Fed cuts key interest rates by 75 basis points
- Thread starter swordfishME
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Well, I've been expecting this for over a year. We had a credit bubble and a housing bubble. It's popping. Even here in the "special" Bay Area where all of the fools (especially realtors) were saying things like, "Real estate never goes down," is experiencing significant price drops. We are 12.5% down in prices from a year ago and we have a 47.3% increase in housing inventory here.
See this site for details about why buying a home is for suckers and has been for years in the Bay Area.
This is just the tip of the iceberg. Once the Tech Bubble of the 90s was over, Greenspan had to create a new bubble or face the music, a terrible recession. So what did he do? He lowered interest rates and increased money supply to ridiculous levels so that we had stupid amounts of credit for even the most unfit borrower. Lending institutions liberalized their lending rules and suddenly many people who would have never qualified for mortgages could lie about their incomes, or not even report them at all, and take out "suicide" negative amortization loans. This created the largest sub-prime mortgage market ever. It was a house of cards designed to fall at the first sign of an economic downturn.
There is a saying, "What goes up, must come down." Nowhere else is this more true than how this saying plays out in our modified capitalistic economy in the USA and the world. People were buying homes that they couldn't possibly afford believing the Realtors (Realwhores) that home prices only go up, they never come down. All people had to do is look it up to find out that this is not true, especially in California where real estate is prone to cycles of boom and bust.
But alas, people drank the purple kool-aid that the Fed had prepared and swallowed those sub-prime suicide adjustable negative amortization loans on houses they couldn't possibly afford. And mortgage interest rates are INCREASING for jumbo loans (the loans you need to take to buy anything in California). So all of these idiots are sitting on jumbo loans watching their house lose value so that suddenly they owe way more than the house they have mortgaged is actually worth. And the interest rates are increasing on these adjustable loans making the payments skyrocket. And real income (adjusted for inflation) hasn't increased for your average worker in well over 10 years and the well-paying jobs are leaving for India, China, and elsewhere. So people are stuck with the same real income they had 10 years ago, with rising payments on their mortgages. Guess what's happening? They're defaulting and foreclosing in record numbers all over the country.
This is just the beginning. Greed has ruled for too long. The middle class has been squeezed for too long so that those at the top could milk more profit out of it. If you don't have workers who can buy your product, you don't have an economy. No economy, no profit... Eventually even the rich lose money because profits decline because no one can afford to buy anything because their income in real dollars is stagnant while prices have risen exponentially on just about everything. This could not be sustained forever.
If the damn Fed leaves this alone, we will have the corrections needed. Prices will fall to be in line with what people can afford and the economy will sustain. Or some of these rich asshole CEOs will see that by denying their workers a real living wage, they are losing their own customer base bringing down their stock options, salaries, and perks because stock owners (who are now regular working people more and more through 401ks) won't be willing to pay these rich asshole CEOs what they have been used to making if their companies are tanking...
So, sit back, and ride this out. Pay off your consumer debt. Don't buy anything you really can't afford. Basically, if you don't have the money to buy it without credit, don't do it until the market starts showing signs of recovery. Most likely we're going to be in recession through 2010, if what I've been seeing in the markets holds true.
Oh, and those Baby Boomers who are going to retire soon? Well, they're going to want to sell their McMansions in the suburbs in order to "cash in" on their nest eggs that are tied up in their McMansions. This will create even more downward pressure on real estate prices because of the simple rules of supply and demand. There will be way more people wanting to sell than there are who can actually buy these places. The next couple of generations aren't making as much as the Baby Boomers did and there are less of us too. So, this will affect Baby Boomer retirement and perhaps real estate prices will become sane again in 10-15 years.
Strap yourselves in and hang on... Enjoy the ride...
See this site for details about why buying a home is for suckers and has been for years in the Bay Area.
This is just the tip of the iceberg. Once the Tech Bubble of the 90s was over, Greenspan had to create a new bubble or face the music, a terrible recession. So what did he do? He lowered interest rates and increased money supply to ridiculous levels so that we had stupid amounts of credit for even the most unfit borrower. Lending institutions liberalized their lending rules and suddenly many people who would have never qualified for mortgages could lie about their incomes, or not even report them at all, and take out "suicide" negative amortization loans. This created the largest sub-prime mortgage market ever. It was a house of cards designed to fall at the first sign of an economic downturn.
There is a saying, "What goes up, must come down." Nowhere else is this more true than how this saying plays out in our modified capitalistic economy in the USA and the world. People were buying homes that they couldn't possibly afford believing the Realtors (Realwhores) that home prices only go up, they never come down. All people had to do is look it up to find out that this is not true, especially in California where real estate is prone to cycles of boom and bust.
But alas, people drank the purple kool-aid that the Fed had prepared and swallowed those sub-prime suicide adjustable negative amortization loans on houses they couldn't possibly afford. And mortgage interest rates are INCREASING for jumbo loans (the loans you need to take to buy anything in California). So all of these idiots are sitting on jumbo loans watching their house lose value so that suddenly they owe way more than the house they have mortgaged is actually worth. And the interest rates are increasing on these adjustable loans making the payments skyrocket. And real income (adjusted for inflation) hasn't increased for your average worker in well over 10 years and the well-paying jobs are leaving for India, China, and elsewhere. So people are stuck with the same real income they had 10 years ago, with rising payments on their mortgages. Guess what's happening? They're defaulting and foreclosing in record numbers all over the country.
This is just the beginning. Greed has ruled for too long. The middle class has been squeezed for too long so that those at the top could milk more profit out of it. If you don't have workers who can buy your product, you don't have an economy. No economy, no profit... Eventually even the rich lose money because profits decline because no one can afford to buy anything because their income in real dollars is stagnant while prices have risen exponentially on just about everything. This could not be sustained forever.
If the damn Fed leaves this alone, we will have the corrections needed. Prices will fall to be in line with what people can afford and the economy will sustain. Or some of these rich asshole CEOs will see that by denying their workers a real living wage, they are losing their own customer base bringing down their stock options, salaries, and perks because stock owners (who are now regular working people more and more through 401ks) won't be willing to pay these rich asshole CEOs what they have been used to making if their companies are tanking...
So, sit back, and ride this out. Pay off your consumer debt. Don't buy anything you really can't afford. Basically, if you don't have the money to buy it without credit, don't do it until the market starts showing signs of recovery. Most likely we're going to be in recession through 2010, if what I've been seeing in the markets holds true.
Oh, and those Baby Boomers who are going to retire soon? Well, they're going to want to sell their McMansions in the suburbs in order to "cash in" on their nest eggs that are tied up in their McMansions. This will create even more downward pressure on real estate prices because of the simple rules of supply and demand. There will be way more people wanting to sell than there are who can actually buy these places. The next couple of generations aren't making as much as the Baby Boomers did and there are less of us too. So, this will affect Baby Boomer retirement and perhaps real estate prices will become sane again in 10-15 years.
Strap yourselves in and hang on... Enjoy the ride...
I decided quite some time ago that I do not want to own real estate until:
Someone dies and leaves it to me,
or
with each new checking account you open at the bank you get a free condo.
Someone dies and leaves it to me,
or
with each new checking account you open at the bank you get a free condo.
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I hope the Bank of England follows suit in February. An exchange rate cut is badly needed on this side of the pond too.
dong20
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I read the rollercoaster was due to the activities of a trader for Societe Generale. He caused £3.7Bn of losses after fraudulent positions were discovered last weekend. As the bank tried to recover the position by dumping £60Bn trades in Europe it caused the markets to fall sharply here, cascading to the US with a resultant rate cut. It still lost that 3.7Bn.
There is to be an inquiry and at least 100 shareholders have filed suit against the bank. The trader has been suspended and gone into hiding. Shares in Societe General were suspended and are expected to resume at least 10% down. This may lead to a takeover.
Of course, this could have been the proverbial straw but 3.7Bn is the biggest fraudulent loss even recorded, puts Mr Leeson's £860M in the shade!
There is to be an inquiry and at least 100 shareholders have filed suit against the bank. The trader has been suspended and gone into hiding. Shares in Societe General were suspended and are expected to resume at least 10% down. This may lead to a takeover.
Of course, this could have been the proverbial straw but 3.7Bn is the biggest fraudulent loss even recorded, puts Mr Leeson's £860M in the shade!
dong20
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That's about the last thing it should do. Think about it for five minutes.
Clue: Think globally, but especially East.
The Dragon
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Our government overheated our property markets by offering first home buyers a $14 000.00 for a deposit for a house.
People where going to the banks with ONLY this $14 000.00 and the banks where approving loans for up to $300 000.00.
Since that time intrest rates have been steadily rising.
Unfortunately for these borrowers the Australian banks that hold their morgages have invested in the American sub-prime market.
Losses have to be re couped and so they put up their intrest rates of their own accord without The Federal Reserve Bank putting up their rates.
Now the borrowers have copped a double whammy as now The Federal Reserve Bank has stated that they will be putting up their rates and the banks will be following suit.
Many of the people who entered the property market with the first home buyers grant are losing their homes and the situation will get worse.
People where going to the banks with ONLY this $14 000.00 and the banks where approving loans for up to $300 000.00.
Since that time intrest rates have been steadily rising.
Unfortunately for these borrowers the Australian banks that hold their morgages have invested in the American sub-prime market.
Losses have to be re couped and so they put up their intrest rates of their own accord without The Federal Reserve Bank putting up their rates.
Now the borrowers have copped a double whammy as now The Federal Reserve Bank has stated that they will be putting up their rates and the banks will be following suit.
Many of the people who entered the property market with the first home buyers grant are losing their homes and the situation will get worse.
I think this correction is good too, in the long run - but the reality is the prices haven't gone down all that much Simcha. There are just less houses on the market which are keeping the prices steady especially among the homes costing over $1 million.
Although it may seem like the sky is falling on the real estate market with a 12.5% drop certain areas are getting hit worse than others and I'd say the prices haven't changed any in the desirable places to live in the region - regardless, if you put it in perspective, -12.5% is quite a small blip considering real estate values in the Bay Area have almost tripled (increased 300%) since the 80's here.
It is hard to foresee home prices dropping drastically since home prices are linked to wage rates. And I don't see a major downturn in the tech or pharmaceutical industry in the Bay Area. If anything it is expanding, along with an infrastructure and culture to foster new innovative industries and growth.
What I do seeing is the elimination of the middle class in the area, especially in places like San Francisco or Los Gatos where it is no longer possible to buy a house and live earning less than $130K per year (annual income needed to afford a median priced home). So in order to be considered middle class now you need to make between $150K and $220K to purchase an average house and afford all your expenses. You are priced out of the market unless you are one of the highly overpaid professionals who make more than 5 times the average salary of the region.
It is the Manhattanization of the region where only the wealthy can even consider living here. The real middle class that remains only can do so because they bought their homes before their home values increased 300% since the 80's. Most wouldn't be able to move and live here now with the incomes they make. Only one in ten homeowners now have the income to qualify for a loan for their house. So many middle class folks, young people, and those struggling financially have left the area for places like Phoenix, Las Vegas, Sacramento, Portland, Seattle, Reno to buy a house and make ends meet.
So all the real estate values are skewed and the market is primarily for these wealthy folks who make over $130K or more a year annually. And suprisingly there are plenty of folks here that do earn that which keeps the real estate prices artificially high and unrealistic for most people even living here - it is the perfect example of the growing income disparity between the rich and poor, the haves and the have nots and the erosion of a middle class. No where is it more pronounced than in San Francisco these days walking in the Filmore or Union Street. Hell, even rents are exorbantly high - $1300-$1800 for a one bedroom place not in a ghetto. How does a middle income person even afford that?
SpeedoGuy
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Why, nonsense, earl! That's defeatist talk.
I know that because you'll find posts on this very website asserting there's certainly no reason to decry the growing gap between the rich and the, er, not-as-rich. And there's no recession looming, either.
Aw come on you guys. We all know the rich are getting poorer, the poor are getting richer, the middle class is expanding, and the politicians are losing power...
The rich are getting richer...since when?:biggrin1:
The poor are getting poorer...since when?
Politicians are losing power...since when?
When the rich get poorer, the world is ending...
Why, nonsense, earl! That's defeatist talk.
I know that because you'll find posts on this very website asserting there's certainly no reason to decry the growing gap between the rich and the, er, not-as-rich. And there's no recession looming, either.
haha. I went to an open house in the neighborhood on Sunday just to scope the house out because it was listed at $3.5 million. I naively asked the real estate agent what kind of mortgage payment that would be and she just looked me blindly in the eye and said - "People usually pay cash for anything over 3."
It's like paying $3 million for a sandcastle! It all can come tumbling down any moment.
Manhattan is a joke. You can't get a townhouse in Manhattan now for anything under $1.2 million and that's for a crack house in the worst part of Harlem and even now Harlem has some nice areas. The upside is that Manhattan is getting nicer and safer. No-go places like Hell's Kitchen, the Lower East Side, Morningside Heights, Inwood, and others are actually becoming, or are, decent places and the effect is spreading to the other boroughs. The difference though is that Manhattan is built on solid bedrock. It's not going anywhere for a few million years.
Manhattan is a joke. You can't get a townhouse in Manhattan now for anything under $1.2 million and that's for a crack house in the worst part of Harlem and even now Harlem has some nice areas. The upside is that Manhattan is getting nicer and safer. No-go places like Hell's Kitchen, the Lower East Side, Morningside Heights, Inwood, and others are actually becoming, or are, decent places and the effect is spreading to the other boroughs. The difference though is that Manhattan is built on solid bedrock. It's not going anywhere for a few million years.
Rikter8
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Homes in MI are cheap Cheap Cheap...
You can buy a beautiful 1500sq ft house for around 100K right now, and even less if your willing to live near the cities.
I still say buying a home is the best way to retain your money. House or Land.
They may experience a temporary drop, but for those that are stable and saved some cash.....it's a buyers market.
BUT....everyone is scared shitless right now because of the corruption in office, forclosures and banks folding left and right, and companies downsizing at unprecedented rates.
Gee....I remember the same events when Senior shrub was in office....hmm....
You can buy a beautiful 1500sq ft house for around 100K right now, and even less if your willing to live near the cities.
I still say buying a home is the best way to retain your money. House or Land.
They may experience a temporary drop, but for those that are stable and saved some cash.....it's a buyers market.
BUT....everyone is scared shitless right now because of the corruption in office, forclosures and banks folding left and right, and companies downsizing at unprecedented rates.
Gee....I remember the same events when Senior shrub was in office....hmm....
SpeedoGuy
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I remember in 1992 when Bush Sr. went on national TV and made a point of buying some socks at a department store. As if buying a few items of clothing would ward off recession.
transformer_99
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Not in FL, depending upon where, double triple and even quadruple that price. I don't know where this "recession" is going to find the inflation that accompanies it. Bush has resorted to tax rebates as a stimulus again like he did in 2001. Shortly after the distribution 9/11/2001 happened and worse just got worse. Interest rate and tax cuts. Capitalism and the free market economy sector will raise prices to capture any/this relief. And just like the day it's physically distributed to be cashed/endorsed, the fact that a tangible rebate is in hand will result in inflation at that point in time. We'll wind up spending it and more on the same goods and services we're already receiving. I'd just assume see prices plummet and everything across the board start over at rock bottom personally. Who knows, maybe gasoline would be 25 cents a gallon like it's been indicated as being in Iraq and not the $ 3+/gallon we pay in the USA ?
The lack of understanding about basic economics is breath taking.
Home ownership is simply a good savings too, and subsidized by the mortgage deduction. Nothing more. If you rent and take the difference in cost and simply invest it, you will be fine. If you spend it, as every American seemingly does, you are fucked.
If you don't save 10% of your income, you're fucked. If you live in high cost areas like Manhattan or San Francisco or Florida, and its too expensive, move. Do whatever you can to increase the amount of discretionary income you have. You may have to move. $75000/year in Florida or the Bay Area or NY sounds like near poverty given the cost of living. $75000 in Michigan or Iowa, or Ohio and you are flush with cash. You could own a house, a boat, 2 cars, and a cabin on a lake. Iowa is a great place to live.
Always move to where your money goes further. Life is so much easier that way. Living paycheck to paycheck is dangerous.
Home ownership is simply a good savings too, and subsidized by the mortgage deduction. Nothing more. If you rent and take the difference in cost and simply invest it, you will be fine. If you spend it, as every American seemingly does, you are fucked.
If you don't save 10% of your income, you're fucked. If you live in high cost areas like Manhattan or San Francisco or Florida, and its too expensive, move. Do whatever you can to increase the amount of discretionary income you have. You may have to move. $75000/year in Florida or the Bay Area or NY sounds like near poverty given the cost of living. $75000 in Michigan or Iowa, or Ohio and you are flush with cash. You could own a house, a boat, 2 cars, and a cabin on a lake. Iowa is a great place to live.
Always move to where your money goes further. Life is so much easier that way. Living paycheck to paycheck is dangerous.
Rikter8
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True, I would think so. With all of the actors, movie stars, and studios...tourist trap...etc etc... it's going to inflate the prices of everything.
Like movie stars need a $500,000 apartment per month....
Here, we just make the worlds automobiles, farm, produce orange road cones, and employ road construction workers to do.....something, we're not sure what yet...
HazelGod
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I've gotten a kick out of these "Feed the Pig" commercials that are running lately to promote sensible saving.
Sadly, I don't think they'll have much effect on the hoi polloi of this great land.
Sadly, I don't think they'll have much effect on the hoi polloi of this great land.
rob_just_rob
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Cute, but as you say, very few have the discipline to save anymore.
Re Florida - I have family on the Gulf Coast, and they tell me that prices have dropped a good 30% over the last couple of years (300K+ property now going begging at 225K).
