It is actually possible not so see something that is really there if the signal it emits does not match the human visual spectrum and/or our visual signal processing system eliminates the sight of it as noise. We can’t see patterns that our brains have filtered out. When a terrifying creature from outer space has these attirbutes in a science fiction/horror movie the result is something like the Predator. In movies of that type, much of the action revolves around learning how to see the monster and the remainder on how to defeat it. The Economist article entitled “The Confessions of a Risk Manager”, written by a risk manager at a “large global bank” describes how this can happen, not in a science fiction/horror movie, but in the actual world economy.
In January 2007 the world looked almost riskless. At the beginning of that year I gathered my team for an off-site meeting to identify our top five risks for the coming 12 months. We were paid to think about the downsides but it was hard to see where the problems would come from. Four years of falling credit spreads, low interest rates, virtually no defaults in our loan portfolio and historically low volatility levels: it was the most benign risk environment we had seen in 20 years.
Here was a team of financial professionals, the equivalent of an elite special forces team, specially trained to seek out and destroy risk. They were confident in their weapons and capabilities, but skeptical about whether any real enemy actually existed.
The possibility that liquidity could suddenly dry up was always a topic high on our list but we could only see more liquidity coming into the market—not going out of it. … “Where is the liquidity crisis supposed to come from?” somebody asked in the meeting. No one could give a good answer.
But although the risk hunters saw no danger as they stared into the seemingly benign financial jungle, in retrospect, there were certain signs — whose significance was not realized then — that should have sounded the alarm about the crisis that is now upon us. “Looking back on it now we should of course have paid more attention to the first signs of trouble. No crisis comes completely out of the blue; there are always clues and advance warnings if you can only interpret them correctly. It was the hiccup in the structured-credit market in May 2005 which gave the strongest indication of what was to come.” The signs were there, but they couldn’t interpret them, even when strange and unusual things were happening. Part of the problem with grasping the significance of the anomalies was that the risk hunters were prisoners of their analytic models. What cues they picked up were interpreted in the context of their mental frameworks. They “saw” through the prism of their models. And their models did not account for the existence of the monster that was now closing in on them. The risk hunters were handicapped by one more factor: they were under immense psychological pressure not to raise the alarm in order to avoid panic in the population. We all know the movie moment when the hero, by now alarmed at the sudden disappearance of his colleagues exploring dark corners, is warned by his supervisors not to ’spread wild rumors about invisible monsters from outer space who don’t exist’. Those movie lines are usually uttered just before the monster itself grabs him through an open window. The anonymous risk manager writes about the pressure to keep the lid on:
The pressure on the risk department to keep up and approve transactions was immense. Psychology played a big part. The risk department had a separate reporting line to the board to preserve its independence. This had been reinforced by the regulators who believed it was essential for objective risk analysis and assessment. However, this separation hurt our relationship with the bankers and traders we were supposed to monitor. In their eyes, we were not earning money for the bank. Worse, we had the power to say no and therefore prevent business from being done. Traders saw us as obstructive and a hindrance to their ability to earn higher bonuses. They did not take kindly to this. Sometimes the relationship between the risk department and the business lines ended in arguments. I often had calls from my own risk managers forewarning me that a senior trader was about to call me to complain about a declined transaction. Most of the time the business line would simply not take no for an answer, especially if the profits were big enough. We, of course, were suspicious, because bigger margins usually meant higher risk. Criticisms that we were being “non-commercial”, “unconstructive” and “obstinate” were not uncommon.
I wonder to what extent the policy reaction to the current financial crisis is still colored by the limitations of received wisdom — the financial models — and the need to keep the music playing. The interventionary mechanisms of the last few weeks are designed to fix problems as we understand them. If you’re convinced we understand things now. At any rate we are firing into the last known position of the monster. Nothing can withstand that firepower. The crowds are being told not to worry because the monster will soon be dead. True, there are few doubting souls who are worried that the creature may actually be feeding off our weapons, but their fears are dismissed as nonsense. The important thing, we are told, is to keep things going, which was just the advice the traders gave the risk managers.
As we near the end of the first decade of the 21st century, these unexpected storms arising from the complexity of our modern social systems should by now be familiar. Take September 11. It is remarkable how the advent of the current financial crisis structually resembles the intelligence failures leading up to 9/11: the same misinterpretation of warning signs, the same blindness to threats now evident in retrospect. The same belief in a rapid resolution and a belief that the normal would soon be back. There are even similarities in the discovery process related to the financial meltdown and the campaign against al-Qaeda. On September 12, only a small percentage of the public was dimly aware of how extensive the problem of Islamic extremism actually was. They knew nothing of the underground nuclear marts, collusions between allies and the enemies, about Sunni and Shia nor even of the debates within the expert’s ranks themselves. Eventually the public got a grip on things, but neither understanding nor success came quickly. One lasting benefit of the experience in the War on Terror is that observers soon came to understand that invisible monsters can exist — and that perhaps the struggle against such monsters is never ending. Is the beast dead yet? Wait … what’s that rustling in the trees coming from the other direction?
Tip Jar.
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95 Comments
1. Tarnsman:Hindsight is always perfect. The depression, Pearl Harbor, 9/11, the current fiscal meltdowns, etc. etc. – the warnings signs were there. Problem is many can’t “see the forest thru the trees”. And those that do see the possible outcomes are rarely listened to. Humans by nature don’t like Cassandras.
Oct 10, 2008 - 12:29 pm 2. Michael B:We have met the enemy and he is us. Trite, but the depth to which that is true, is applicable, is momentous.
Oct 10, 2008 - 12:52 pm 3. Captain Ramen:“In January 2007 the world looked almost riskless.”
That right there shold have set off alarm bells. But, as the far left shows, it is not only possible to believe the impossible and untrue, it is easy. No one is immune from it.
Oct 10, 2008 - 1:13 pm 4. Captain Ned:I’m a regulator now (state-level, so basically a pawn in the greater scheme; call me Mongo), but was once the Loan Review officer for a no-longer-extant local bank in the 1992-1995 time frame. I’d write all sorts of reports telling management that their CRE portfolio was a pile of crap and that big losses were coming. Management was so focused on driving the stock price so they could get out of town with their golden ‘chutes that they never had time for me and my memos of doom.
I was young then and didn’t realize that I should have insisted on a direct line to the Board before taking the job. The posted text mirrors my experience to a T.
Oct 10, 2008 - 1:53 pm 5. RWE:Back in the mid-70’s scientists made an exciting discovery: a tribe of people in New Guinea that had no previous contact with the modern world. The team that discovered the tribe promptly radioed for more supplies to support an extended stay. A helicopter was dispatched to the location.
The tribe’s reaction was interesting. They had no knowledge of flying machines and inspects of that size could not possibly exist (proof of their isolation, since they had obviously missed all those 1950’s monster movies about giant ants and tarantulas and so forth). So they refused to look at the helicopter. It did not fit their view of the world and thus could not be acknowledged to exist even as it was going “Whup Whup” right in front of them.
In 2005 it was clear to me that the real estate market had gone insane and that implied that the mortgage market was nuts as well. Admittedly, I work for a company that does risk assessments, although not of the financial type, but the fact that I could spot that helicopter shows that I’m not part of the right tribe.
Oct 10, 2008 - 1:57 pm 6. John Work:“So they refused to look at the helicopter. It did not fit their view of the world and thus could not be acknowledged to exist even as it was going “Whup Whup” right in front of them.”
A perfect description of the reaction of the Left to problems both foreign and domestic.
Oct 10, 2008 - 2:05 pm 7. a Duoist:January of 2007 appeared to be risk-free; but what about January of 2008? Or, June of 2008? As for ‘risk-free,’ what about the very detailed warnings by the editorials in the WSJ for the past two years about the growing “monster” at Fannie and Freddy? How about Phil Gramm’s warnings about the economic consequences of the CRA, back in 1995?
There were plenty of alerts. Everyone ignored them: politicians, pundits, regulators, academics, investors. The general if not specific risks were known, and made public.
‘Prudence’ is the most difficult character trait to acquire, especially for the risk-taking optimistic personality that grounds the capitalist.
Oct 10, 2008 - 2:22 pm 8. Bob Murphy:I see little difference in the social dynamics of the risk managers towards their companies than that of thinking conservatives towards the utopians.
Oct 10, 2008 - 2:52 pm 9. Reticent Blatherskite:I (not me but the facts from the real world, actually) regularly best them at parties, the pub, in one on one conversations.
Even to the point where they can understand the dynamics of which I speak.
But within minutes the general thread of the conversation at a party or pub reverts to mainstream delusion.
Any deviation becomes a self correcting aberration in the perceived consensus of the moment.
I have been a journalist for 30 years and the extent to which my peers are in lockstep never ceases to amaze me.
It is from there and the universities that train and brainwash them that the overwhelming leftist narrative comes.
And it is now the default position of the universities and the mainstream media to a frightening degree.
This election and the blatant media bias is an outstanding illustration.
Even if McCain/Palin win a Democrat controlled congress will be their and our bane for the next two years at least.
Perhaps it would be best if Obama won so that their perfidy, corruption and anti-American notions went on full public display.
Meanwhile we could start rebuilding the Republican Party for the next Congressional elections.
That the housing market was in a bubble was not a surprise, even to the people on the inside, such as realtors and mortgage brokers. But a bubble – like a Ponzi scheme – only works as long as there are people to keep buying in. And while the bubble is growing, anyone still riding it can stand to make a fortune. Whistleblowers are not welcome, and there is little incentive to pass on their advice: after all, if enough people listen, then the music stops – and where is your chair?
The problem is not the CRA, Fannie, Freddie, or even the MBS and CDS collapses. The problem is that it’s human nature to expect that while others may be without a seat, I will certainly have one. And no matter the regulations put into place to try to control bubbles, something will emerge to capture the imaginations of those looking for the easy way to wealth.
If we come to accept and expect booms and busts as a natural consequence of a free market, I suspect we’ll be in a better place over the long term than trying to regulate and legislate a consistent 10% APR paid-per-quarter growth.
But there will always be a plaintive cry: “Why should there ever be bear markets? Someone should make a law!”
Oct 10, 2008 - 2:54 pm 10. Bob Murphy:Oh, bugger!
Oct 10, 2008 - 2:55 pm 11. Patriot Front:I bought politics and the election back into another thread.
Arrgggghhh!
Sorry ’bout that.
RWE & John Work nailed it. Those that fathered this disaster cannot see the what they’ve done. To forsake their warm & fuzzy theories–even in the face of an utter wasteland they’ve created–is practically impossible. For leftists who truly awaken (e.g. Horowtiz), the process is terrifying and cataclysmic, like a train derailment. To go voluntarily is akin to suicide.
Oct 10, 2008 - 3:10 pm 12. Lifeofthemind:It’s much easier just to ignore results, and keep stuffing square peg suppositions into the round hole of reality. In their view, it fits just fine.
Donald Rumsfeld is (partialy) vindicated; The greatest threats are the “unknown unknowns.” Unfortunately Rummy also demonstrated that having even the most finely trained, subtle and appropriately cynical mind can be no guarantee against failure. LBJ had McGeorge Bundy to tell him when he was wrong and was wise enough despite his rough ways and ego to tolerate Hubert Humphrey. There will be no court jester able to speak truth to power in an Obama administration. The market will be discounted and regulated. The technocratic elites will attempt to administer chaos with Cartesian precision and inductive logic. They will be shocked that the results fail to meet predicted standards and will respond with brutality. Bush at least tried, with Rumsfeld and Poindexter, to bring market based risk analysis into government.
Oct 10, 2008 - 3:12 pm 13. Mark:Please forgive me if I have this wrong, it has been a while since I read this book, but reading the above posts, I could not help recalling Inga Clendinnen’s book, Ambivalent Conquests, about the Spanish in the Yucatan Peninsula. Now the book was mainly about the Spanish attempt to Christianize the Mayans and their shock at how long the Mayan traditional belief system was able to hold on, even after generations of Christian instruction. Even so, no book about that time period can ignore the question of how the Spanish were able to triumph in Central America. From what I can remember, at least part of Clendinnen’s argument stated that the Spanish were so far out side of the Aztecs’ mind set, they simply did not know what to do and were eventually defeated. I always found this to be an unsatisfactory answer. Come on, no matter how bad things became, there were only a couple of hundred Spanish soldiers. You mean to tell me an Empire of hundreds of thousands could not just rush the Spanish and eventually swarm over them like a primitive version of Zulu Dawn. I think part of my dissatisfaction with Clendinin’s answer though, might be traced back my Western roots. I have always thought that one of our cultural hallmarks was open mindedness and pragmatism. If we came across something outside of our frame of reference, we would adapt our thinking to make sense of the new information. Maybe we are losing this ability. Sometimes I think there are those of us so wedded to our beliefs that we can not see the truth right in front of us. This applies to the finical situation, but also the cultural one. So many of our ‘best and brightest’ seemed hell bent on a cultural suicide not willing to accept that there might be evil people propagating evil ideas trying to bring at the very least to destroy our culture down or at the worst, out right kill us.
I know, depressing thoughts for the end of the week. The sun will rise tomorrow though, right guys. People in Austrialia should be seeing it quite soon, right?
Mark
Oct 10, 2008 - 3:23 pm 14. Roderick Reilly:>>>>>A perfect description of the reaction of the Left to problems both foreign and domestic.<<<<<<
True enough, but many of us on the so-called “right” (i.e., anybody who bases their world view on common sense) were certain that the economy was fundamentally “sound.” I know I thought so, and I had friends who kept telling me otherwise, and I downplayed their concerns with what I was certain were cogent arguments against “chicken little” alarmism.
Oct 10, 2008 - 3:23 pm 15. Charles:Cramer on Colbert: Dems to Blame for Fan, Freddie & Fannie Debacles
Oct 10, 2008 - 3:44 pm 16. Lifeofthemind:http://www.freerepublic.com/focus/f-news/2102664/posts
@Roderick Reilly,
Oct 10, 2008 - 3:49 pm 17. Richard Moorton:I will speak up for the unpopular position that the economy is fundamentally sound. McCain was correct, which is more than he is willing or able to say. The problem is not one of productivity, resources (except for credit) or demand. The problem is one of fraud that has not been addressed due to political constraints more than legal ones. If the falsely valued assets were sent back to the parties responsible for injecting them into the system, that is treated like the counterfeits the really are, then the resulting shock would be real but short term. Those who were placed in houses under false pretexts should be prosecuted. Those who were placed in houses under conditions in which the did not qualify under sound conditions but were approved because of misconduct on the part of others, should be relieved of the burden of the property they cannot afford. Those who enabled and created this fraud should be jailed. The markets would correct themselves. The continuing bleeding is simply a sign that there is no confidence in the valuations because the guilty parties are not being pursued.
Is six years enough advanced warning? Warren Buffet nailed the danger of derivatives (”ticking time bomb”) in his annual letter to shareholders in 2002.
http://64.233.169.104/search?q=cache:KRHQRp7BNlMJ:www.fintools.com/docs/Warren%2520Buffet%2520on%2520Derivatives.pdf+derivatives+warren+buffet&hl=en&ct=clnk&cd=1&gl=us
Best,
Richard Moorton
Oct 10, 2008 - 3:51 pm 18. Mark:I will be the first to admit that I am not a trained economist, though I do understand the basic law of supply and demand. On the other hand, I have noticed that the more things advanced the great possibility there is for good and bad. Thus, I have never thought that technology was in and of its self bad. It could be used for both good and bad. An example would be transportation logistics. We have improved this area of our lives to an amazing level. Now supplies arrive at factories and stores just in time so we no longer have to keep large amounts of raw material or goods on hand. On the other hand, it was this improvement in logistics ability that allowed the Germans to move than 6 million people into the camps to be exterminated. Now, is logistics bad, no, it has the ability to be used for both good and bad. Now with the economy, I am not a trained economist, but I always thought that as the economy expanded and became more global, the possibilities for the creation of enormous amounts of wealth grew, maybe even exponentially as well. The dark side though, was that the possibility for a colossal collapse also grew.
Oct 10, 2008 - 4:00 pm 19. Paul:@Wretchard,
“I wonder to what extent the policy reaction to the current financial crisis is still colored by the limitations of received wisdom — the financial models”
As Einstein said to Heisenberg, “The theory determines what you measure.”
@Mark,
“there were only a couple of hundred Spanish soldiers” True, but as Bernal Diaz or Cortez wrote, can’t remember which, “We had allies without number.” The surrounding tribes hated the Aztecs because as lords of a slave empire they literally ripped the beating heart out of thousands of captives every year at major festivals, and some every day to make the sun rise.
Oct 10, 2008 - 4:09 pm 20. Bonzo:One of the reasons free nations win many battles against powerful enemies is that low level people on our side, but in a box on the spot, can make decisions without waiting for instructions. Capitalism vs. central planning.
The timing now for this mess is odd.
Oct 10, 2008 - 4:10 pm 21. vanderleun:“If there’s a bustle in your hedgerow, don’t be alarmed now,
Oct 10, 2008 - 4:12 pm 22. buddy larsen:It’s just a spring clean for the May queen…..”
what exactly does the fella mean when he says “Mighty quiet out there…TOO quiet” –?
Oct 10, 2008 - 4:13 pm 23. Leo Linbeck III:The link below is to a video of people passing basketballs back and forth. Watch the video very closely. The object is for you to count the number of times that a person in a white shirt passes the ball to a person in a white shirt. White passing to white. Because of the action, this requires concentration.
Again, count white passing to white. More than half of the people who watch this video fail its primary objective.
http://viscog.beckman.uiuc.edu/grafs/demos/15.html
L3
Oct 10, 2008 - 4:16 pm 24. Leo Linbeck III:The description of this risk manager is almost identical to the descriptions I once heard about the Risk Management Committee at Enron.
Tragedy. Farce. Or was it the other way around?
L3
Oct 10, 2008 - 4:17 pm 25. Leo Linbeck III:Mortgages are not paid by houses; they are paid by income-producing people who live in the houses.
I believe the triggering event of this turbulent period was not a perceived event, but a real one. The trigger was a recession in California.
There is an interesting article in today’s WSJ:
http://online.wsj.com/article/SB122350900347317291.html
It describes the housing boom and bust in California. “Home prices rose higher and faster than in most of the US, and started weakening earlier, in 2005.” As home prices fell, defaults rose. Those families saddled with big mortgages started decreasing their other spending to keep from defaulting. Economic growth slowed, and then fell, and the layoffs began, leaving the state with a 7.7% unemployment rate.
If you don’t have a job, you probably can’t make your mortgage payment. So job losses lead to more defaults, and the spiral continues.
All of this is bad news for California, but it the damage would have been contained had it not been for one big factor: Fannie and Freddie.
While California was growing, F&F were decreasing Design Margin, acting as a monopoly but with executive incentives like a competitive business. So rather than wiping out a couple of California banks, the recession there caused the beginning of a cascade that has yet to abate.
The risk was right there in front of the risk managers back in their 2007 off-site. They didn’t need imagination. They didn’t need scenario planning. They didn’t need fancy models.
They just needed to see the gorilla in the room.
L3
Oct 10, 2008 - 4:33 pm 26. RWE:John Work and Patriot Front:
And just think! We made the people who could not see those “helicopters” effectively fiscal equivalents of our Air Traffic Controllers!
Roderick and Life:
Please note that after ridiculing McCain when he said “The economy is fundamentally sound” Obama later proceeded to say “Other than our current crisis the fundamentals look good.” People call this a “housing crisis”. It is not. We are not short of housing, and in some areas there is Too Much Housing.
Oct 10, 2008 - 4:41 pm 27. buddy larsen:They couldn’t see the Farce for the Sleaze
Oct 10, 2008 - 4:56 pm 28. RWE:Interesting thing happened here locally. A builder would announce plans for a high-rise condo complex and people from places like New York would come in put down deposits and buy all the units, the whole place, before it was built. Then they would sell those units once the place had been completed and realize a profit of 20% or more.
And the builder would figure that he sold those so fast then he would build some more. And so it went. And of course, some of the people who bought those condos from the people who bought them first expected to hand onto them for a year or two and then make 20%, too.
Then the bottom fell out of the market, as it had to, because it was a false market. The builder completed a new building and then told the advance buyers it was time to pay up. They knew they could not sell the units and said they were going to let him keep their deposits and walk away. The builder took them all to court. The judge ruled that the advance buyers had to buy the condos because they had set a precedent with the builder over a period of years.
Down in Miami they had 20,000 new empty condos for sale a year ago and were expected to have 50,000 by now. Many new units were under construction when Reality rudely intruded and they just could not stop building.
Oct 10, 2008 - 4:57 pm 29. Alexis:Mark:
Based upon my reading, the Aztecs were defeated because the Spanish conquistadors were merely the tip of an indigenous Indian spear raised in revolt against a tyrannical empire.
Oct 10, 2008 - 5:03 pm 30. NahnCee:The one time I was in a position of watching someone go to a Board about mismananagement on the part of the CEO and COO, that person was promptly fired and walked off the property, and a majority of the Board was summarily replaced, rotated and/or retired. So that management team is still toddling along making egregarious decisions ten years later.
It’s been a while since I read “The Smartest Guys in the Room” about Enron, but I seem to remember the book describing an aversion on the part of Enron’s Board members to cause trouble, too.
I therefore question the efficacy of a “direct line to the Board” as being a fail-safe device to alert the Good Guys when Bad Things are happening.
Oct 10, 2008 - 5:14 pm 31. whiskey:Aren’t people overlooking the obvious?
The bottom is falling out of the global markets on the prospect of a disastrous, and likely permanent, Obama Presidency.
Protectionism, sky-high energy prices, impoverishment of the American Consumer, the first Hip-Hop President governing like Kwame Fitzpatrick.
That is what is killing the markets, globally.
Oct 10, 2008 - 5:23 pm 32. Charles:Hat Tip: Elephant Bar/Doug
Calling the Old Media: Five Million Illegals Have Illegal Mortgages in U.S.A.!
http://newsbusters.org/blogs/warner-todd-huston/2008/10/09/calling-old-media-five-million-illegals-have-illegal-mortgages-u
found in the notes from the above link
Oct 10, 2008 - 5:27 pm 33. Tony:It gets better: http://online.wsj.com/article/SB122341352084512611.html#project%3DUnderwater0809 Look at the map where those who owe more than the house is worth. Notice any similarities to the unemployment picture http://www.bls.gov/web/laummtrk.htm and concentrations of illegals http://www.fairus.org/site/PageServer?pagename=iic_immigrationissuecentersb8ca?
I’m just taking a flyer at this, but I would say that IBM is a very good buy right now. IBM launched the newest thing – Cloud Technology – and they are the world’s greatest technology/services provider.
I think they dropped under ninety bucks today.
I am trying to work myself up to facing this crazy state of our American economy, and buying in, jumping on the low point of a big wave that always goes upward in the historic data. Buy IBM, buy GOOG.
Welcome to Jacksonian America.
Your fellow American,
Oct 10, 2008 - 5:44 pm 34. Tcobb:T
Models. A model is supposed to be a vehicle to help us understand reality. But the trap is that many people start to believe that the model IS reality and anything that conflicts with the model just really can’t be true.
And what is a model? As the dictionary tells us, its just a small imitation of a real thing.
Oct 10, 2008 - 5:55 pm 35. Leo Linbeck III:buddy,
Heh.
L3
Oct 10, 2008 - 6:00 pm 36. buddy larsen:Congress created OFHEO (office of federal housing enterprise oversight) –apparently just so’s it could exempt F&F from the danger of actual oversight.
As if SarBox could’ve caught ‘em anyway, since it missed a trillion taxpayer dollars worth of screwups by AIG, Lehman, Bear, and the early Countrywide, Indymac, and others (SarBox seems mainly to just harass and bleed honest companies trying to make enough profit to pay the employees).
Anyhoo, OFHEO is housed right there in DC with F&F, draws $65,000,000/annum to fund 200 analysts to do nothing else but ‘oversee’ F&F –and they DIDN’T DO IT.
Oct 10, 2008 - 6:03 pm 37. Uncle Jefe:Let us please be clear.
Oct 10, 2008 - 6:06 pm 38. Charles:The threat of ‘racism’ charges colors all that has happened.
It is not racist to say this’ it is point of fact.
Someday the truth will out.
MALKIN: Illegal immigrant factor
Oct 10, 2008 - 6:12 pm 39. Leo Linbeck III:http://www.washingtontimes.com/news/2008/sep/28/illegal-immigrant-factor/
RWE,
Interesting. Reminds me of a story I was once told by a very successful real estate developer.
In the mid 1980s in Florida, there was an explosion of new apartment projects. Thousands of units were added, and the market absorbed them. Each new complex built would lease up in no time, leading the developers to built yet more units.
However, around 1987, the new complexes coming on line didn’t fill up as fast, and development first slowed, then stopped altogether. The developers weren’t too worried, though, because the completed complexes were still almost fully leased up. I don’t remember the precise numbers, but occupancy was above 90%.
But then came the surprise: vacancies started to soar and occupancy fell, first to 80%, then 75%, then finally down to about 70%. Cash flow dried up, and developers started to default on their loans.
This particular developer was befuddled by this turn of events, and asked one of his crack analysts to try to figure out why. Turns out that the last 25% of demand for these units was from construction workers who had moved into the Florida market. They moved there to, well, build apartments. Once the construction stopped, they left. And the apartments they built were no longer needed and went into foreclosure.
Sometimes it’s the most obvious fact that’s hardest to see. Occam’s razor is not always sharp enough to cut through the veil of our previous success.
Organizational theorists call this the competency trap. In retrospect, we just call it hubris.
L3
Oct 10, 2008 - 6:12 pm 40. buddy larsen:thanks L3 –thot it had wasted –
Oct 10, 2008 - 6:16 pm 41. Coyotl:Speaking of the known unknowns: an Alaskan legislative commitee consisting of 10 Republicans and 4 Demcorats just reported that Gov. Sarah Palin abused her power in firing the state’s public safety comissioner:
“Governor Palin knowingly permitted a situation to continue where impermissible pressure was placed on several subordinates in order to advance a personal agenda, to wit: To get Trooper Michael Wooten fired.”
What a gift to Obama!
Oct 10, 2008 - 6:45 pm 42. Raoul Ortega:The best way to lie is to tell the truth creatively or partially.
You left out finding #2:
“I find that, although Walt Monegan’s refusal to fire Trooper Michael Wooten was not the sole reason he was fired by Governor Sarah Palin, it was likely a contributing factor to his termination as Commissioner of Public Safety. In spite of that, Governor Palin’s firing of Commissioner Monegan was a proper and lawful exercise of her constitutional and statutory authority to hire and fire executive branch department heads.” [emphasis added]
Also missing from the published summary is how exactly the governor benefitted.
Oct 10, 2008 - 7:06 pm 43. Tony:We all see the financial ball of jacks has spilled all around the world. Who do we want gathering up all the scattered jacks, an excitable kid or an inexhuastible old head?
The global crisis may become so critical that people think more CHANGE is the last thing they need.
It will be amazing if this global economic crisis does not give Obama the US Prez. But stranger things have happened in situations of extremis.
Oct 10, 2008 - 7:26 pm 44. whiskey:Ace has a story out of Ohio — Acorn fraud voter registrations in Cleveland and Cincinnati.
Another out of NYC — ACORN and the New Party shared the same address and were the same organization.
Obama was a member of the New Party, which is also ACORN. ACORN was responsible for the sub-prime mess. Which created the economic meltdown, at least the start. Obama also gave millions to ACORN in earmarks.
Corrupt bargain? Buying the election through fraud? Argument is there for those who want to make it. Not McCain though … he’s already thrown in the towel.
Oct 10, 2008 - 7:44 pm 45. Habu:Coyotl:
A bit more depth might help. He served at the pleasure of the governor so she needed no reason at all to fire him.
The report found she had broken no laws.
Oct 10, 2008 - 8:06 pm 46. Dave:A cursory examination of ACORN in Texas, a state that Obama will not carry, turned up 4000 fraudulent registrations.
If they are trying that hard where it will not help them, it seems likely that they have been working overtime in swing states.
Here in NV, Las Vegas generally votes Democrat but not by enough margins to overcome the GOP statewide. That was expected to change this year. May not now.
McCains ball is back in play—-in spite of the candidate himself.
Nationwide, the ACORN raids will reduce Obamas popular vote totals. I do not have enough data to comment on how Electoral College totals will be effected, except for NV.
On second thought, Ohio may have been put back into play as well. Other than OH and NV
no comments on the “battleground states”.
What would be interesting would be to find out what has been happening in those states Obama is certain to carry. As Wretchard can tell you, the dangerous S.O.B. is the one who stuffs ballot boxes where he is going to win big time anyway. (I refer to the late Ferdinand Marcos and his shennanigans leading up to martial law in 1972. Same principle applies to politicos here as well.)
Oct 10, 2008 - 8:50 pm 47. E. Nigma:The Ohio Secretary of State (oversees elections) Jennifer Brunner (D) appears to be complicit in some of the real and attempted voter fraud that may or may not be happening (?). Unsupervised early voting? Disqualification of over 1 million Ohio absentee votes (vast majority Republican?). Even the Ohio Supreme Court couldn’t stomach that one, and overruled her. Wonder if it makes the network news? Blank out.
It will be interesting if she is rewarded with a position in the Obama cabinet, if Obama continues on his present course and wins the election.
Oct 10, 2008 - 9:07 pm 48. Coyotl:Raoul, speaking of partial truths, you left out findings number 1 & 4. You should have for they will be front page stories is the MSM tomorrow. Make sure you focus on the words “I find that Governor Sarah Palin abused her power . . .” because you’ll be seeing them alot:
Finding Number One
For the reasons explained in section IV of this report, I find that Governor Sarah Palin abused her power by violating Alaska Statute 39.52.110(a) of the Alaska Executive Branch Ethics Act. Alaska Statute 39.52.110(a) provides
The legislature reaffirms that each public officer holds office as a public trust, and any effort to benefit a personal or financial interest through official action is a violation of that trust.
Finding Number Four
Oct 10, 2008 - 9:16 pm 49. mika2k1:The Attorney General’s office has failed to substantially comply with my August 6, 2008 written request to Governor Sarah Palin for infomration about the case in the form of emails.
In January 2007 the world looked almost riskless.
==
LOL. Only the most naive and brain dead patsies could fall for that line.
Swan Dive
October 9, 2006
Jim kunstler @ clusterfuck_nation
http://jameshowardkunstler.typepad.com/clusterfuck_nation/2006/10/swan_dive.html
That’s right, 2006.
Oct 10, 2008 - 9:48 pm 50. JFSanders:@Coyotl
Raoul left out nothing. His was a rebuttal to your partial posting. A half told lie is still a lie on your part.
Now for the rest of us that had already read the report in its entirety. We knew you to be the partisan manure spreader without the help of Raoul’s post.
I suggest you post in an honorable form or go back under the rock from whence you came.
Jim
Oct 10, 2008 - 9:54 pm 51. Dave:Jim, Raoul; James Ostrowski, a libertarian attorney who sometimes writes for the
Rockwell thread (which is anti-Palin on balance) seems to think that the report has not been issued by competent authority.
The report was written by a single attorney, Stephen Branchflower who was hired by a joint
Alaska House/Senate Committee which lacks jurisdiction.
Presuming Mr Ostrowski has it right, the question then arises why those who lack jurisdiction would so proceed and does their actions constitute any form of wrongdoing.
And would you be so good as to inform Coyotl that there is one stock market that keeps going up? It is in Baghdad.
Oct 10, 2008 - 10:14 pm 52. Alexis:I think part of the problem America faces is that both Barack Obama and John McCain are too much like Jimmy Carter when Americans want the confident optimism that Ronald Reagan promoted.
John McCain needs to stop reading off his resume; Americans, at least those who are remotely interested in hearing it, know it already. He needs to show how that believes in America and believes in our future. It’s not just about reaching across the aisle, but it’s about providing political leadership where necessary.
Imagine if John McCain said this in the next debate, “Look, Senator Obama, the American people don’t want to hear about the last eight years or the last twenty years. Americans want to hear about the future. Americans want to know where we are going, and how we are going to get there. For this, knowing a man’s educational philosophy is important. Senator Obama, each of us is interested in education.
As adults, we lead by example. Some people fight for our country. Other people bomb government buildings and feel bad about not bombing even more buildings and killing even more people. I think that is a bad example for America’s children because we shouldn’t teach children that terrorism is okay. Now, Senator Obama, I know you don’t approve of such things. You know that and I know that. The Keating Five episode is a stain on my record. Although I acted honorably, my association with Mr. Keating gave a bad impression and I know that. I’ve owned up to my mistakes. You know and I know I’m not perfect, and there’s no reason to expect perfection from a President. But Americans do have a right to know, given how you, Senator Obama, worked so hard with Professor Ayers on the Annenberg Challenge, whether you share the same basic educational philosophy as William Ayers, and if you don’t, why you worked so much on changing Chicago schools as his right hand man.
Americans have a right to know about the basic philosophy of a presidential candidate because that philosophy will guide our nation into the future. As for myself, my record shows how I am a solid bedrock conservative who realizes how the conservative revolution of Ronald Reagan has gone astray in the last twenty years. I am also a man who thinks for himself, who isn’t afraid to confront my own party, and who fights for causes I believe in even when they are unpopular. Those who know me know that I am not a conformist. All you need to do is listen to radio talk shows to know that. Those who know me know of my individualism, and know me as a man who puts our country first.
Conformists, especially apparatchiks in totalitarian regimes, may label those who think for themselves as ‘erratic’. Yet, my loyalty to my country has never been erratic and never will be. I want America to be a land where a citizen, man or woman, is not afraid to walk alone, where we do not feel compelled to give up who we are merely to satisfy the herd mentality of those tell Americans we cannot walk alone.”
Here’s another possible speech:
“The present crisis may feel daunting, but we’ll get through it. We’ve been through worse, and better days will come. It will take grit, determination, and a lot of hard work, but we will bring about a better America together. Let us not forget how the future awaits us. There is much we can do. Let us look to the stars. Planets are being found in other solar systems, and there may be planets fit for human habitation. Finding them may be generations away, but getting there may someday be possible. There is so much possible for humanity. Now is a time to go beyond the vision enunciated by John F. Kennedy with a sustained long-term mission in space.
We need a new transportation system, not only one that can go to the Moon and Mars, but one that make America stronger. We must not merely rebuild and repair our existing road network. We must build a strong network of magnetic levitation trains to link all our states in the lower 48. We need to reward invention, with $300 million going to the next person who can invent a battery that can make alternative energy cost effective. We need to construct a fleet of battery ships that can bring electricity generated from geothermal energy on volcanic islands to major cities on our coasts. To make this happen, if I become President, I pledge to nominate a man to be the Secretary of Transportation who will also head NASA, a man who can work with Detroit and Wall Street to make the continued use of fossil fuels a thing of the past.
We can do these things, my friends. We are Americans. It’s easy to get bogged down in partisan bickering, and it’s easy to get bogged down by rogue organizations such as ACORN that would systematically seek to rig our election. But we must rise above that, my friends, because posterity demands it. We will have our difficulties, yet we shall overcome them. So let’s look to the stars, my friends. To the stars, with difficulty. Ad Astra Per Aspera.”
Can John McCain win this election? Yes. He needs to run on his strengths, and that means running on his faith in America’s future. To win, he must make Americans feel proud to be American. It’s okay to go negative, but it can’t feel negative, and it must not ever feel mean spirited. Ronald Reagan was excellent at making negative remarks sound confident and mature. Even “Morning in America” was implicitly a negative ad, yet it was effective.
It may be fashionable lately to be gloomy, but don’t be. Gloom in the ranks of McCain supporters only ensures that Obama will go from strength to strength. Victory is possible, especially when people see McCain as a man with faith in himself and as a man with faith in America, an America that exists now and not merely an America that exists as a possible future in some Marxist’s fevered imagination.
Oct 10, 2008 - 10:18 pm 53. Tamquam Leo Rugiens:An interesting thing happened out here in Los Angeles where I live. A prospect who had come into the office two months ago came back to brag how stupid we had been because he was now living in his own home. A title check confirmed it. This is the guy that we had turned away because 1. he was an undocumented alien 2. with forged ID who had neither 3. assets nor 4. gainful employment. Is it really possible not to see something that is indeed there if one does not wish to see the signal?
Oct 10, 2008 - 10:35 pm 54. Dave:Alexis, a lot of what is going on is to persuade us that it is not worth our while to vote. Let us not fall for that.
Oct 10, 2008 - 11:50 pm 55. KennyB:The play between the risk managers and the traders sounds similar to the CIA and the Bush administration in relation to the existence of WMD during the run up to the Iraq war. One side just didn’t want to be bothered with an “alternate story”.
@whiskey
Aren’t people overlooking the obvious?
The bottom is falling out of the global markets on the prospect of a disastrous, and likely permanent, Obama Presidency.
I think a lot of the recent market crash has to do with pricing in the fall that that is to be expected when Obama and Pelosi increase taxes and the ensuing inflation when their spending causes deficits to increase.
Oct 11, 2008 - 12:41 am 56. gdude:r moorton -
another 2002 warning came from Robert Prechter in his book “Conquer the Crash”. Fascinating and prescient. And also very descriptive of how people are wired to perceive economic and market movements – and why we repeat market cycles ad infinitum. Can you say Tulip Mania? Sure you can.
While we’re on the subject of real estate bubbles, anyone remember that great trio of short comedies in one film, Really Weird Tales? In the one Cursed with Charisma, John Candy starts a no-money-down real estate boom. Its almost as funny as real life.
gdude
Oct 11, 2008 - 1:12 am 57. Doug:They would have done well to keep an Eye on Southern California:
Oct 11, 2008 - 1:57 am 58. Doug:New Century
March 2, 2007
SAN FRANCISCO (MarketWatch) — New Century Financial Corp. said late Friday that it’s facing a federal criminal probe and will likely breach a major lending covenant with its financial backers, bringing into question the survival of the second-largest U.S. subprime-mortgage lender.
Was 9/11 that bad?
The attacks were a horrible act of mass murder, but history says we’re overreacting.
So why has there been such an overreaction? Unfortunately, the commentators who detect one have generally explained it in a tired, predictably ideological way:
calling the United States a uniquely paranoid aggressor that always overreacts to provocation.
In a recent book, for instance, political scientist John Mueller evaluated the threat that terrorists pose to the United States and convincingly concluded that it has been, to quote his title, “Overblown.”
But he undercut his own argument by adding that the United States has overreacted to every threat in its recent history, including even Pearl Harbor (rather than trying to defeat Japan, he argued, we should have tried containment!).
Seeing international conflict in apocalyptic terms — viewing every threat as existential — is hardly a uniquely American habit. To a certain degree, it is a universal human one. But it is also, more specifically, a Western one, which paradoxically has its origins in one of the most optimistic periods of human history: the 18th century Enlightenment.
The Enlightenment, however, popularized the notion that war was a barbaric relic of mankind’s infancy, an anachronism that should soon vanish from the Earth.
Oct 11, 2008 - 2:26 am 59. Stephen:Human societies, wrote the influential thinkers of the time, followed a common path of historical evolution from savage beginnings toward ever-greater levels of peaceful civilization, politeness and commercial exchange…
“It is actually possible not so see something that is really there if the signal it emits does not match the human visual spectrum and/or our visual signal processing system eliminates the sight of it as noise. We can’t see patterns that our brains have filtered out.”
Of course it’s also possible to see something that isn’t really there. I got this from my son’s optometrist the other day and I was amazed at how easy it is to read the following gibberish at teleprompter speed:
“I cdnoult blveiee taht I cluod aulacity uesdnatnrd waht I was radnieg. The phaonmneal pweor of the hmuan mnid, aoccdrnig to rscheearch at Cmabrigde Uinervtisy, syas taht it deosn’t mttaer i waht oredr the ltteers in a wrod are. The olny iprmoatnt tihng is taht the frist and lsat ltteer are in the rghit pclae. The rset can be a taotl mses and you can sitll raed it wouthit a porbelm. Tihs is bcuseae the huamn mnid deos not raed ervey lteter by istlef, but the wrod as a wlohe. Amzanig sutff insnt it? Yaeh it cetralnty is, and I awlyas thought slpeling was ipmorantt!”
Easy to read, not so easy to transcribe. Our minds are constantly filling in the blanks. It can be helpful to remember that this is taking place.
Oct 11, 2008 - 5:40 am 60. mangun:TOTALLY FALSE!!
By January 2006, the handwriting was on the wall in LARGE letters.
I am a regular business columnist in Manila and recently wrote a series of columns on the “Crisis” you may find these at mangun.blogspot.com or at http://businessmirror.com.ph
a sample…
“By mid-2004, the picture could not have been any better. The US stock market rose from 8,000 to 10,000 from 2003 to 2004. There was an almost unlimited amount of global funding for housing loans. Home loan interest rates were at the lowest level in 25 years. Home sales had never been any higher.”
“The start of 2006 was the beginning of the end for everyone. Interest rates skyrocketed, high oil prices damaged borrowers’ finances, and the falling dollar affected foreign funds for lending. Home sales and housing prices had topped out. Housing loan defaults were accelerating. The housing/credit bubble was bursting because the pyramid scheme could not bring in new players.”
Oct 11, 2008 - 6:10 am 61. Doug:The Girl from Ipanema @ 63
The Girl From Ipanema – A Cruise to the Muse –
– The Girl From Ipanema –
Oct 11, 2008 - 6:52 am 62. buddy larsen:Stephen, note that each of those scrambled words begins and ends with the correct letter, and all the middle letters are correct, just misplaced, and there are no missing nor extra letters in the words. Looks to me like an instance of the 80/20 rule –the words are about 80% correct.
Oct 11, 2008 - 7:07 am 63. Coyotl:JFSanders:
“@Coyotl
Raoul left out nothing. His was a rebuttal to your partial posting. A half told lie is still a lie on your part”
Sanders, let me break it down for ya real simple. Here’s what I wrote:
“Speaking of the known unknowns: an Alaskan legislative commitee consisting of 10 Republicans and 4 Demcorats just reported that Gov. Sarah Palin abused her power in firing the state’s public safety comissioner”
And here’s the report:
“Finding Number One
For the reasons explained in section IV of this report, I find that Governor Sarah Palin abused her power by violating Alaska Statute 39.52.110(a) of the Alaska Executive Branch Ethics Act. Alaska Statute 39.52.110(a) provides
The legislature reaffirms that each public officer holds office as a public trust, and any effort to benefit a personal or financial interest through official action is a violation of that trust.”
QED, Jimmy. QED.
Oct 11, 2008 - 7:13 am 64. steveaz:Wretchard wrote:
“[...T]here are always clues and advance warnings if you can only interpret them correctly.”
Sometimes the clues are connected and a warning is sounded, only to be told to sit down and shut up.
When the Federal Reserve’s chairman, Allen Greenspan, warned the Clinton administration that the dot-com market was heating up too quickly (his words were “irrational exuberance”) he was called to the floor by Chuck Schumer for “talking down the economy.”
The rest is history.
Oct 11, 2008 - 7:40 am 65. Dave:Coyotl: I will repeat what I told Sanders and Raoul: James Ostrowski, a libertarian attorney with much relevant experience—–and who often writes for a thread that is anti-Palin on balance, states that he doubts the report was issued by competent authority.
He also states that he has seen but one MSM source that reported the facts and that one did so under a misleading headline.
And by the way, the Baghdad stock market is a roaring bull.
Oct 11, 2008 - 7:51 am 66. buddy larsen:Iraq’s bonds are up, currency up, foreign & domestic inflows up, business starts up, personal incomes up, birth rate up, –everything’s up, and has been steadily climbing up for several years now. What, this isn’t being reported in the NYTimes? The basic metrics of measuring the health of a nation?
Oct 11, 2008 - 8:39 am 67. Lorenz Gude:I think Occam’s Law will be superseded by Obama’s Law – that any argument against him ultimately reduces to racism. Just funnin’ but I hope I live long enough to vote for Bobby Jindal. I wonder if McCain would have gone with Jindal if Hillary had won.
Oct 11, 2008 - 9:12 am 68. Aristide:@coyotl 7:13
Why would “an Alaskan legislative commitee consisting of 10 Republicans and 4 Demcorats…”, use “I” rather than “we”?
They wouldn’t, the following is simply Branchflower’s opinion.
“For the reasons explained in section IV of this report, I find that Governor Sarah Palin abused her power…”
Oct 11, 2008 - 9:13 am 69. slade:On the subject of predictability, models, forests and trees:
Industry sector bubbles are not new. The housing bubble was identified before the bust. Almost safe to say “everybody” knew it was coming.
What “nobody” forecast – aside from a handful – was the magnifying effect of the derivatives market (largely to loosely unregulated) that transformed 6% of the domestic mortgage industry into a financial catastrophe of global dimensions.
A burst bubble, I could have handled.
Oct 11, 2008 - 9:23 am 70. mac:I live in Asia. I’ve already voted for McCain. If he wins I’ll be amazed. I’ve never seen such a combination of factors all break for one candidate in my life and I’ve been voting since Carter. Obama’s like the ‘69 NY Mets. Everything that could go right for him has. He’ll probably get elected.
If he does, inauguration day will be the high point. The next year will suck and it will be all downhill from there. If you think the right hated Clinton, wait until they see Obama in action. There are going to be a LOT of people waking up in 2009 to realize the most stupid thing they ever did in their lives was to vote for Obama. I not only think that, if elected, he’ll soon be the most hated POTUS in American history, he’ll completely drag race relations down with him.
I wish it wouldn’t have to get so bad to teach Americans a lesson but unfortunately I’m sure it will. George W. Bush is a fine man and has been a good wartime President. History will treat him well. It won’t treat Obama well and it will savage the MSM that has been in the tank for the Democrat Party for the last eight years.
America’s enemies are loving this election.
Oct 11, 2008 - 9:24 am 71. slade:I’ve never seen such a combination of factors all break for one candidate – mac
The righteously unpleasant distinction with a difference between the housing bubble and the derivatives market is not so much a good break for Obama and the Democrats as it is a bad break for McCain and the Republicans. Just another face to the realities exposed by this election – how do you like your sh^t sandwich – thick or extra crispy?
Oct 11, 2008 - 9:42 am 72. buddy larsen:Ole Huckabee was on tv this morn (Cavuto show) and sez he’s getting word from powerful places that this bust has elements of deliberate malfeasance that have yet to be uncovered. Gonna be the shitz if there’s no republicans among the small group at the broker/dealers who drove out that last 10 points of leverage –
Oct 11, 2008 - 10:06 am 73. buddy larsen:McCain needs to do an ad –an old couples, all races, from the rurals and from the city –who broke and sold theri holdings last week or two, booking the losses and wiping out retirement savings. The old couples ought to discuss their feelings about the short list of the enabler/profiteers without whom the disaster could not have happened. The voice-over at the end of the ad should say “This group contains most of the entire congressional leadership of the Democratic party –remember that when you vote”.
Oct 11, 2008 - 10:19 am 74. Fred:Fannie and Freddie had accounting scandals earlier than that meeting.
A reasonable question for risk managers: “What is the largest organization that has had an accounting scandal?”
Oct 11, 2008 - 11:46 am 75. slade:It’s the complicity of the regulators – Arthur Anderson and Enron, now OFHEO and F&F. It is easy to condemn the Democrats – and proper – but systemic problems will fester if the forensics doesn’t go deeper. Paulson made that point once – the need for comprehensive regulatory reform to replace the current outdated code – but we won’t be hearing much about that in the near-term or I would speculate long-term future. Quite honestly, I do not think Congress possesses the individual or collective intellect to commission, review, and implement a reform package of that magnitude. The post-Enron SOX was intended to increase transparency, compliance, and accountability. As Buddy noted above, it’s nothing but a tax on honest businesses and a wink for the Big Boys.
“Only little people pay taxes.” Leona Helmsley
The populist angle is huge, but the acorns all fell from the Democratic tree, while the Republicans wandered around like eunuchs without a cause, and the financial services sector stepped on Middle America like so many empty peanut shells on a bar room floor.
Oct 11, 2008 - 12:17 pm 76. Pascal:Wait … what’s that rustling in the trees coming from the other direction? – Wretchard, ending his thread starter.
Unseen. Unseen?
When Pascal and Fermat collaborated to lay down the rules of probability they removed a specter from rational man’s mind. Those things outside the realm of possibility were as not probable as a single cubic die rolling a seven.
What some men continue to do, however, is not see what is readily apparent just as a gambler may reflexively avert his eyes when rolling snake-eyes.
Repetitive events tell the rational mind that there may be things we can do to forestall the next even, such as building sea walls where tidal surges are likely.
But preparing for a tidal surge that comes from inland? Are you mad?
Well, how what about when repeatedly you are hit by tidal surges from inland? The rational mind will conclude that although its never been to the other side of the hill, it must be living on an island. A new possibility has been added to the list of threats: a tidal surge from “inland” is now among the probable events.
Nevertheless, those who do not want to believe they are living on an island can never bear to see it. The threat that came from the other direction really didn’t happen. Given enough of such minds, a whole industry of denial will spring up to cater to them. And then a vested interest in keeping those mind free of the terrible thought has found its very existence is dependent upon keeping the obvious “unseen.”
Some families in Western Sumatra knew to run to high ground when the the tide pulled back extraordinarily. Others did not see what was coming. Are those who labor to keep unseen the unseen your benefactors?
Wait … what’s that rustling in the trees coming from the wrong direction?
Oct 11, 2008 - 12:57 pm 77. Doug:Slade,
Oct 11, 2008 - 5:10 pm 78. Doug:Your six percent is based on what?
Consider all the houses not (yet) foreclosed, with multiple refinances over the course of the bubble that are upside down, debt to value wise.
Thus in Calif. when a tipping point was reached, foreclosures quickly spiked from 6% to 47%!
New Century, the bigger they become…
“Since then its growth had surpassed that of all other subprime underwriters.
In the past two years, New Century underwrote about $120 billion of loans, or more than half the total since its inception.
Subprime loans accounted for 86 percent of all New Century loans last year, the company said in today’s court filings.
CEO Morrice, 50, praised the subprime mortgage industry in New Century’s statement today and said he was proud of the company’s legacy. Since inception, employees have made about 1.4 million loans totaling more than $225 billion, the statement said.
“These loans have helped millions of Americans, many who might not otherwise have been able to access credit or to realize the benefits of home ownership,” Morrice said in the statement.
Lower Standards
New Century may have compounded its losses by lowering underwriting standards to keep business flowing in 2005 and 2006 as interest rates rose and home sales slumped.
“As a management team, they were just probably a little too focused on pleasing the market with growth, introducing more and more new products and hiring more people when in reality they should have been tightening,” Howlett said.
“They were trying to correct themselves toward the end,” he said, “but it was just too late.”
Oct 11, 2008 - 5:16 pm 79. slade:The case is New Century TRS Holdings Inc., 07-10416, U.S. Bankruptcy Court, Wilmington, Delaware.
Doug -
I read on the order of 5% to 6% in several news articles. On this board, poster “hoss” claimed 11%.
What seems to be happening is increased foreclosures on prudently constructed loans resulting from recessionary pressures and unemployment. I have read no documentation that a number as high as yours – 47% – is directly related to NINJA loans or otherwise bad underwriting to unqualified buyers. That doesn’t mean it’s not true. I just haven’t seen clear forensic evidence.
Also California is a unique state – the illegal demographics will skew the nation-wide metrics. Also the “house flipping” phenomenon very strong there (Nevada as well). To what extent “naked flippers” were caught I don’t know.
As I understand things now, the resecuritization into derivatives vehicles magnified the liabilities that went global the last two weeks. I would also remind everyone that this number – 5% or 50% – is highly politically charged, which suggests to me that the ultimate value should be closely scrutinized.
Oct 11, 2008 - 5:29 pm 80. Doug:What about the 86% figure cited above?
Oct 11, 2008 - 6:26 pm 81. Doug:Fannie and Freddie had purchased $4.9 trillion of the mortgages outstanding as of the end of 2007, 70% of which the GSEs had packaged and sold to investors with a guarantee of payment, and the remainder of which Fannie and Freddie kept for their own portfolios. The fraction of outstanding home mortgage debt that was either held or guaranteed by the GSEs (known as their “total book of business”) rose from 6% in 1971 to 51% in 2003. Book of business relative to annual GDP went from 1.6% to 33%.
The fact that the volume of mortgages held outright or guaranteed by Fannie or Freddie grew so much faster than either total mortgages or GDP over this period would seem to establish a prima facie case that the enterprises contributed to the phenomenal growth of mortgage debt over this period.
Oct 11, 2008 - 6:41 pm 82. Wolf Pangloss:On Jan 2 of 2008 Dominick Armentano published a prediction on Mises.org for a big recession in 2008. He blamed it on the Subprime crisis, accounting rules like the Sarbanes-Oxley mandated mark-to-market that forced companies to write down loan portfolios to fire-sale prices, the sky-high price of gas, and the devaluation of the dollar caused by loose money since 2003. Add in secondary effects like the effect of the negative savings rate that has been financed by home equity loans and we had a perfect storm.
This is a pretty good primer about the bailout including the theory to understand it, how it happened, historical precedents, what will happen next, and how to solve it.
Oct 11, 2008 - 8:14 pm 83. ledger:“It is remarkable how the advent of the current financial crisis structually resembles the intelligence failures leading up to 9/11: the same misinterpretation of warning signs, the same blindness to threats now evident in retrospect. The same belief in a rapid resolution and a belief that the normal would soon be back. There are even similarities in the discovery process related to the financial meltdown and the campaign against al-Qaeda. On September 12, only a small percentage of the public was dimly aware of how extensive the problem of Islamic extremism actually was. They knew nothing of the underground nuclear marts, collusions between allies and the enemies…” -Wretchard
I agree with that part but take The Economist with a grain of salt.
I have to say that “The Economist” is a UK left leaning publication with an ax to grind against Americans.
It is basically owned by Rothschild banking family of the UK which is in competition with US banks.
It tends to use advocacy style “news reporting” which slams American banking products.
Basically, it is ‘dump and panic’ tool used by the Rothschild’s to knock down the value of US assets and then buy them at discounted prices.
Note how the Economist uses anonymous sources for it story. And, I believe they have the situation exactly backwards with regards to the value of CMO tranches – for their own benefit.
I will not go into dull accounting details, but the mark-to-the market rule doesn’t work in whipsaw markets.
The real problem with the America economy is the rapid rise in energy costs – which are the result of the liberals and the lack of drilling.
When inflation goes up the value of bonds and bond style instruments goes down (such as CMOs).
Add in some purposeful “run on the bank” rumors by the dems, like Schumer, who are trying to repeat the one term GHW Bush one term trick and you have a real problem.
To compound the situation various foreign bankers would like to buy high quality American assets on the cheap and will propagate the rumors.
Lastly, we have a blithering Marxists running for President and is ahead in the poles.
I am somewhat surprised the situation is not worse. But, with some help from Soros it could get worse.
I say follow the money from Acorn, Ayers, Franks, Obama and Soros and you will find the problem and possible how deep criminal aspect goes – a possibly put the guilty party in the Clanger.
Oct 11, 2008 - 9:03 pm 84. buddy larsen:@ledger; “The real problem with the America economy is the rapid rise in energy costs – which are the result of the liberals and the lack of drilling.”
…and also, the monster at the bottom of the abyss.
Oct 11, 2008 - 9:45 pm 85. Unsk:The unseen monster in this mess is the incredible fraud perpetrated by the marxist democrats and assisting organizations like ACORN.
The business world most Americans know who deal in such things is incredibly over-regulated and scrutinized to the upmost detail. The sub prime fraud created by the Clintons, Gorelick, Raines, Johnson, Dodd, Frank , Obama and others is 180 degrees out of phase from the rest of our regulatory system. When one has to deal with stacks and stacks of onerous, punitive regulation to make a perfectly straight forward, ethical and honest deal, it simply defies that person’s imagination that the shenanigans of Fannie and Freddie could even be remotely possible.
But the F and F mess did happen, and similar messes are in the works elsewhere. If you look closely at the workings of the Democrats in their protected lairs of the blue cities and blue states, you will find a similar pattern. Onerous, almost impossible regulation for the honest, upstanding citizens and businesses, and corrupt giveaways for the victim classes and the Dem’s special friends are the order of the day.
Just look at Obama. Unbelievable corrupt schemes a plenty for himself and his friends, versus his harsh condemnation for America, our armed forces, Capitalists and Republicans.
To blame the Business cycle, financial analysts, corporate executives and the like is to completely miss the boat. The subprime fraud was well hidden by the Democrats and the Media. Those who dared to criticize this fraud were ridiculed, and dismissed. This story could never gets its legs, because the Media wouldn’t let it.
The Rinos like Mc Cain should take some of the blame, though. Even when they pointed out the problem, the Rinos like Mc Cain, Bush and others just couldn’t bring themselves to really nail and hammer the corrupt Dems and call them out as the frauds they are. The Rinos just don’t have the spine to be partisan even when it is the absolutely necessary and right thing to do. .
Oct 11, 2008 - 11:52 pm 86. buddy larsen:There’s a story about a grocery chain that had a long-term and very serious inventory theft problem at one of its stores. Nobody could catch it –even plainclothes cops wandering around shopping all day. Finally one day the longtime manager disappeared, left the country for parts unknown. That’s about when someone finally noticed there weren’t ten checkout stations as per design & accounting, but eleven –the 11th identical to the others and busily transacting, but generating no records. The cash had been going into the pockets of that suddenly-disappeared manager, natch.
F&F reminds me of that 11th checkout counter, with the difference that upper management knew about it along, but didn’t want to be branded as racist homophobes by that store manager, and so just looked the other way and hoped and hoped that not too too many folks would choose that checkout line.
Oct 12, 2008 - 12:52 am 87. buddy larsen:PS, in the imagined version, the chainstore has shareholders (that’d be us citizens) who had been ripped off by two distinctly different sorts of malefactors –(1) the manager and any accomplices actually harvesting the hot cash, and (2) those who knew what was going on but were too scared of the cash guys to do anything much more than utter a CYA pro-forma murmer from time to time about vague irregularities happening at the store. The former are ever so much guiltier than the latter, but –how can you ever again let the latter run the store?
Oct 12, 2008 - 1:08 am 88. Wadeusaf:So this is the same chain store that wants to sell health care, right? Ugh!
Farce for the Sleaze…Hummmn. Farce for the Sleaze…,
Oct 12, 2008 - 5:43 am 89. Unsk:…Crash Cart to Check out lane 12.
Mc Cain raised the white flag yesterday for all to see; he surrendered completely. We of course, should not bring up Wright, Khalidi, Resko, Auchi and all the rest. How could we? That would be against the Senate rules of hospitality to the Democrats. We knew all along the Mc Cain would be a conscientious objector all along in the fight against the Obama led leftist/marxist takeover of our government. We just been teased to hope that he would really fight.
Like the Fannie/Freddie fraud, the takeover will be largely hidden from view. Here in Southern California, where functioning republican democracy has largely been erased by the leftists, the media hardly ever reports critical local political debates or events. Instead, the public is tranquilized with wall to wall coverage of celebrity gossip, fashion events, sex scandals and sports. The public is led to believe it still has some control over events, when it really doesn’t .
So it will be with the Obama Administration. Through the return of the Fairness Doctrine, Campaign finance reforms applied to the internet, and other means, effective public debate and dissent will be so muffled as to erase it from public view. Then the takeover will begin. Constitutional rights will be reinterpreted one by one, with little public debate in the fine print of many a high minded sounding Congressional bill that the Media will trumpet as absolutely right and necessary. The takeover will be over before we know it. Right before our eyes, through thousands of innocuous sounding regulations, our behavior will be so constrained to the point that resistance will be futile. There will be no Civil War. It’s hard to galvanize resistance to thousands of arcane sounding regulations that appear on the surface to be innocuous mush.
Oct 12, 2008 - 8:40 am 90. Pascal:Every time I hear someone say that RINOs lack spine I know I am hearing someone who has received the accepted wisdom and has not confronted one.
Unseen.
Go up and introduce yourself and you’ll meet the kindest of ol’ gents, the sweetest of ol’ gals.
Ask what they know of the loathsome,
known by every C student and then some,
and you’ll hear
“[Smiles] Why no, I never knew.
[starts to turn] Send a note for my view. [over the shoulder, raised eyebrow, hooded lid] So nice to have met you.”
You catch up to the shirker,
who turns to face the lurker [ingenue gaze],
“How come you don’t fight back?”
Some teeth while arches back,
[snarls]“be gone you lowly worker.”
Tails of the RINO
Oct 12, 2008 - 8:57 am 91. Ursus Maritimus:The Conquistadors against the Aztecs is like Hannibal against Rome, but during the Social War.
The ease with which Roman ‘allies’ defected during the Social War, even without any charismatic General to lead the opposition against Rome, or even a hope of winning single battles against Rome.
The ease with which Hannibal won battles against Rome, again and again, even without Roman ‘allies’ defecting to him.
Combine these two factor and Rome folds like a house of cards.
Oct 13, 2008 - 12:47 am 92. Bob Murphy:@Slade
Oct 16, 2008 - 9:21 pm 93. Bob Murphy:re Monster at the bottom of the Abyss.
I disagree with that columns assertions.
Germany, for instance, was not “trapped in the Cold War”. It’s choices were start with Soviet occupation of part of Germany and all of Eastern Europe and barbed wire all along the border.
And the Cold War was not, as the column said, it was between the Communist Soviet Union and the rest of the world.
If Germany comes to an understanding with Russia and turns it back on the West will we then see a carving up of the countries caught between them as those same two nations did with Poland before WWII?
Or will we see NATO’s focus shift East to those countries who have had a taste of Russian domination and are still willing to defend themselves and their cultures against aggressors?
The columnist says, “Russia looks at the collapse of the United States and sees an opportunity”. Rubbish. Not since the demand for and price of oil has collapsed. The Russian economy is basically one legged and it is going to fall over if they cannot manufacture a supply crisis that jacks the price back up.
Nice title. I like the notion. But Upper Volta with missiles is still a walking deadman.
I meant Germany’s choices were stark.
Oct 16, 2008 - 9:23 pm 94. Bob Murphy:91. Ursus Maritimus:
Oct 17, 2008 - 2:44 am 95. The Psychology of Transcending the Here and Now « Humanitarian Futures Programme:“The ease with which Hannibal won battles against Rome, again and again, even without Roman ‘allies’ defecting to him.
Combine these two factor and Rome folds like a house of cards.”
The bottom line is that Hannibal did not get the backing he begged Carthage’s government for, even after his brilliant military victories against Rome.
They failed to support him, his victories were for naught, and in the end the Romans buried Carthage. Utterly destroyed it.
[...] different.
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