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Old 06-20-2007, 09:44 PM   #81 (permalink)
host
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To put this article in perspective:
1.) It comes at the height of the annual residential real estate "selling" season, while US stock market indexes, DJIA and S&P 500 are posting record highs.

2.) It comes as the subprime CDO purchase price is at a new low, less than 60 cents per dollar of face value of the bonds made up of subrprime mortgage loans, packaged in tranches ($10 million "chunks") to be sold to clueless pension funds: ABX-HE-BBB- 07-1
http://www.markit.com/information/affiliations/abx

3.) It comes during a time when the leading packager and marketer of these "junk mortgage loans", Bear Stearns becomes a victim of it's own bullshit:

Quote:
http://news.google.com/news/url?sa=t...cid=1117389741
<b>Merrill Kicks Off Auction for Assets in Bear Stearns Fund</b>

.....At stake is this: if the assets — securities and bonds backed by subprime mortgages that can be difficult to value — are sold at prices well below where they are currently valued, the reverberations across Wall Street would be strong. Not only would Merrill be forced to post losses on its holdings, but other banks, hedge funds and investors owning similar securities would have to mark down the value of those holdings to new, lower prices.

Started just last year, the Bear Stearns hedge fund was hit by a combination of bad bets on bonds backed by subprime mortgages as well as high levels of leverage. Investors originally put $600 million into the fund and another $6 billion was borrowed from the Wall Street banks......

Quote:
http://www.bloomberg.com/apps/news?p...qZQ&refer=home
Rate Rise Pushes Housing, Economy to `Blood Bath' (Update2)

By Kathleen M. Howley

June 20 (Bloomberg) -- The worst is yet to come for the U.S. housing market.

The jump in 30-year mortgage rates by more than a half a percentage point to 6.74 percent in the past five weeks is putting a crimp on borrowers with the best credit just as a crackdown in subprime lending standards limits the pool of qualified buyers. The national median home price is poised for its first annual decline since the Great Depression, and the supply of unsold homes is at a record 4.2 million, the National Association of Realtors reported.

``It's a blood bath,'' said Mark Kiesel, executive vice president of Newport Beach, California-based Pacific Investment Management Co., the manager of $668 billion in bond funds. ``We're talking about a two- to three-year downturn that will take a whole host of characters with it, from job creation to consumer confidence. Eventually it will take the stock market and corporate profit.''

Confidence among U.S. homebuilders fell in June to the lowest since February 1991, according to the National Association of Home Builders/Wells Fargo index released this week. Housing starts declined in May for the first time in four months, the Commerce Department reported yesterday. New-home sales will decline 33 percent from 2005's peak to the end of this year, according to the Realtors' group, exceeding the 25 percent three-year drop in 1991 that helped spark a recession.

`Economic Recession'

``It's not just a housing recession anymore, it looks more and more like an economic recession,'' said Nouriel Roubini, a Clinton administration Treasury Department director and economic adviser who now runs Roubini Global Economics in New York.

Goldman Sachs Group Inc., the world's biggest securities firm, and Bear Stearns Cos., the largest underwriter of mortgage-backed securities in 2006, said last week that rising foreclosures reduced their earnings. Bear Stearns said profit fell 10 percent, and Goldman reported a 1 percent gain, the smallest in three quarters. Both firms are based in New York.

The investment banks, insurance companies, pension funds and asset-management firms that hold some of the U.S.'s $6 trillion of mortgage-backed securities have yet to suffer the full effect of subprime loans gone bad, said David Viniar, Goldman's chief financial officer. Subprime mortgages, given to people with bad or limited credit histories, account for about $800 billion of the market.

``I continue to believe that we haven't seen the bottom in the subprime market,'' Viniar said on a June 14 conference call with reporters. ``There will be more pain felt by people as that works through the system.''

He didn't return calls this week seeking additional comments.

`Drag on the Economy'

``This has been a drag on the economy,'' Treasury Secretary Henry Paulson said at a press briefing today after he testified in front of the House Financial Services Committee. <b>``I do believe that we are at or near the bottom.''</b>

Homebuilding stocks are down 20 percent this year after falling 20 percent in 2006, according to the Standard & Poor's Supercomposite Homebuilding Index of 16 companies. Before last year, the index had gained sixfold in five years.

``There isn't a recovery about to happen,'' said Ara Hovnanian, chief executive officer of Hovnanian Enterprises Inc., the Red Bank, New Jersey-based homebuilder. The company's stock tumbled 42 percent this year through yesterday.

The share of people taking out all types of adjustable-rate home loans averaged 29 percent during the past three years, compared with the 17 percent average of the prior three years, according to data compiled by Mclean, Virginia-based Freddie Mac.

Higher fixed mortgage rates and stricter lending standards mean some of those borrowers won't be able to refinance into fixed- rate loans. Many of them have seen their home's value drop even as their interest rates adjust higher.

`Millions of People'

``When all these people see their mortgage payment and it's up 40 or 50 percent, they're going to say, `We can't stay in this house,''' Pimco's Kiesel said. ``And there are millions of people in this situation.''

The average U.S. rate for a 30-year fixed mortgage was 6.74 percent last week, up from 6.15 percent at the beginning of May, according to Freddie Mac, the second-largest source of money for home loans. That adds $116 a month to the payment for a $300,000 loan and about $42,000 over the life of the mortgage.

The recent increase in mortgage rates is the biggest spike since 2004. The change means buyers can afford 8 percent less house than they could five weeks ago, Kiesel said.

``Prices are going lower,''
he said.   click to show 
This "wealth destruction" process is playing out even more rapidly than I thought that it would when I started this thread. If you purchased your home recently, you are trapped in it, most likely, for a long, long time. New home construction is down 24 percent, vs. a year ago, and I predict that we are only in the beginning of a decline that will take down the entire US economy, and maybe your job and your financial soundness.

It won't go down without a fight...there will be much manipulation from the major brokerages, banks, and from GSE's like Fannie and Freddie, and from the Fed itself. I predict that treasury secretary and former Goldman Sachs chairman Hank Paulsen will be telling us that he "sees the bottom", until he is replaced on January 20, 2009. I predict that the 2008 election will be about the economy, and that we will live through ten years of misery and economic dislocation not witnessed since the 1930's. What is coming ought to begin to scare the shit out of you, but denial is a pretty powerful drug.

If this forum is still here, I think that I'll have plenty of bad news to post on here for a long time......and it didn't have to be this way...these criminals in financial services and in the government just couldn't resist. Most of "the rest of us" have a good portion of our net worth tied up in real estate, and this is a process to separate us from our net worth. The bottom 90 percent of us own just 32 percent of the entirety of assets in the US.....watch who those assets flow away from. in this process, and who they flow to.....it should be easy to figure out what the 2005 Bankruptcy "reform" act was intended to strangle. Let us watch to see who wakes up around here and who continues in blissful slumber. I predict that America is going to get to see the consequences of vote suppression since the 2000 election, as well as the consequences of the projection of the political influence of the christian right.

Last edited by host; 06-20-2007 at 09:49 PM..
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