CFAH

While mortgage application volume surged 112 percent last week following the Fed’s “we pay cash for your debt” announcement, refi’s accounted for the bulk of the movement jumping 203 percent versus 38 for purchase.
U.S. MBA’s Mortgage Applications More Than Doubled Last Week [Bloomberg]
It’s Like The Fed (And Taxpayers) Just Bought You A Couple Of Points [SocketSite]

Comments from Plugged-In Readers

  1. Posted by tipster

    Hi,
    I financed my home two years ago by claiming my income was 8x reality and I got a 100% mortgage on a home that is now worth 75% of what I paid. I should be able to find the “appraiser” who drove by and “appRAISED” the home two years ago to hit whatever number we needed at the time. I *have* saved up $20K since then, but that happens to be the prepayment penalty on my current loan, so don’t count on that as a down payment. Enclosed please find my application to refinance.
    Sincerely,
    Everyone

  2. Posted by San FronziScheme

    This crisis is all the fault of those chicken lenders, everyone knows that. Why don’t they lend more money? RE always goes up, then what’s the big deal if we’re borrowing 10 times our actual salary?

  3. Posted by fluj

    I’m sure that a lot of re-fi’s are happening around here too, not just nationally. I’m going for one myself. Why not? Rates are pretty low. However,locally there is also a weird little buyers bounce happening right now in early December that is seemingly defying traditional conventional wisdom (i.e. holidays as devoid and buyers) and current CW too (r.e. is a lousy play right now). Then again I think a lot of regular posters, and the editor on here, have much of it all quite wrong. It wasn’t just easy credit, IMO. Concurrently we saw a workforce, and a city, change before our eyes in the last decade. This notion is given very short shrift on here.
    Anyway, the little bounce that has occured over the past week or so might be an anomaly. But if it is, the timing is odd, to say the least. Early December? We are all aware that historically r.e. has been a common move after recessions. Well, the word came yesterday. They levelled with us at last. A recession it is, and we’re 11 months into it. Curious 11 months wasn’t it? During the first nine months or so, San Francisco felt barely the smallest depreciation blip after an unbelievable runup, and even remarkably still saw the opposite. This phenomenon, because it was nothing short of a phenomenon was also given very short shrift on this site by serial posters. Because it is undeniable that at the beginning of 2008 almost the entire rest of the nation had been getting hosed for nearly a year already.
    Real estate as a safe haven after a r.e.-initiated recession though? It does strain the old noggin, and I’m not smart enough to call it. Don’t discount the differences between a r.e. investment and other investment vehicles though. They are real. Logically though, if we were the last to fall, could we be the first to pull out? Forbes thought so in that article on Yahoo last week. I can’t bring myself to believe that there isn’t more bad news ahead, tho.
    I’ll tell you one thing that’s certain. The bank that can safely come up with a 10 percent down product, and figure out a way to sell it on, will be swarmed with mortgage applications.

  4. Posted by BDB

    I’m also getting ready to refi.
    I have a 7/1 I/o ARM, which resets in 2012, but I can get into a 30 yr fixed for about 200 more per month.

  5. Posted by REpornaddict

    Its curious the difference between the US and the UK – who are behindthe curve in terms of entering the downturn (housing and economy) – but it is just starting to hit.
    However the word there is being used quite freely- including politicians and was all over the news/media.
    why was the US so slow to admit there was a recession when clearly there was a big one?!

  6. Posted by anon

    fluj, would you be willing to buy mortgages secured with only 10% down in this plummeting market? No? Well neither is anyone else. Lending to home buyers is rightfully getting tighter, not looser.

  7. Posted by Trip

    REpornaddict, the slowness in calling the recession a recession is explained by two words — election year.

  8. Posted by fluj

    Right, “anon.”But the key phrase there is “plummeting market.” See last down, recession began 11 months ago, 2007, 2008’s remarkable nine month run, etc. Some bank will do it eventually. Also, sorry but it is not a plummeting market locally if the best house on the block is still getting top dollar. Because even if the mediocre houses cannot, people are irrational enough to think their mediocre house can. They try for a while. Then they pull it off the market, or rent it. Wait it out.
    I know. I know. “But fluj, what about the inevitable ARM reset wave? Then they will have to cave in!” Well, did you see what Obama, Richardson, Pelosi, and Frank said today? I would not count on that eventuality.

  9. Posted by ex SF-er

    I’ve said many times that it was unlikely that mortgage rates would drop below what they were in 2003 for the next several decades unless govt intervenes.
    but in an interview today, Bill Gross at Pimco stated that he thinks the govt will intervene and try to push 30 year fixed mortgages down to 4.5%.
    I think he’s insane. but the government has been doing some pretty insane things.
    I still don’t think they’re dumb enough to try this, but who knows.
    anyway, just some info for possible refinancers.

  10. Posted by Mark

    Loan options at 10% down seems like a necessary but not sufficient condition for the housing market to return to its former ways. The banks would also have to allow consumers to have the same debt-to-income levels that they did during the run-up, which seems unlikely. Potential buyers will now have to document income in all cases, which would eliminate more from consideration. Beyond this, potential buyers would have to hold onto the same definition of “affordability” with regard to how much of their income they are willing to put toward housing. Are potential home buyers still of the opinion that to be leveraged to the hilt is a good risk/lifestyle choice justified by an eventual big real estate payoff? Or, having seen and read about job layoffs and and stretches of depreciating home values (even if temporary), are buyers returning to a more conservative definition of what they can afford?
    I think this last point is the crucial one. If there is a new financial conservatism (I might even say “rationality”) afoot among consumers, then even if banks were suddenly willing and able to sign consumers to big mortgages, consumers as a group may less likely to see this as an attractive proposition.

  11. Posted by anon

    Hee hee hee, “fluj,” you do amuse me. I notice that you didn’t answer my question, and I’ll rephrase it. Would you be willing to buy SF mortgages secured with only 10% down? If the answer is anything but “no,” then I’m sure you can find lots and lots of lenders willing to dump such stuff on you. Heck, they’ll even sell at a discount and you’ll finally be rich.

  12. Posted by fluj

    Funny, anon, considering that I am just a guy and not a bank I took your question to be rhetorical. My bad. OK then, I’m a bank. Ten percent down, full docs? Yeah. I would do it. And get totally rich. Thanks for the well wishing, “anon.”
    Since I answered your question, what do you think of my musing regarding your use of the word plummeting?

  13. Posted by chuckie

    Fluj, anon; It’s not only the risk of the falling home prices, but also rising unemployment. You give someone a mortgage and the guy loses his job and defaults on his mortgage because he didn’t have enough skin in the game. A few missed payments, unpaid property taxes etc wipe out the 10% down payment

  14. Posted by anon

    fluj, I’ll answer your question instead of providing a sarcastic response. Yes, home prices are plummeting in SF. Your notion that prices are not falling and will not fall because “people are irrational enough to think their mediocre house” will fetch “top dollar” so they will “pull it off the market” is nonsense and disproven by the data. Look at the inventory data at a high and the sales data at a record low. Nothing is selling except at significantly lower prices than a year ago, yet people still appear will to keep their listings open.
    The recession is just hitting the bay area now. The housing downturn started here with a strong local economy, and it is now really picking up as the economy founders.

  15. Posted by DataDude

    @ fluj and anon
    If a house today costs $1 million and falls 50% in value to $500K, then would be buyers who had only 10% down payments will now have 20% down payments. Problem solved.
    I agree, banks would be foolish to offer 10% down payment mortgages when there is so much risk out there.
    The trouble with the government intervening and offering artificially low mortgage rates is that the rate is supposed to reflect risk: borrower risk, asset depreciation risk, etc. That’s just kicking the can further down the road without solving the problem.

  16. Posted by fluj

    No, it is you who are incorrect anon. You painted yourself into a corner there. Saying that nothing is selling except at significantly lower prices than a year ago is in plain point of fact false. I provided numerous examples in the Gaviota thread. A Richmond home on a very busy street just closed for 1.25m yesterday, I could go on and on. If you don’t think neighbors see these things, and that they don’t contribute to creating a stasis, then you don’t know people.
    Inventory is up, true. The November market was glacial. December is behaving differently, and it is odd, as I said above. The data you likely refer to and charge me with nonsense over is very much affected by the parts of town that actually have bottomed. This can be proven with YOY sales figures. They show bottom feeding. What else can you call an increase in volume coupled with a vast decrease in price?

  17. Posted by anon

    fluj, yes you got me there. I did say “nothing” is selling. I will be more literal to get out of that “corner.” Sales are at record lows. And I don’t know if inventories are at record highs for this time of year, but they appear to at least be close. That does not change no matter how much you “go on and on” and it is a far cry from “stasis.”
    As for the psychological effect, which you are simply making up, a more plausible effect is that as owners see the values of their home plummet, they will jump in to sell so they don’t lose too much more. This hypothesis is actually consistent with the inventory data, unlike yours.

  18. Posted by Willow

    “I have a 7/1 I/o ARM, which resets in 2012, but I can get into a 30 yr fixed for about 200 more per month.”
    BDB – Unless your paying an exceedingly high rate on your 7/1 don’t do it. 2012 is a few years away. Rates are not going up any time soon. If anything they are headed down. I’d wait for awhile; you may see that 30 year fixed go down to 4.5%.

  19. Posted by fluj

    No, I disagree, I am not making it up, and I or someone else could easily prove it. A quick glance at the number of properties withdrawn from the market would attest to the validity of my theory. People who can wait until they get their number will do just that. Seems like the dems want everyone to be in that category, too.
    There are some deals to be had here and there, sure. But a freefall? No way. Like that house on 20th — the uninitiated took that as some sort of indicator. It’s actually a show of strength at 1000 a foot and partial views on a big view block. Some nicer properties aren’t getting their dream numbers, but plummeting?

  20. Posted by DataDude

    @ fluj (Overall, I like your comments, so please don’t think I’m snarking you)
    “However, locally there is also a weird little buyers bounce happening right now in early December that is seemingly defying traditional conventional wisdom.”
    Really? We’re only 62 hours into December, and you see a sustainable trend for the entire month?
    That’s like being on Noah’s ark and saying the entire planet is populated with wall-to-wall animals. Your anecdotes may prove true, but let’s see how the rest of the month plays out before making any generalizations.

  21. Posted by fluj

    LOL. True. I should say the last week or so. For pretty much all November long it was single digit or near sales and offers on the MLS. Then, very recently, back up near 20 or so every day.

  22. Posted by Dude

    The key question is are these places selling for more or less than last time? And when was last time?

  23. Posted by The Red Pill

    Telling anecdote. Just now I searched one of the broker websites for all SFH’s in the city between $1.0 and $1.5 MM. The search returned 118 homes. Exactly one is ‘Under Contract’, the rest are ‘Available’. This market is in a free fall.

  24. Posted by poor-sparky-plan C

    MLS shows 10, for what it’s worth

  25. Posted by tipster

    I could be wrong, but I don’t think more than a couple of anything (condos, SFRs, etc) at any price has gone into contract in district 7 in the last two weeks.

  26. Posted by fluj

    No, there are actually 134 sfr properties between 1 and 1.5M. and 22 are in contract. Citywide? You are certaibly astute in your degree of difficulty, financing, cherrypicking. But that’s somehow a freefall indicator. Why?

  27. Posted by Foolio

    Right on. Market’s hit the bottom and is bouncing back…
    LOL.

  28. Posted by DataDude

    How/where do you access the MLS, for non realtors?
    And why would there be such a wide range of results in terms of number of homes btw $1.0-1.5 million available and under contract? Are you all including the same neighborhoods?

  29. Posted by Trip

    Hmmm, redfin shows 133 SFRs between $1M and $1.5M with 13 of them in contract. Gotta love the transparency in this industry.
    FWIW, redfin also shows 69 of them (52%) with price reductions.

  30. Posted by Dude

    Random facts in isolation are useless. You need a series of them to interpolate a trend.
    22/134 currently in contract in this price range. But is 22/134 is high, low, or normal historically? Is this info even available? How do we filter out mix?
    I guess my point is we don’t know if the market is in freefall from this one ratio. But if inventory is building without being absorbed, then prices will be falling. And I believe that, seasonally-adjusted, inventory is up while sales are down.

  31. Posted by The Red Pill

    I used PacUnion.com, selected only SFHs and searched the whole city of SF. There are some duplicates in there but only a couple. I do this search every couple of weeks and use this site as it’s less hostile than most. I offer this up as only an anecdote since the data does vary greatly (to no one’s benefit).

  32. Posted by BDB

    Willow, that’s interesting..
    thanks

  33. Posted by tipster

    It’s hardly 22/134. A number of homes get pulled off of MLS after thanksgiving to reset the DOM.
    You can’t get an indication of inventory off the MLS at this time of the year.

  34. Posted by DataDude

    @ Trip, Red Pill, Dude et Tipster – thanks for websites and add’l market numbers
    Assuming very little is selling, I wouldn’t say the market is in “free fall,” I’d say it is virtually non-existent or has ceased functioning. The pool of buyers has shrunk, pushing the supply curve left (think Econ 1) and the pool of sellers has grown, pushing the demand curve to the right. Except in a few cases, supply and demand aren’t meeting, meaning very few sales are taking place.
    Prices must fall. Will SF experience only a mild correction, or will it hit “free fall” (40-50% decline)? That remains to be seen.

  35. Posted by Julian Hebron

    Hey ex-SFer, you may already know this but thought i would chime in: Bill Gross’ comments are based on calculations of what the Fed’s forthcoming $500b investment in Fannie/Freddie/Ginnie mortgage bonds will do…mortgage bond prices will rise, pushing yields (or rates) down on Fannie/Freddie loans. I think estimating -100bps on 30fix from where we are today (5.375% for loans up to $417k, $5.625% for loans up to $625k) is aggressive on PIMCO’s part, but -50bps more is possible. This should also help build confidence in the jumbo marketplace.
    DataDude commented when the Fed announcement came out that he’d wait for home prices to drop further, which I agree with. And it looks like 2009 may be the sweet spot where low prices and low rates meet (as much as they possibly can for those trying to time the market). And when a recovery is in sight, rates will rise quickly to combat inflationary effects of all this stimulus. Remember: Volker has been preemptively placed behind the scenes in the new White House.
    Anyway, just my $.02. Full disclosure: I am a lender. But as SS editor can attest, I don’t do propaganda. I just try to comment on data and market reactions to data.

  36. Posted by poor owner living in potrero

    Julian:
    I posted this on a different thread earlier today. Bill Gross’s comments notwithstanding, someone with bigger pockets like 4.5% too.
    since the alternate handles appear to be all the rage now:
    thought I would post this:
    http://online.wsj.com/article/SB122833771718976731.html
    suffice it to say if this comes to pass, our problems are just beginning, and may never end
    Posted by: poor owner living in potrero at December 3, 2008 2:03 PM

  37. Posted by fluj

    Thoughtful commentary as always, foolio.

  38. Posted by gowiththeflow

    BDB and Willow – in the WSJ article out today it notes the lower rates will most likely not include refis – remains to be seen I suppose but you may want to consider this and the fact that if inflation hits a high wind come 2012 – where will you be if rates are high and the arm adjusts?

  39. Posted by DataDude

    The gov might say the program doesn’t include refis, but I think it will have to.
    Calling it a “new buyer program” is sheer marketing — trying to target renters and entice them into homeownership in an effort to prop up prices. My guess is it will also be extended to existing homeowners as a matter of fairness and to keep them from walking away (hurting prices).
    The gov could have called this program the “bailout of upside-down, inside-out folks who bit off more then they can chew and probably lied on their loan app program” — but it just doesn’t have the same ring to it.

  40. Posted by gowiththeflow

    DataDude – I hope you are right.. Do you think it will include the 2008 model of the large temp increased conforming? I realize this may usher in a few comments but not everyone is updside down nor inside out – maybe by next year but not now.

  41. Posted by DataDude

    I think for existing owners, what the gov will try to do is separate “good” owners from ones who cannot afford even under low rates. The gov wants to minimize the number of houses that go back on the market to help buoy prices. So as long as you qualify as a good buyer, which will probably have more to do with whether you’ll be able to continue to make payments, and less to do with LTV or type/vintage of loan, I think the chances are strong you’ll be able to refi (assuming this program goes through).
    Plus, the gov wants you to have more $$$ in your pockets so you can buy things and help grow the economy. These helps unemployment, too. Good luck!

  42. Posted by ex SF-er

    poor owner living in potrero:
    thanks for the link. I still think Bill Gross is insane, but he knows what he’s talking about. he is one of those “in the loop”
    the problem with this plan is that we are literally mortgaging our future.
    we will use our resources to lower mortgage rates trying to prop up housing… which keeps housing prices high… which keeps our cost of living high… which makes us uncompetitive in the global workplace.
    unless it destroys our currency first.
    it is a VERY dangerous game our leaders are playing.
    but like I said: I just wanted to highlight that the bailout meme is continuing, and contrary to any sane assessment, mortgage rates could go down to 4.5%. IF “the market” cooperates.

  43. Posted by DealMaster

    Fluj, December is looking to be a monster month for us. I can’t believe the number of buyers we have that are making legitimate offers on houses right now. I’m not confident enough to call the bottom, but it’s looking pretty good on the sales front right now. Glad to hear you’re seeing the same trends.

  44. Posted by TechDefender

    Re: Bill Gross and his comments today about rates
    Isn’t it ironic that his recent investment commentary talks about his prediction six years ago that the dow would fall to 5,000?

  45. Posted by Julian

    Hey Poor Owner: Thanks for the link. I don’t pretend to know the difference between the Fed’s $500b MBS purchase plan and the newNewNEW Treasury plan. But I am thinking the two things are linked…
    Treasury issues 30 year bonds at current 30yr yield levels of about 3%. They (and/or the Fed) buy existing 5.5% and 5% 30yr Fannie/Freddie bonds until they drive those yields low enough to where banks can issue mortgages at around 4.5%. When new 4.5% coupon bonds are issued (with those new underlying mortgages), the government buys those too to support that general yield level. The positive spread for govt(and taxpayers) versus Treasuries is about 1.5%, assuming that the mortgage bonds return to more acceptable default levels at those rates/terms. The theory is that 4.5% range rates on long-term fixed loans stop the foreclosure spiral that is putting extra downward pressure on home prices, and therefore defaults normalize which makes those new Fannie/Freddie bonds a good credit risk and makes the 1.5% spread more plausible.
    Certainly a lot of theory…and a lot of rising yields later. And maybe I am dead wrong. But there are a lot of people who will benefit from dropping yields near term. So if buyers can pressure sellers into fair market value (they can), and they’re in for the long haul, they should do ok.
    (This from someone who doesn’t believe the world’s capital markets are facing an imminent end.)

  46. Posted by poor owner living in potrero

    as usual, CR covers it better than I ever could:
    http://calculatedrisk.blogspot.com/2008/12/house-prices-and-interest-rates.html
    but to put it most simply:
    to back GSE MBS is one thing, to effectively back the entire new purchase market is quite another (lunacy is the word that comes to mind actually)
    unless they have a couple extra trillion lying around, driving down to 4.5% isn’t feasible over longer than a few months
    TARP=TRAP?

  47. Posted by San FronziScheme

    The new “we’ll get the rates down to 4.5%” mantra will be yet another flash in the pan that will do nothing to prevent the inevitable deflation in RE prices (the 700B bonfire didn’t do squat to the market).
    Of course, you could swamp the world with liquidity to make sure everyone is able to afford a $1M 2/2 condo. But this would just mean an artificial reset of the pay ladder, price ladder. It would do nothing to change a simple fact: Prices are too high compared to income. They need to go down or incomes need to go up (like we’ll see this happening!).
    On another note, glad to see the home-showing salesmen have re-discovered the site. We in need of some cheer…

  48. Posted by tipster

    Wow, when raising the conforming loan limit looked like a savior, I came on here and said it wouldn’t do anything. I said I hope it passes. It did and housing prices dropped like a rock.
    Lowering rates to an artificially low rate is MUCH worse. It actually harms housing 6 months down the road. This will be the thing everyone looks back on like those they did in the great depression that made the problem MUCH worse.
    The problem is that they are going to SELL treasuries. When they do that, the government vacuums up cash and spits out promises to repay with interest. All fine and good: money goes into housing that wouldn’t have gone into it before, offsetting some of the option ARM problems. Fair enough.
    But that money is misallocated from a DIFFERENT use into housing. So now, someone wanting to expand a business (or keep an existing one afloat) finds that money is even LESS available. That only impacts one thing: J-O-B-S. So you get more layoffs, less hiring. Try to sell houses in 10%+ unemployment. Good frickin’ luck with that!
    I said I hoped the super conforming limits passed because it wouldn’t do anything for housing. But this will actually hurt the economy and throw more people out of work.
    The next time you are cold, try burning $100 bills in your fireplace. It WILL warm you up in the short run, and I’d be laughed at for saying anything different, but long term, you would have been better off with a different arrangement.
    The realtors and homeowners can all laugh at how this will goose the price of housing, which it no doubt will. But six months from now — look out. When you misallocate investment money, it doesn’t do the economy any long term good. And what’s bad for the economy is bad for housing.
    I’d be happy if this just negatively affected housing prices in 6 months. But this is going to throw real people out of work. Adobe announced 8% layoffs today and that company practically prints money. You can’t have an economy where 10% of everyone is unemployed and expect to have rising house prices. This takes us much further in that direction.
    It doesn’t kick the can down the road, it kicks the can down the road and runs over it.

  49. Posted by DealMaster

    Fronz/Tipster,
    This will be the biggest buyers market in decades. Prices are down almost 10% in most of the city. We’ll never see this opportunity again. With normal market appreciation of +7%/yr, you’re looking at less than a year for ROI. I hate to say it, but Fluj is on the money. Inflation is going to make residential real estate the best gamble going forward. Put the money in stocks, say you? LOL 🙂

  50. Posted by ex SF-er

    I obviously agree with others that the 4.5% mortgage idea is insane, as I said above (even before Calculated risk said it!). but it is being strongly considered and I would not be surprised for our leders to try it.
    I think I’ve said 1000x on socketsite that the various markets are now being controlled by a very few number of people, and those people’s decisions are not being made on economic grounds, but on political grounds.
    I also said that I expected we’d see more attempts to ‘support’ housing. this is the latest manifestation. it is also one of the most worrisome. it is also not the last.
    the details of this plan are still too fuzzy, and thus who knows what the end outcome will be? but our government risks a currency crisis if they try to implement this. heck, they risk one anyway.
    the problem is that those in power are ONLY able to see the banks as the solution to this mess. thus, they are reverse engineering various solutions that use the banks as conduit (and the bank’s ability through fractional reserve to lever the impact 10x). however, the banks are the problem, not the solution. they are so insolvent much of the money is being hoarded (or spent on bonuses), and thus we lose monetary velocity and the impact of the 10x fractional reserve setup. so this money is being thrown away.
    if we “need” to use the banks, we need to just outright nationalize them. not saying it will work (could throw us into instant depression) but it has more of a chance than what we’re doing now.
    however, our leaders won’t do it. what I think will happen instead is that we will change accounting rules soon (specifically revoke certain FASB rules) so that the banks can simply hide their losses… they can “mark to model” their assets. (in other words, just make up whatever they want to make up, like they used to be able to do). all the banks will be zombie banks and we will repeat Japan. Unlucky for us we don’t have the savings that Japan did. Lucky for us all the countries are going through this together, so they all may do this as a race to the bottom.
    once we change accounting rules to hide the situation of the banks, we can divert some of the bank bailout money to various other connected people. Specifically I’m thinking Insurance companies, pension funds, municipalities, and states, specifically CA and NY.
    over the next 1-2 decades the banks can slowly suck the productivity out of our people to recapitalize themselves, of course giving themselves record bonuses year after year. oh, and our currency will be slowly devalued which is the only choice we have as the largest debtor nation the world has ever seen.

  51. Posted by San FronziScheme

    This will be the biggest buyers market in decades. Prices are down almost 10% in most of the city. We’ll never see this opportunity again.
    I almost spilled coffee on my keyboard.
    10% is nothing, absolutely nothing. Maybe not for permanent cheerleaders who got disconnected from reality for too long with ever bigger success built on other people’s debt. For them 10-15% down and no volume is the end of the world. Think again.
    Think prices more than doubled everywhere from the mid-1990s and average salaries did not justify that. Think many of the buyers are using proceeds from bubble money (Google-type hype, resale profits, Realtors or contractors doing “unlock flips”). This pig was fed with borrowed grain. It still has a boatload of fat to shed.
    I bought my first condo in Europe in 1994 in very very desirable Paris. Prices were 15% under the 1990 bubble peak. Great deal! By 1997, the price per square meter had lost another 40% and the economy was not down the toilet like today…

  52. Posted by tipster

    Don’t get too worked up SFS, dealmaster is aka “Prime Property”, a notorious real estate cheerleader. He always posts stuff like that all over the place.

  53. Posted by Foolio

    @fluj: Thanks. Your opinion means so much to me.

  54. Posted by fluj

    Quip versus opinion; value is subjective. So is humor. Effort is not. Thanks.

  55. Posted by NoeValleyJim

    You are a smart guy ex-SFer and you usually know your stuff, but I think you are wrong about banks hoarding cash:
    http://www.marginalrevolution.com/marginalrevolution/2008/09/where-is-the-cr.html
    Banks are lending just fine, in fact we have seen a huge jump in bank lending recently:
    http://research.stlouisfed.org/fred2/series/TOTBKCR?cid=49
    The real problem is that the securitization market is frozen up. The Fed is doing the right thing, they just need to do more of it.

  56. Posted by Trip

    NVJ, interesting stuff. I’m way out of my league here and have not cross-referenced the numbers. But I would really find it shocking to see that banks are not hoarding cash. I talk with our deal lawyers and lots at other firms, and deals have simply dried up for lack of financing. If banks are lending, lawyers are involved in the transactions, and I just don’t see that.
    A couple explanations for the St. Louis Fed numbers:
    Most of the charts, oddly, go only up to 10/1/08. The real freeze accelerated after that. Also, any increase in outstanding loans could be the result of businesses drawing on existing lines of credit. This is a bad economic sign, not good. Lastly, it does not look like the numbers you post come close to accounting for the hundreds of billions (trillions?) that have been pumped into the banking system.
    All just conjecture — your data show the picture is complicated.

  57. Posted by dub dub

    I’m not sure you can conclude *anything* from Jim’s graph (to say nothing of that blog post from Sept) without more information.
    For example, anecdotally, (and as @Trip hypothesized), we drew on existing unused lines starting in early Oct to “hoard” cash (money is cheap, and I was scared). Some of our better customers did the same thing.
    I don’t know if cumulative actions like this caused that spike, but I know for a fact banks were *very stingy* with new credit lines starting around Oct 1.
    We are also keeping our lines drawn in case they are reduced from under us (as has happened to some of our vendors, indiscriminately), and we will continue this until Obama takes over and we can see what’s what.
    The good news is weak overlevered businesses are shaking out *rather quickly* in this environment. Hopefully not too many of them will owe us money, and at the end folks who are left will have open season, even in the greatly reduced consumption/credit environment of the future.
    I’m not sure where the jobs will come from though. Probably our taxes 🙂

  58. Posted by NoeValleyJim

    Should be easier to see on this graph:
    http://tinyurl.com/6mzrnn
    This goes to Nov 19th. You can see a big burst in lending, over 600B of new dollars, in the September to November time frame. It has come down a bit since then.
    But yes, a lot of this is probably businesses drawing down on credit lines (that had been frozen before). So this is some improvement, but not a seismic shift.

  59. Posted by ex SF-er

    You are a smart guy ex-SFer and you usually know your stuff, but I think you are wrong about banks hoarding cash:
    Jim:
    look at that graph again.
    and then consider that in the last few months the govt has injected $250 billion DIRECTLY into the banks, with the TARP.
    then consider that the Fed used its various facilities to swap bad assets for Treasuries, more than $1 Trillion worth.
    with a reserve ratio of 10%, the TARP funds ALONE could allow an increase of $2.5 TRILLION dollars of lending (10x due to fractional reserve lending).
    with the various lending facilities, the banks could in theory have lent out trillions of dollars more than that.
    so we could have easily seen an increase in lending in the $2.5 to $5 trillion dollar range.
    but instead, the injections (which depending on how you count it was from $250B to well over $1T) have led to a miniscule increase in lending by the banks of a few hundred billion dollars.
    I don’t recall ever saying that the banks aren’t lending at all… I am only saying that they are hoarding the cash that they get, and only lending out a fraction of the funds. there is a big difference.
    as example: if this same $250B was given to fresh banks that weren’t insolvent, you would have expected around a $2T increase in total lending.
    my argument (perhaps poorly stated) is that the velocity of money has slowed due to bank insolvency.
    also: the graph that you show has problems.
    For instance, if the banks are repatriating securitizations onto their own balance sheets then it will make this chart show an increase in total credit without the banks lending.
    then of course there is the line of credit issue brought up earlier.
    regardless: with all of the money pumped into financials by the various govt agencies in the last few months one would have expected a FAR higher increase in lending, unless the banks are hoarding. (as they should by the way…)
    of note: this is why the govt wants to bail out the Financials but not Detroit.
    Bailing out Detroit only gives you $1 for $1 spent (in theory)
    but using fractional reserve lending, you get $10 for every $1 spent (in theory).
    this is why I keep saying that if the govt were serious about getting us out of this they would nationalize the banks and then FORCE them to lend to the fullest ability, causing the 10x ratio I discussed above.

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