Quote of the day: Moral Hazard
I don't agree with everything in this Op-Ed, but these couple of paras caught my eye:
"The current crisis is the result of the normal ebb and flows of credit cycles, and the free market will amply handle the correction that is already happening. Calls for Federal Reserve intervention or for other governmental involvement -- including an increase of the Fannie Mae/Freddie Mac lending limits -- must be rejected.
In the free market, those that made bad credit decisions must be allowed to pay the price, and only by paying dearly can lessons truly be learned. Borrowers who were unwitting and took on too much debt must learn that there are consequences for their actions. Homebuilders that built too many homes or overpaid for land need to face the consequences. Wall Street firms that provided credit to all of these activities with too much laxity must also pay a price. This is all part of a healthy correction.
All of these players reaped benefits during the housing boom that preceded the current crisis. Certain homeowners were able to temporarily live above their means. Homebuilder and bank profits have been exorbitant, and shareholders and executives of these companies have profited mightily in the boom. To not permit losses now would be a direct violation of the free-market ideals at the foundation of our economy."
Well said . . .
>
Source:
Fannie, Freddie and the Housing Bust
By ETHAN PENNER
August 16, 2007; Page A11
http://online.wsj.com/article/SB118723188037699335.html
Note: Mr. Penner is a principal with the firm Lubert-Adler and is the managing partner of PGP, a real-estate investment firm. In the 1990s, as CEO of Nomura Capital, he helped pioneer the application of securitization technology to real-estate finance.
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Tracked on Aug 16, 2007 2:39:48 PM
Comments
Fundamentals and the Economy don't matter any more.
What matters right now is, at what discount are those folks that have cash ready to put that cash to work in stocks.
Posted by: Bob A | Aug 16, 2007 12:29:13 PM
Phily Fed business activity index comes in at 0.0 (yes that's ZERO)
Down from 9.2 in July.
Consensus was for 9.0
NO growth in mid-Atlantic manufacturing.
Posted by: Pool Shark | Aug 16, 2007 12:31:36 PM
And does anybody really have 'visibility' on where real estate prices are going to settle and what the ultimate writeoffs in bad loans are going to be?
Isn't the real washout in real estate values just now beginning?
How many partially completed condo buildings are going to get shut down before they're even completed?
Posted by: Bob A | Aug 16, 2007 12:37:34 PM
hard to not have a recession when there is no growth.....
and Paulsen said something like:
"business and funds will go under but our growth rate will remain unchanged"
or something along those lines..
It is curiously missing from the earlier story I read it in.
I bet it will...
Just like Schwab experiencing "difficulties" in answering the phones....
Ciao
MS
Posted by: michael schumacher | Aug 16, 2007 12:41:47 PM
Yes. the washout is just beginning. This is going to get much ugler.
Posted by: Marcus Aurelius | Aug 16, 2007 12:41:56 PM
holy cats! I agree with an op-ed piece in the journal!
sorry, just had to say.
speaking about schwab's difficulties in answering the phones, our 401k plan here at work has only about 10 or 12 choices. all stock and mixed-bond funds that are getting hammered recently, with one money market fund.
I can currently get info and a prospectus for all of the funds on the website, except for....wait for it....the money market fund. those links have been producing nothing but error messages all week.
how curious.
Posted by: dark1p | Aug 16, 2007 12:46:56 PM
the write downs on home prices will not really begin until the rest of the loans that are in the system (before the sweeping changes) are closed and completed. once the new "rules" start taking affect (with the appraisal's only being able to use >3 months ago) will you see a systematic take down of the prices or they (lenders) will simply close up shop and make a bad situation (tightening standards) worse.
Ciao
MS
Posted by: michael schumacher | Aug 16, 2007 12:47:18 PM
MS,
the Schwab web site just locked-up on me too.
No phones also..?????
That would seem to qualify as HAZARD, now
would it be qualifiy that as
Moral or Unmoral Hazard?
Either way-this reminds me of 2000-2002,
there were days where you could not move a position if you wanted to.
Good Luck to all!
Posted by: MarkTX | Aug 16, 2007 12:51:47 PM
FYI - Vanguard has been locking up all day as well.
I want Art Laugher & Ben Stein on Kudlow tonight...I need to be reminded how the "market" has it all wrong.
Posted by: Sammy20 | Aug 16, 2007 12:56:07 PM
...and then there are the margin calls
Posted by: Bob A | Aug 16, 2007 12:56:37 PM
I still have been unable to talk to anyone (not that it would matter) but that's ok..no big sales or buys for me. Started a short in EWZ this morning......working out so far.
Ciao
MS
Posted by: michael schumacher | Aug 16, 2007 12:59:09 PM
"The tsunami risk for Japan has now become literal rather than the figurative wave of selling seen in the markets. Kyodo is reporting a tsunami alert for Japan"s Pacific Coast areas from Okinawa to Hokaido. Any actual impact is likely to see foreign asset repatriation or sales of shares on the Nikkei by insurers in order to offset damages, adding to pressure on USD/JPY."
What is next? Godzilla, maybe...
Posted by: mhm | Aug 16, 2007 1:00:12 PM
CBOT just (recently) raised those pesky margin reqs. too
as it rises on a parabolic slope so it falls on one....
I heard that somewhere but can't recall who said it so forgive me for not giving credit.
Ciao
MS
Posted by: michael schumacher | Aug 16, 2007 1:01:55 PM
mhm-
Godzilla was created a few weeks ago by the reactor "venting" into the open sea(japanese e-quake)....now all we do is wait about 100 years and then we get Godzilla.......or a margin call about now...it would have the same affect-LOL
Ciao
MS
Posted by: michael schumacher | Aug 16, 2007 1:04:04 PM
HAVE WE PANICKED YET....?
no......?
Posted by: ECONOMISTA NON GRATA | Aug 16, 2007 1:20:33 PM
they have NO IDEA what is going on!
open the window!!!
it's ARMAGEDDON!!!
Call someone, please,
PICK UP THE PHONE!
Posted by: steve | Aug 16, 2007 1:25:25 PM
I guess Bernake should still get an A since he is doing such a fabulous job hiding....I mean staying the course.
Kudlow will be calling for Bernake & Greenspans heads soon after recently praising both of them.
Posted by: Sammy20 | Aug 16, 2007 1:26:16 PM
they have NO IDEA what is going on!
open the window!!!
it's ARMAGEDDON!!!
Call someone, please,
PICK UP THE PHONE!
Posted by: steve | Aug 16, 2007 1:26:39 PM
Sammy-
What should he do?
What can he do?
Is that his job?
The last answer is no......
Ciao
MS
Posted by: michael schumacher | Aug 16, 2007 1:36:33 PM
Rebounding, does this mean the HBE (Hot Ben Injections) are working?
Is it possible we'll see a recovery for a week or more until everybody realizes that housing issue really isn't just a blip on the radar?
Posted by: KirkH | Aug 16, 2007 1:57:14 PM
Very well put op-ed. The individual trader/investor is getting to see first-hand that institutional folks are just as susceptible to the fear and greed cycles as they are.
Posted by: John Forman | Aug 16, 2007 1:59:54 PM
Should it add furniture manufacturers that furnished those houses, industrial materials producers that supplied the housing market, insurers that insured them, car manufacturers supported by equity withdrawals on them, 401ks for investing in their stocks, etc.? How far should this go? Do we even have any control over it?
Posted by: Lord | Aug 16, 2007 1:59:57 PM
Fidelity website is not allowing me to do anything today...i am unable to even resent my password.
maybe peak traffic...or maybe they dont want me to move my funds to cash..
Posted by: techy2468 | Aug 16, 2007 2:10:56 PM
most all online sites have had or are experiencing "technical difficulties"
the best line from the schwab phone tree from hell: "Please call back later"
Classic
Ciao
MS
Posted by: michael schumacher | Aug 16, 2007 2:26:37 PM
MS,
I am not saying they should do anything, they made this bed and now they must sleep in it.
All I am saying is please don't praise these people and give them A grades. They have created an absolute mess and have mislead the entire public all along the way.
If you want to claim he is doing the best he can that might be true, but if I took over the titanic and did nothing but watch the ship sink...the best grade I should receive is a N/A.
Posted by: Sammy20 | Aug 16, 2007 2:30:25 PM
