Recast

The foreclosure crisis is not nearly done. It's just beginning. The key is that "exotic financing" will lead to monthly-payment increases for homeowners EVEN IF interest rates remain at these historically low levels. These exotic loans "recast" to regular old amortizing loans ~3 or 5 years after the original loan date. We will see record default levels this fall.

Don't trust me, trust IrvineRenter of the Irvine Housing Blog.

From Today's IHB:



There are three types of ARMs: (1) amortizing, (2) interest-only, and (3) negatively amortizing. When prices reached the practical limit of fixed-rate mortgages, many people turned to adjustable rate mortgages to increase affordability because they have lower interest rates. At first people turned to amortizing ARMs, but that soon gave way to interest-only ARMs and finally to negatively amortizing ARMs.

When the FED aggressively moved to lower interest rates, many cheered that the ARM crisis was averted; at best it was delayed. The assumption most people made is that all the ARMs written are amortizing ARMs. There is no payment shock with an amortizing ARM unless interest rates rise; unfortunately, reality is that very few of the ARMs still utilized by borrowers are amortizing ARMs.

The first wave of the foreclosure crisis was subprime. That wave has crested, and its devastation is nearly done.

The second wave that is building now is caused by the deteriorating economy and ARM mortgage recasts (Calculated Risk has a good post on this). As I wrote in The ARM Problem, it is not the reset of interest rates that is the problem, it is the recasting to a significantly higher payment caused when the mortgage goes from interest-only to fully-amortized. The negatively amortizing ARM, also known as an Option ARM is shown in yellow on the chart above. It is the most toxic loan product ever conceived. The Option ARM and the interest-only ARM—and their associated recasts to amortizing loans—are the two loans responsible for the second wave of the foreclosure crisis.

Repeat after me: Saudi Arabia is moderate

Just keep saying it and it will be true.

Ignore anything that suggests otherwise.

Shaky Grounds

From an editorial by Frank Rich in the Times

Five years after the Abu Ghraib revelations, we must acknowledge that our government methodically authorized torture and lied about it. But we also must contemplate the possibility that it did so not just out of a sincere, if criminally misguided, desire to “protect” us but also to promote an unnecessary and catastrophic war.

...

That sums up the editorial, but the very bland summation, if it is correct, should have America outraged.

Torture confessions are highly unreliable because the tortured person confabulates to end the pain. They are the weakest form of testimony one could imagine. For very obvious reasons, torture confessions cannot be used in a court of law.

So why would the evidence one wished to build a case for WAR from require a lesser standard than what could be used in a court of law? It's WAR. Maybe just maybe the pro-torture lobby can construct a hypothetical (e.g. Jack Bauer interrogating bin Laden) that might induce the otherwise rational public to break their resolve on an issue as fundamental as a torture free America so that a handful of marines could swoop down on a terrorist cell. (I'm not conceeding that this scenario should break the rational public; I'm just entertaining a hypothetical.) But when the country is being asked to commit blood and treasure to go to WAR, to put 200K boots on the ground in another country, then the evidence ought to be beyond reproach.

Shame on Bush. Shame on Cheney.

Bailout

This morning, I went to my sock drawer to find out that I was completely out of socks. The drawer was empty, much to my surprise, since over the past three weeks it has averaged half full. No one could have seen this coming.

The problem seems to be that all of my current sock assets are tied up in the dirty laundry pile. It's strange to be in this situation where I have plenty of socks, but I'm simply unable to pay out more socks at the moment because the socks I have are not liquid.

My problem is liquidity, not solvency!

That's why I'm asking the federal government for $130 Billion to purchase new socks and hopefully take some of my illiquid socks off the books (the floor).

It's a miracle!

Pastor deflects a gunshot with a bible. Nothing short of a miracle. Fucking atheists need more proof in God than that?

Oh. That's not fair, right? "The man died, have some respect."

So what would the headline have been if the shooter's gun had jammed after the first shot instead of after the fourth? When a plane crashes and the carefully trained flight attendants get everyone out without injury: a miracle. When god fails to deliver a miracle for a man of the cloth on his holy day?

You're right. I forgot. I should only ever talk about good things that happen in this world.

D'oh

Southpaw!?

Open Hostility II

The Onion continues

Spider Eggs Hatch In Bush's Brain

Open Hostility

The Onion has continued in its post-election cathartic Bush suffering articles yesterday with this gem:

"Single-engine Cessna crashes into Bush

CAMP DAVID, MD—The Federal Aviation Administration said engine failure was to blame for a pilot losing control of a four-seater Cessna aircraft that crashed head-on into President Bush Thursday. According to the FAA report, the nose of the Cessna 350 impacted with the president's face at 110 mph, instantly killing pilot James Morris, 45. Bush reportedly suffered third-degree burns on 95 percent of his body, a broken spine, 20 shattered ribs, one collapsed lung, a basilar skull fracture, and minor leakage of cerebrospinal fluid. Bush, who had been hiking alone in an isolated region of the 125-acre presidential retreat before the accident, was trapped under the burning engine block for 45 minutes before rescue crews reached the crash site. While doctors said they worked swiftly to remove the smoldering wreckage from the president's body, much of the plane's burning debris had already fused to his skeleton before he could be airlifted from the scene. Bush is resting comfortably at Bethesda Naval Hospital."

Since the election, The Onion has been writing journalistic, matter-of-fact articles about a limp, incompetent, lame-duck president to whom terrible terrible things have been happening: Bush: 'Can I Stop Being President Now?'. Bush Frustrated By Mother's Constant Questioning Of His Plans Post-White House. Bush Dragged Behind Presidential Motorcade For 26 Blocks. Bush's Eyelid Accidentally Nailed To Wall. And now Single-engine Cessna crashes into Bush. I can't tell whether its commentary on how impotent Bush has become that terrible things must happen to him in order to merit two inches below the fold, whether its trying to invoke a cathartic response from Americans who really wish Bush would drop dead, or whether its the Onion staff themselves empowered by the light-at-the-end-of-the-tunnel of Bush's presidency; it was after all over 4 years ago when they wrote this gem: Nation’s Liberals Suffering From Outrage Fatigue

WaMu got it right

“We hope to do to this industry what Wal-Mart did to theirs, Starbucks did to theirs, Costco did to theirs and Lowe’s-Home Depot did to their industry. And I think if we’ve done our job, five years from now you’re not going to call us a bank.”

— Kerry K. Killinger, chief executive of Washington Mutual, 2003

From today's Times

Kennedy sent us to the moon.

Where does Bush send us?

short and sweet

"I don't particularly want to see my tax dollars going to bail out the fools who overpaid for houses while simultaneously crowding me out of the market."

-- Irvine Renter on McCain's new "lets buy up bad mortgages" plan

Bailout Cost?

Paulson went around to the weekend morning talk shows in Washington.

When asked about the expense of buying bad mortgages from the reckless lenders, Paulson cautioned that the $1 Trillion expense that the treasury is putting up won't necessarily loose all that money. What they will get with that money are "illiquid assets" that will eentually be liquified.

Oh. So how much will the these mortgages eventually sell for -- how much is the american tax payer going to loose on these mortgages?

"The price you will get for those assets will be based upon how the economy does, the pace at which the housing markets recover," he said.

OK.

So the bubble drove prices above affordability. Prices are starting to drop, but are still well above affordability (thus the defaults and foreclosures!) and Paulson wants the US tax payer to buy up all of these mortgages and then hold their breath until housing costs return to their peak values?

How is this good?

Let's say family X makes $200K/year and they bought a $1.5M house with an option ARM two years ago with some obscenely low teaser interest rate (2.5%?). The option resets, the interest rate goes up to 10% and now the $12K/month mortgage is too expensive. Family X will default on their loan and "the bank" will have to foreclose. Nevermind that $1.5M is more than family X can afford -- their foreclosure will put a house on the market that "the bank" needs to sell in order to recover some of its losses.

"The bank" is either some stoopid wall street broker, or wamu, or wachovia. Or "the bank" is the US Treasury.

If it's the US Treasury, then there are a few scenarios that could play out. 1) Maybe they decide to let family X keep their house but pay a lessened interest rate. 2) They foreclose. 3) They let family X keep their house for a little while, paying less interest, and then foreclose a year or two down the road.

All three options represent money taken from my pocket.

Option 1). The treasury borrows money to buy family X's mortgage and has to pay interest on this debt. Family X isn't paying the full load of the interest. The difference they're paying is coming out of my pocket in current and future taxes.

Option 2) The treasury buys the mortgage at $1.5M and sells the house at $1M. Half a million of taxpayer money disappears, to be made up for by higher taxes now and in the future.

Option 3) The treasury borrows money to buy family X's mortgage, and pays the difference in their interest rate on this borrowing and the interest that family X pays. This difference is footed by me. Then the treasury forecloses. Since the treasury delayed selling in a falling market, the house is now worth $750K. $750K of taxpayer money has evaporated.

Shouldn't taxpayers also have the right to extract revenge on the rich bankers that will walk away from this bubble with fat pockets? The salaries they earned in the years leading up to the bubbles' burst left them with a sweet pot to ride out the impending depression. Can't we take that money from them? Shouldn't there be class action lawsuits against the firms that caused this disaster?

Let the games begin

I'm moderately miffed that in the wake of a speculative bubble in housing prices, one which I avoided taking part in by selling a house (before a move) and then renting in my new city, that the government has stepped in to bolster Fannie Mae and Freddie Mac with my (taxpayer) money. What kind of punishment is it to the people who were smart enough to avoid a bubble that they should pay higher taxes so the schmucks that bought at the height of the bubble can keep the houses they can't afford?

That's at least my simple-minded analysis.

Apparently Japan witnessed a similar run-up in real-estate in the '80s, that left the country in a decade-long recession though the 90's that they're still not quite out of. The Post has an article about it and how the lessons of Japan's mistakes are being well heeded by US regulators. Bernake was apparently one of the ardent critics of the Japanese government's response to the bubble's burst, and he seems to be true to his word in taking swift response to the crisis we're in.

Chilling quote:

"I don't think the Americans quite realize yet that behind this hill lies the Himalayas," said Takashi Watanabe, a top official at the Bank of Japan in the 1990s and now a professor at Tokyo's Bunkyo University. "The U.S. is going to go through a lot more before this is over."

Testing RSS

I'm years behind the times. Stromk just showed me how to use RSS and now I have to test it.

Gonzales: I forgot how to tie my shoes

When Gonzales testified before Congress a year ago concerning the firing of 8 prosecutors, he avoided all of their questions with Ronald Reagan like dodges: "I don't recall." Instead of owning up to the decisions he made, he refused to acknowledge that he'd made them... or at least, that's what continued acts of forgetfulness look like to me.

But there was always the possibility that Gonzales was so forgetful that he didn't remember any of the things he had done as Attorney General.

Today, the Post has a story on Gonzales' mishandling of classified information. In the article, it says that the reason Gonzales did not lock up the classified documents in his safe at night was because he

"could not remember the combination,"

That settles it. Gonzales is not an insubordinate hack who refuses congresses constitutionally mandated power of oversight. No. He's just an idiot.

Russia: the most fucked up country in the world

I can't imagine anything like this ever happening in the United States.

From the post:

"A leading opposition figure in Russia's volatile Ingushetia province was shot and killed Sunday after being detained by police... Magomed Yevloyev, a businessman and the owner of a Web site that angered Kremlin-backed local leaders with its coverage of official corruption and police abuse, suffered a gunshot wound to his head while in a police car taking him to a station for interrogation... The local government issued a statement saying that Yevloyev was shot after trying to seize a weapon from one of the police officers holding him. But a lawyer for Yevloyev ridiculed the explanation and said police dumped Yevloyev on a road after shooting him.... Yevloyev had just returned to Ingushetia after an absence of several months. He was seized by a large group of police officers after disembarking from a plane arriving from Moscow... the regional president, Murat Zyazikov, happened to be on the same flight and called police to the airport after recognizing Yevloyev in the business-class cabin... In a posting on his Web site last year [Yevloyev] claimed that Zyazikov had put a $50,000 bounty on his head."

Gold Stars

I have been playing a lot of Rock Band with Pants lately. Well, for the past 6 months. 10 months. Something like that.

We'd stopped playing for a few months and then picked it back up again recently when our downstairs barkeep had Guitar Hero running in the bar, and then later that week, invited us over to his place where a bunch of people got together to play Rock Band. I'd lost a fair amount of skill, so playing in front of people was a little embarrassing (though not nearly as embarrassing as singing was).

Well, after a steady month of practice, I had recovered to my former skills and at this point, I've actually gotten good.

Tonight, I was playing Bass on "Hysteria" by Muse (downloadable) on expert and I got through the whole song. 3 stars. 86%. Something I'll write home about.

Then later, I was playing Guitar on "Gimme Shelter" by the Stones, and the craziest thing happened: at the very end of the song, right around 166K points, my 5 star rating went to 5 gold stars.

I didn't even know there were gold stars. It certainly wasn't because I'd played flawlessly (there are bonuses in Guitar Hero for flawless performances, but not in Rock Band); I finished with only 98% accuracy.

This is a whole new challenge that's opened up for me in this game.

Another great Hitchens article

On Slate

new stamp