caused the financial services industry, home construction industry, and every other lobbying group to go nuts), the political leadership backed off and let the market play out. Had Greenspan said in 2004 or even 2005 that the U.S. was risking its overall credit markets to allow stupid people to stand in line at open houses in marginal neighborhoods, could he have changed the outcome?
In terms of the bail out, it's already started. The government just stabilized Bear Stearns. But if anyone suggests anything that has any impact on struggling homeowners, it touches off a personal responsibility Holy War. Fine. I think it's clear that homeowners will who did stupid things will pay dearly. But does anyone think Bear Stearns should be driven out of business, punished -- and every other company that depends on it, even it means risking the overall market? Of course not; it's really easy to make an argument to protect a company or class of companies from ruin, but individuals get next to nothing. Congress isn't even extending unemployment. Let's agree that bail outs happen and happen all the time.
John,
By themselves, lawyers have no impact on the housing market They are a tiny part of the overall employment picture. The average paychecks for tech workers, engineers, is 75K, and they were hired in huge numbers over the past five years. I am far more concerned about how the tech sector will fare.
kob,
"But does anyone think Bear Stearns should be driven out of business, punished -- and every other company that depends on it, even it means risking the overall market?"
Actually, I believe the answer to that is yes. We have in effect the law of unintended consequences. The housing bubble unintentionally affects Bear Stearns. If Bear Stearns ran a stable, fundamentally sound company they would have loads and loads of reserves for this very case.
You know that's why the squirrel scavenges for nuts in the fall, so he can live during the winter.
That is one of the principles of sound economic practices. Save while times are good to live well while times are bad.
Unfortunately, as a country we think good times will always roll (b/c someone is always going to bail us/them out) and we don't save.
And lastly, what should happen to Bear is the market, you win some, you lose some. Sometimes you go bankrupt, sometimes you get insanely rich.
The market is not "fair", except that no company is "too big to fail" and everyone plays by the same rules. Sometimes b/c of bad moves of your clients you go under. That is life, deal with it, learn to protect yourself. And the great thing about this country is that if you fail . . . well you can always rise back up on your own again.
If Bear was left to go under, other investments funds would make moves to protect themselves. In the act of protecting themselves they would stop making high risk decisions and the market would eventually stabilize and we wouldn't be in this mess again for a very long time. The gov. backstopping Bear, just tells other funds, "it's okay to make bad bets as long as you are big enough, we'll bail you out" Again no responsibility.
Let failed companies fail. That is how the free market works.
The moment you start propping up failed companies you start rewarding bad behavior.
There is a reason banks through history were known to be conservative entities... it is because the ones that weren't lost a big bet sooner or later and disappeared.
Bear Stearns decided they wanted to play games like a fly-by-night outfit instead of a major investment bank. Now they are learning why that sort of behavior is frowned upon.
I agree that the government is less to blame for the bubble than many seem to think. The prolonged super low interest rates were a factor certainly, but the bigger factor was irresponsible behavior on the part of banks and investors who purchased the bad debt generated by the housing bubble.
The biggest single factor that allowed the bubble to inflate was an extremely reckless disregard for risk by the private sector.
Once the herd has been thinned out by the bust the remaining lenders and investors will have had their sense of caution restored...
I agree bail-outs happen, but they shouldn't happen.
That is why today we do not have a free-market capitalist society.
It is a combination of capitalism, corporatism, and socialism.
Capitalism on the way up, socialism on the way down, and corporatism on both.
"If Bear was left to go under, other investments funds would make moves to protect themselves. In the act of protecting themselves they would stop making high risk decisions and the market would eventually stabilize and we wouldn't be in this mess again for a very long time. The gov. backstopping Bear, just tells other funds, "it's okay to make bad bets as long as you are big enough, we'll bail you out" Again no responsibility."
Exactly...
I love this free market stuff. Let companies unravel, throw people out of jobs and wreck hundreds of other companies. This is like medical insurance argument, if you can't afford it medical insurance, then you should suffer.
kob,
what you are really advocating . . . socialism. . . .doesn't work. If other investments funds, banks wanted to get together to help Bear . . . that is completely fine. The problem comes when there is government backstopping. It is a transfer of wealth. It uses taxpayer money, in the form of higher deficits and inflation (the hidden tax, it hides the bailouts, b/c eventually we all pay for the bailouts with higher prices) to transfer wealth from the poor, middle class to the rich investment banks.
You ever wonder why there is such a wide separation between the wealthy and the poor, what you are advocating, bail-out of financial funds is a major contributing factor.
The little guy, you and me, get squeezed by this transfer of wealth. It is corporate socialism.
If you would like further insight on this and why it doesn't work read Ludwig von Mises "Socialism".
The whole concept of the United States, the republic, was built on the premise of each person having the right to screw up and suffer the consequences for his actions.
It was a freedom loving, don't muck with me, I'll suffer the consequences society. Instead we have turned into a "please protect me", "protect me from myself", I want to be "secure" society.
"He who would trade liberty for some temporary security, deserves neither liberty nor security."
Benjamin Franklin
kob,
I have no problem with charity . . . .in fact I give at least 10% of my income to charity. The problem comes when someone (most likely the government) comes by FORCE and tells me I must bailout so and so. It violates every principle of freedom.
And yes when the Fed bails out Bear, it is FORCING me to pay for it. How, well the cost is inflation (an increase in the money supply), instead of letting credit collapse and things become cheaper, inflation gets worse.
"I love this free market stuff. Let companies unravel, throw people out of jobs and wreck hundreds of other companies. This is like medical insurance argument, if you can't afford it medical insurance, then you should suffer."
Lets say I run a hotdog stand...
I sell quite a few hotdogs a day but I make some bad business decisions.
I take out some big loans to pay for an ad campaign that isn't really necessary. I upgrade my equipment even though my current equipment is perfectly sufficient.
In the end I am unable to increase my revenue sufficiently to cover the larger costs I am now incurring.
My business is going bankrupt...
Would you like to use taxpayer money to bail me out? Afterall... if I go out of business it will hurt the companies I buy my supplies from. It will hurt my loyal customers who will have to find another hotdog stand. It will cause my several employees to lose their jobs.
Think of all that misery!
Clearly it is the government's responsibility to take money away from the population at large and use it to secure my business right?
Except in the rarest of cases, the answer is no. The best course of action for the community as a whole would be to allow my hotdog stand to go out of business. Someone with better business sense will then be able to take over my location and perhaps buy my equipment at a discount. If they run the business well they may prosper. If they run it poorly they may eventually join me in failure and the cycle will start over again.
When a business fails it causes a short term disruption, but in the long run the free market is remarkably good at allocating resources. No other system has been devised that performs as well as a nearly free market.
When very large businesses fail the disruption they cause is proportionally greater than when a small business fails. This causes some to believe these bigger businesses are more deserving of a bailout than a smaller one.
The truth is that big businesses can and do fail. When they do fail their competitors pick up the slack and life goes on.
Where is Pan Am today? How about Packard? or Enron? Or numerous others?
When a big company is run into the ground it is ugly, but it doesn't generally take long for those that remain to pick up the pieces.
gte811i said:
"The average paychecks for tech workers, engineers, is 75K, and they were hired in huge numbers over the past five years."
-----
Correct me if I'm wrong, but aren't most tech companies located outside the beltway (e.g. Dulles corridor)? In otherwords, this huge swath of well-paid engineers is not competing for houses in Georgetown, let along McLean, but instead for houses in places like Reston, Herndon, Ashburn, South Riding, etc.?
Leroy said:
"No other system has been devised that performs as well as a nearly free market."
Funny how you understand this, but don't understand that this same free market has set the current house prices. Hmmm ... I guess it becomes a "bubble" when you have to pay what the free market demands ... and you'd rather not. THEN, "the government should have done something!"
What a hypocrite.
novawatcher asked:
"Correct me if I'm wrong, but aren't most tech companies located outside the beltway (e.g. Dulles corridor)? In otherwords, this huge swath of well-paid engineers is not competing for houses in Georgetown, let along McLean, but instead for houses in places like Reston, Herndon, Ashburn, South Riding, etc.?"
Kinda right ... but not really. I live in the District and everywhere I turn I am running into another IT company person. The government is the biggest consumer of IT services, and in this area that means IT needs are required everywhere not just outside the beltway where the IT companies have established their headquarters because of lower real estate costs. Most IT employees work at client sites (or from home) and not in the IT companies' headquarters anyway. (They house support functions for the most part.) Think of all the agencies you have downtown (or across the river at the Pentagon, Crystal City, Rosslyn, Courthouse, etc.) or in adjacent Maryland areas. These are the places most IT people work at. And when changing projects every year (or less) can mean having to stop communting to say Arlington and start commuting to say College Park, living in the middle of the metro area (DC, Arlington, etc.) makes more sense than trying to live near your temporary work site or your headquarters that you'll never work at.
Maybe the techies I know are atypical (and I only can think of 5 or so that I know), but all of them have stable jobs (i.e. one work site) outside the beltway. I take that back -- two of them have jobs just inside the beltway, but live nearby in Fairfax.
"Funny how you understand this, but don't understand that this same free market has set the current house prices. Hmmm ... I guess it becomes a "bubble" when you have to pay what the free market demands ... and you'd rather not. THEN, "the government should have done something!"
What a hypocrite."
As usual you seem to understand very little of what is being discussed here.
First off, the free market is the best known system for the allocation of resources, but it is not a perfect system. Financial manias(bubbles) are well understood phenomena that have been documented for hundreds of years. It is one example of a situation where a free market fails to perform well.
The free market depends on countless individual actors making rational decisions. Occasionally, market behavior becomes irrational and prices rise above levels justified by fundamentals.
There is of course nothing hypocritical about understanding how a free market functions while recognizing that something is currently overpriced.
In fact, that is the very essence of how free markets function. They depend on individuals using the information available to them to make rational decisions. When prices are not justified would-be buyers should make the logical decision and not buy.
This is how market corrections are made. First sales fall as potential buyers refuse to pay the current asking price, then later sellers are forced to cut their prices.
I have suggested this before, but it seems you haven't yet followed through.
Find an adult education program near you and take a class on economics. You seem to be interested in the topic but clearly have not had any real coursework on the subject.
Also, you still seem to be avoiding discussing your earlier statements...
=============================
"Didn't someone just post a Washington Post article from today showing (a) established neighborhoods in the District have flatlined in price while (b) transitional neighborhoods continue to go up in price by leaps and bounds? Wouldn't it make more sense to buy in one of these transistional neighborhoods now before the prices rise even further? Or is it "bubblesense" to instead wish upon a falling star that prices will suddenly and magically fall even thought that has NEVER happened in US history before? "Bubblesense" ... I like that new word! It's aking to "Bubblespeak" and "Bubble-economics"! "You click your heels, wish upon a star, and all your dreams come true!" Ignorance truly is bliss, isn't it?!" -Lance, June 28, 2006 8:46 AM
http://tinyurl.com/28hv3z
"Maybe the techies I know are atypical (and I only can think of 5 or so that I know), but all of them have stable jobs (i.e. one work site) outside the beltway. I take that back -- two of them have jobs just inside the beltway, but live nearby in Fairfax."
No, they are very typical.
The majority of the region's economic activity is outside the District. As usual Lance's statements have more to do with what he wants to be true than what is actually true.
Tech workers live all over, work all over. Is the "outside the beltway" the dark side of the moon? Lawyers live inside the beltway, tech workers live outside the beltway. Give it a rest.
novawatcher,
minor point . . . I did not say the quote you attributed to me . . . that was kob. :)
Leroy,
Again, you take things out of context ... cutting and pasting them into discussions wholey unrelated. From what I recall, when that post was made we were discussing whether it would be better that people wait for falling prices or buy in areas that were still increasing in price. Bubbleheads were saying "Wait wait ... in 6 months you'll be able to buy anything you want anywhere for the price you want to pay for it." I (and Va_Investor) was saying, just buy smartly now and you'll be far better off 2 years down the road than if you sit around waiting for prices to fall. Well, here we are almost 2 years later and I've been proven correct. Someone who'd listened back then and bought a house in one of these up and coming neighborhoods would now have a lot more equity in their property than what they put down, and someone waiting for desirable places to go down in price would still be waiting. As you are doing Leroy.
Leroy said:
"The majority of the region's economic activity is outside the District. As usual Lance's statements have more to do with what he wants to be true than what is actually true."
And I never said anything regarding where the region's economic activity is. Nor did Novawatcher. We were discussing were people live.
Whoops, sorry gte: I looked down and saw your name, and atributed it to you rather than kob (should have scrolled up, not down).
lance: I was discussing where people work AND live.
Having read all this with interest, I have to return to my original comment. I don't disagree with the idea that bailing individuals out of bad choice creates a moral hazard. You can look at this in terms of pure economics or fairness, either way there's a lot be said for darwin. Most of the time, the only appropriate thing to do for people who've failed to make the correct choice is allow them to fail.
However...
The problem in the current situation is that so very many people (and companies) have made so very many poor (and expensive) choices that allowing them to fail would hurt everybody, not just the people who made poor choices. My spouse and I have been *extemely* conservative in terms of our finances; as of April 1, we'll have zero debt (except, you know, for that fixed rate mortgage with 30 percent down, and a car payment necessitated by my eight year old vehicle entering a period where repairs were more than the value of the car). We are not overextended, we are not worried about our mortgage being underwater, we are not struggling with significant debt, and we're sitting on a not insignificant pile of assets, like, you know, cash. But if the economy really tanks, if unemployment hits double digits, if inflation rockets upward, if governments have to cutback on critical services (like keeping the roads paved) because of a general decline in revenues, we are still going to get beaten up, along with everybody else who lives in this country. (I'm not even factoring in what would happen if one or both us wound up laid off or otherwise unemployed as a result of this mess since I consider that relatively unlikely).
So, as much as people want to make this all about individual resposibility, this is also -- and perhaps more significantly -- a collective issue. If free market principles don't insulate people who have made the correct choice from the negative repercussions of incorrect choices made by millions of morons, well, the free market isn't working for me....
Gruntled said:
"So, as much as people want to make this all about individual resposibility, this is also -- and perhaps more significantly -- a collective issue. If free market principles don't insulate people who have made the correct choice from the negative repercussions of incorrect choices made by millions of morons, well, the free market isn't working for me...."
I can't believe that I can agree with you on something ... But I do here. I'm in the same boat as you (i.e., no problems here) but I can agree that the government does have a responsibility toward keeping the economy going ... not to rescue individuals who made bad choices, but to just work at getting the economy working right (for the common good) since no individual or entity do this. Else ... why would government even exist?
I think we have that balance now. No one is going in and giving govt dollars to people who made bad judgements, but the govt is working at getting the economy going again. Of course, if you read the news carefully you'll see that the largest problem we have is a liquidity problem caused by "market fears". I.e., the fears of a bubble become a self fulfulling prophesy. Once we get past these unfounded fears and people realize that we're only talking about a small minority of people vulnerable to foreclosures (minus the market problems caused by the unfounded fears), then things will settle down, prices rise back to normal, and life go on.
Lance,
I am trying to restrain myself from responding to your blatherings . . .but
you said " but I can agree that the government does have a responsibility toward keeping the economy going ... not to rescue individuals who made bad choices, but to just work at getting the economy working right (for the common good) since no individual or entity do this. Else ... why would government even exist?
I think we have that balance now. No one is going in and giving govt dollars to people who made bad judgements, but the govt is working at getting the economy going again."
WTF????
Government's exist for one reason . . and one reason only.
PROTECT RIGHTS!!!
Not give rights, not take them away but to protect God-given (natural given if you want) rights! That's it, nothing more, nothing less.
Governments don't exist to "make sure" economies run smoothly. Utter BS.
Every government system set up to "ensure markets" work smoothly fails, communism, socialism, corporatism, etc. The end result of government meddling into markets is a mucked up-can't function system that eventually collapses.
You think right now the gov. isn't giving money to those who made bad decision??? You need to read between the lines a little more.
We are having bailout after bailout , lower interest rates after lower interest rates . .. why??? To help the F@#$@# banks who lent money to stupid !@$ people who gambled on housing and lost. And you are one of them!!! You're happy with the balance now b/c the fed. gov. is bailing your sorry !@# out of a mess. Oh sure, you may not get a paycheck . . . but by ensuring that banks don't fail, by lower interest rates and raising FHA mortgage assistance they are keeping housing prices high to bailout your sorry tush.
You are just like the rest of capitalist-socialist elites (the bankers, investment funds etc) you don't want the gov. meddling in when times are good and things are going through the roof, but the minute it turns around you say, "yeah" for lower interest rates, "yeah" for bailouts, "yeah" for anything that keeps your housing high.
Socialism for the "wealthy" or the "indebted".
"you don't want the gov. meddling in when times are good and things are going through the roof, but the minute it turns around you say, "yeah" for lower interest rates, "yeah" for bailouts, "yeah" for anything that keeps your housing high."
Exactly.
What we are seeing now is the same thing we have seen in past economic cycles....Capitalism on the way up and Socialism on the way down.
"Again, you take things out of context ... cutting and pasting them into discussions wholey unrelated."
The whole discussion is right there in the link. I assume you are playing dumb at this point because I know you know how to follow links.
"From what I recall, when that post was made we were discussing whether it would be better that people wait for falling prices or buy in areas that were still increasing in price."
That post was from June 2006... there you were at the top of the bubble trying to tell people to buy into marginal areas because it would be a good "investment." Thankfully even then everyone was able to recognize you for what you are and I doubt anyone took your advice.
"Bubbleheads were saying "Wait wait ... in 6 months you'll be able to buy anything you want anywhere for the price you want to pay for it." I (and Va_Investor) was saying, just buy smartly now and you'll be far better off 2 years down the road than if you sit around waiting for prices to fall."
Of course that isn't what was being said... but then if you couldn't figure out what was being said then that does explain a lot of your behavior.
"Well, here we are almost 2 years later and I've been proven correct."
Oh yeah, buying in marginal areas in summer 2006 is looking like a real real smart move now. LOL
"Someone who'd listened back then and bought a house in one of these up and coming neighborhoods would now have a lot more equity in their property than what they put down, and someone waiting for desirable places to go down in price would still be waiting."
Yep, lots of equity growth since June 2006. Up like a rocket!
"As you are doing Leroy."
As I have already explained my particular circumstances preclude buying. I move moving to Europe in a few months. As much as I would like to be trapped in a house with a declining value... I would rather take the promotion and raise.
You can troll all you want lance, but you can't escape your own track record.
gte,
so, you'd characterize what the govt has done to date as "socialism"?
that's just incredible...
if I follow what you are advocating, you'd like to see a collapse of our healthy economy so that with everything leveled to nothing, you'd have a better chance at getting what you think yourself entitled to. (And I'm getting this partly from that link you posted a while back with the video showing all workers as "slaves" indebted to "the system".)
privatize the profits
socialize the costs
NoVAwatcher said...
"privatize the profits
socialize the costs"
Just curious if these are the feelings of most bubbleheads?... or just of the few bubbleheads posting today?
Small numbers???? Better think again:
http://www.blownmortgage.com/files/presentation3-2008.pdf
lance,
I sure don't remember the video link you are referring to . . . if you could provide a reference I might.
From wikipedia (not that it is the gospel . . but here goes)
"Socialism refers to a broad array of ideologies and political movements with the goal of a socio-economic system in which property and the distribution of wealth are subject to control by the community.[1] This control may be either direct—exercised through popular collectives such as workers' councils—or indirect—exercised on behalf of the people by the state."
Oh we don't have hard socialism . . . but a form of it nonetheless. Distribution of wealth (read-bailouts) exercised on behalf of the people by the state (read-Fed Reserve).
Our economy is anything but "healthy". If it was "healthy" there would be no reason to lower interest rates or for government bailouts.
No lance, I'm not advocating a destruction of the economy. Before this messed up system we have now, the US did just fine for 150 years.
I would actually like the country to survive. Unfortunately, the road we are going down (fiat currencies, government intervention, etc) has only one end. That is the destruction of the economy. The only way to avoid an ultimate financial meltdown is to take our medicine now while we still can. Flush the system out, get back to sound money-management principles and free-market ideals More government intervention begets more intervention. If it doesn't stop, it will blow-up-and the eventually end will be a destruction of the US currency and a destruction of US freedom.
As Rothschild said "Permit me to issue and control the money of a nation, and I care not who makes its laws"
No I don't think we are slaves indebted to the system. However, every dollar bill is an IOU to the Federal Reserve. It is "money" that the federal reserve has lent to the US. Every dollar bill is literally debt.
GTE said:
"Every dollar bill is literally debt."
hmmm ... so using your logic, debt is good ... since "owing" a dollar is the opposite of "owning" a dollar (aka "debt") ...
nice ad hominem attack lance.
A dollar bill-is issued by the Federal Reserve, hence it is actually a Federal Reserve Note (look it up on wikipendia, unless you are scared of the truth). It is not money from the Treasury Department, it is from a quasi-private bank.
The Federal Reserve prints these notes and distributes them into society by a)government deficits-borrowing, b)lending them directly to banks-hence the interest rates or the rates at which banks BORROW from the Fed-more borrowing c) Fractional Reserve Banking-more borrowing
So a note is basically a societal IOU to the Feds (pretty sick, huh). Personal debt is more IOUs to local/state banks. Yes lance, our entire monetary system is built upon debt.
One other point, that I'm sure you will fail to grasp, what is a dollar bill, these notes??? It has no backing, except the faith that people put in the US gov, that's it. It works b/c the gov. says its worth something and people believe the gov. It has no intrinsic worth, except to be burnt, but we use it b/c people have "faith" in the gov. When that faith erodes from outside investors (look at the dollar index-talk about a crash-down 38% over 3 years)-or b/c of some internal strife, the system will come crashing down. When, what triggers that event is anyone's guess.
That is why this monetary system will eventually fail, maybe not today or tomorrow, but fail it will and unless people become educated it will be very impressive when it happens. Unfortunately for the uneducated, this is probably very hard to comprehend.
Oh wait . . . you say "it can't happen here", just like some things are "too big to fail". Boulderdash. Anything can fail given the right mix.
Oh wait . . . I'm a chicken-little saying Armageddon's is coming. No . . . I'm not a prophet so I have no clue when that's gonna happen :-). I think it will eventually collapse. Is it today, tomorrow? Highly unlikely, and it probably won't be for a long time-shoot maybe not in my lifetime, but that doesn't mean I don't prepare and educate myself. Just 'cuz it's spring doesn't mean you don't get ready for winter.
All I do is read and educate myself. The end of ALL fiat currencies is its own destruction. You can't find a single fiat currency that's been around for over 100 years, and prob. 50 years. The US currency changed in 1973 when Nixon closed the gold window and dollar bills were no longer "silver certificates".
Like I've said before I try to stay away from responding to you-since you are a troll and intellectual reasoning is wasted on you.
Try reading up on US history.
A couple of good books for ya, although I highly doubt you will read them as you will want to believe what you want no matter what.
"Socialism" Ludwig Von Mises
"History of Money and Banking in the US" Murray Rothbard
"Road to Serfdom" Frederick Hayek
"The Creature from Jekyll Island" J. Edward Griffin (great one about the Fed. Reserve. System).
Lance you can disagree with them all you want-after you've read them-but until you have educated yourself on the monetary system we currently have and why we have it. I have nothing further to say to your uneducated retorts.
p.s. the books are free downloadable on the internet, you've just got to search.
From wiki on Federal Reserve Notes
"The authority of the Federal Reserve Banks to issue notes comes from the Federal Reserve Act of 1913. Legally, they are liabilities of the Federal Reserve Banks and obligations of the United States government."-Read debt.
The gold window was closed in 1971 not 1973 as I previously typed.
GTE,
That video you had linked to recommended doing away with currency as we know it and replacing it with a "currency" where we traded "an hour of work". I.e., I would receive a unit of that new currency for every hour I worked and trade it for items or services from others. Do you agree with that? Do you think every person's "one hour or work" is equal to everyone else's "hour of work"?
GTE said:
"Yes lance, our entire monetary system is built upon debt."
And why is that bad? Debt is but a promise to provide a service or good at a future time. Without knowing we have to produce something (a service or good) at a future time, what incentive would there be for us to not sit back and just let things stagnate, disintegrate, and eventually fall into complete chaos. Sorry, if currency is debt, then from a societal perspective, debt is good.
In August of 2007, the chief economist at Bear Stearns wrote an op-ed in WSJ titled "Don't Panic About the Credit Market"
http://online.wsj.com/article/SB118645120890190059.html
No matter the title, no matter the organization, trust no one and do your own research
GTE,
An additional thought: Debt is but a promise to provide a service or good at a future time.
So, people holding currency/debt are DUE promises of services and goods. How is that bad?
Real estate sales in January and February were brutal in Northern Virginia. Prices are falling, inventory and foreclosures are rising.
Lance is a troll. Too bad. I'd like to have a local hbb blog.
lance said, "I (and Va_Investor) was saying, just buy smartly now and you'll be far better off 2 years down the road than if you sit around waiting for prices to fall. Well, here we are almost 2 years later and I've been proven correct. Someone who'd listened back then and bought a house in one of these up and coming neighborhoods would now have a lot more equity in their property than what they put down, and someone waiting for desirable places to go down in price would still be waiting. As you are doing Leroy."
WTF? What areas are you talking about? I read a few of your postings on some other local blog a year or two ago and you WERE SO WRONG.
Someone in the market to buy in March of 2008 is in a much better position than someone in March of 2006. And they'll probably be in an even better position 6 months from now.
Inventory is higher in every northern va county this month than this month last year.
Prices are lower in every northern va county this month than this month last year.
Foreclosures are much higher in every northern va county this month than this month last year.
ArlingtonVa,
Believe what you want, but look around you. You'll find that prices in desireable areas anywhere within the beltway (and somewhat beyond) have gone UP since 2005 ...and not down.
Lance, Lance, Lance. Still peddling that never-ending pile of Monkey Dung you call your opinions, I see.
"Believe what you want, but look around you. You'll find that prices in desirable areas anywhere within the beltway (and somewhat beyond) have gone UP since 2005 ...and not down."
Okay, Bagdad Bob.
What about this townhouse in Ballston?
1111 N. Utah Street 22201, within walking distance to metro.
According to Arlington County, it sold on 10/19/05 for $765,000.
It was resold on 12/5/07 for $715,000.
Go Look:
http://tinyurl.com/36su93
That is a loss of 6.5%, not including transaction costs, or inflation.
Oops. I guess you are completely full of crap.
You can't even call this crap you are posting opinion. It has denigrated to fantasy-laden drivel.
WOW! after searching and searching Caveat finds ONE property that has dropped a whole "6.5%" ! ... (after doubling or tripling in price the early in the decade)
Of course your finding proves that a bubble has burst and ALL places EVERYWHERE are affected. NOT!
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