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A Global Economic System That’s Been Running On Cheap Money, Easy Capital Since 2008

Some housing bubble reports from Washington and the Wall Street Journal. “Split power in Congress means lawmakers are unlikely to overhaul how the government backstops more than half the U.S. mortgage market. That provides an opportunity for the Trump administration to take steps on its own—and the industry is lobbying to soften any potential changes. The White House is expected to consider steps in the coming months that could reduce the government’s footprint in backstopping the market through mortgage-finance giants Fannie Mae and Freddie Mac, which have been under government control since the 2008 crisis.”

“The mortgage industry is wary of potentially disruptive policy shifts. The housing market is experiencing its longest slump in four years. In the coming weeks, the Trump administration is expected to signal its intentions for the companies when it nominates a successor to current FHFA Director Mel Watt. Mr. Watt is due to step down in early January when his five-year term expires. A nominee is expected around that time.”

“A conservative FHFA chief focused on drastically shrinking the government’s role in housing could raise the fees the companies charge lenders to guarantee loans, potentially making it more expensive for borrowers to complete a loan backed by Fannie or Freddie.”

“The new FHFA director also could decrease the maximum size of a loan that the companies could purchase, reversing increases during Mr. Watt’s tenure that allowed larger loans to get Fannie and Freddie’s backing. Such a move could have outsize effects in expensive coastal states such as California and New York, according to housing experts.”

From Yahoo Finance. “With the financial crisis now 10 years in the rearview mirror, former Federal Reserve Chairman Ben Bernanke says the U.S. central bank may be ill-equipped to handle the next financial crisis.”

“Bernanke said at a conference at New York University that the Fed needs to have expanded powers to lend to institutions that are not commercial banks, which is the only industry that the central bank can offer emergency funds to as a ‘lender of last resort.'”

“That tool, Bernanke said, needs to be extended to cover shadow banks like broker-dealers and other non-bank institutions. Bernanke said he disagrees with the notion that banks should be allowed to fall to complete bankruptcy, saying that the risks to the economy would be too large to not have some kind of safety net — like the orderly liquidation authority — in place.”

“‘If you can’t allow a large firm to fail,’ he said, ‘then you’re in the situation where in a crisis every large firm is a time bomb.'”

From The Street. “A slowdown in housing has analysts asking questions of Home Depot ahead of its earnings release on Tuesday morning. A shaky housing market is tempering Wall Street optimism on the retail giant.”

“‘Our key message is that we see a period of housing uncertainty ahead, where the demand drivers that have mattered historically seem to be turning less favorable,’ Credit Suisse analyst Seth Sigman wrote.”

“The key driver of the concern about Home Depot is the recent report on mortgage application decreases, which has been coupled with worries over continued Federal Reserve rate hiking. Mortgage applications decreased 4% to kick off November and hit their lowest level in about four years, according to the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey.”

“‘HD is down 15% since an all-time high in mid-September given concerns on the cycle with rising mortgage rates and moderating housing data points,’ J.P. Morgan analyst Chris Horvers said.”

From Yahoo Finance. “Donald Trump’s election in 2016 was a surprise to many. Other candidates with similarly unorthodox, hardline and nativist views have risen to their countries’ top political posts in recent years. Jacob Shapiro, director of analysis at Geopolitical Futures, a global think tank that studies political movements and machinations, said that the conditions that sweep them into power are easy to see and are growing in a number of places.”

“He doesn’t see a halt to the populist wave, because the conditions that created it are still largely intact. ‘What’s really going on is you have a global economic system that has basically been running on cheap money, easy capital since 2008 and [now] I think the global economic outlook is trending downward,’ Shapiro told Yahoo Finance.”

This Post Has 47 Comments
  1. ‘The new FHFA director also could decrease the maximum size of a loan that the companies could purchase, reversing increases during Mr. Watt’s tenure that allowed larger loans to get Fannie and Freddie’s backing. Such a move could have outsize effects in expensive coastal states such as California and New York’

    Oh dear…

      1. The current administration would never do anything to slow down the rate of California housing price and rent appreciation. California housing is too big to fail!

    1. In California, what about the additional burden of increased insurance rates (in particular Fire)? Given the current fire situation, I can’t imagine rates in the riskier areas won’t increase. [maybe a lot]

      At some point Joe Average has got to cry “Uncle”..

      1. Came close to not being able to sell my home last year in So Cal because of insurance issues. Insurers said home was in a fire zone and would not offer new policy to buyers. Luckily AAA grandfathered my policy terms and extended to new owners. Not sure if they’ll be so lucky when they sell, especially after what’s just taken place in So Cal.

    2. They could also put a stop to cash-out refinancings, and all refinances except those done to lower an interest rate or adjust the remaining term of the original mortgage.

      Limit the agencies’ lending activities to acquisition financing.

      1. why not add yours or your kids/grandkids student loans, pay them off , or prepay till graduation. so if you go into foreclosure your kids will be way ahead of the game.

    3. This would really trigger prices to fall. I’m sure someone will explain to Trump how this would slowdown GDP and they would never go through with it.

      But if some how it did happen, it really would crush home prices. People don’t buy homes, they finance homes.

      1. “I’m sure someone will explain to Trump how this would slowdown GDP and they would never go through with it.”

        If GDP slows down hence forth, there are two possible explanations:

        1) The Fed has continued to hike interest rates.
        2) The Democrats have taken over the House of Representatives.

      2. prices to fall

        Lower prices will not lower reported GDP. It is fudged to eliminate price changes. If lower prices lead to increased numbers of transactions, GDP could go up as a result.

  2. “A conservative FHFA chief focused on drastically shrinking the government’s role in housing could raise the fees the companies charge lenders to guarantee loans, potentially making it more expensive for borrowers to complete a loan backed by Fannie or Freddie.”

    The government has already made housing least affordable but to the 1%. We need to get the government and taxpayers dollars out of the housing and let the free market works.

    1. I’m not so sure gov should get out of housing entirely. Yeah, low-income can’t afford housing. But wasn’t that why gov got involved in the first place? The problem is the existing government policy of incentives and interest rates and other nebulous benefits which don’t seem to apply to regular Joe. We probably need the more draconian measures, like what Canada is doing: tax on foreigners, speculation taxes, and serious disincentives for second homes.

      1. Like the list oxide. Add to that: progressive property tax, tax on undeveloped land (e.g. land hoarding), repeal prop 13 in CA and other market distortions, fully phase out mortgage interest tax deduction, stricter regulations on mortgage financing (e.g. higher down payment, lower allowances on debt/income, house price to income, etc.).

          1. Prop 13 is the only barrier that slows CA transition to a Chinexican colony.

            Eventually the state will be run by 3 Democrats wagering quatloos.

  3. What could be more fundamental than interest rates returning to normal levels after years of yield suppression?

    CNBC’s Jim Cramer says stock market is in ‘a very serious correction’ — and there’s nowhere to hide
    By Mark DeCambre
    Published: Nov 12, 2018 2:01 p.m. ET
    Cramer breaks down the problems in this market.

    This is a very serious correction
    – Jim Cramer

    Jim Cramer, CNBC’s “Mad Money” host and a prominent fixture among market commentators, on Monday said the market is enduring “a very serious correction,” underscored by the fact that there are few fundamental reasons for the market’s current downtrend.

    During CNBC’s “Halftime Report,” Cramer said notable is a slump in shares of so-called FANG names — the highflying quartet of Facebook Inc. (FB, -2.06%), Amazon.com Inc. (AMZN, -3.32%), Netflix Inc. (NFLX, -1.95%) and Google parent Alphabet Inc. (GOOGL, -1.77% GOOG, -1.53%), that are among the most influential on Wall Street due to their massive market values and the degree by which investors have piled into those investments for hope of consistent growth.

    All of those companies are in a corrective phase, defined as a drop of at least 10% from a recent peak, and Netflix and Facebook shares have shed around a third of their values since hitting 52-week peaks.

    Cramer said that the economy is solid and has championed the idea of the Federal Reserve’s pausing, or at least slowing down, its interest-rate-raising initiative to assess current market conditions, aligning himself with President Donald Trump, who has lobbed a number of criticisms at Fed boss Jerome Powell’s plan to normalize interest-rate policy from crisis-era lows. The central bank is slated to lift rates again in December, marking the fourth time it’s done so in 2018.

    An environment of rising rates and wobbles elsewhere in global stock markets have made identifying havens difficult, with expectations that rate increases will drive bond yields higher and prices lower.

    1. “Netflix and Facebook shares have shed around a third of their values since hitting 52-week peaks.”

      33% down is alot more than 10%!

          1. He tends to pop in to say hello when oil prices approach the $80/bbl call he made five-or-so years ago (which he predicted would happen back then!), then disappears again when oil prices head south of the equator.

        1. Trump: Oil prices should be much lower
          By Brett Samuels – 11/12/18 02:01 PM EST

          President Trump on Monday said he hopes Saudi Arabia and OPEC don’t cut oil production hours after the Saudi energy minister indicated the country would reduce its output next month.

          “Hopefully, Saudi Arabia and OPEC will not be cutting oil production. Oil prices should be much lower based on supply!” Trump tweeted Monday afternoon.

    2. This is not your daddy’s 500 point loss.

      Dow down more than 500 points and Nasdaq nearly 200 as stock-market losses steepen

    3. The Wall Street-Federal Reserve Looting Syndicate’s engineered boom-bust cycles every 8-10 years are the most efficacious means of looting and asset-stripping the middle and working classes and transferring their wealth to the Fed’s oligarch accomplices. Looks like yet another Great Muppet Massacre is well underway.

      1. As soon as a critical mass of proles is convinced to go all-in on housing and stocks, on the conventional wisdom that their prices will always go up, it’s time to initiate another round of muppet slaughter. This will soon be followed by bailouts of Skull and Bones Society members to enable them to pick up foreclosure homes on the cheap after freshly unemployed muppets go into default on their toxic mortgages.

    4. Asian Stocks Sink After Wall Street Tech Sell-Off
      Nov. 12, 2018, at 11:24 p.m.
      U.S. News & World Report
      FILE- In this Nov. 7, 2018, file photo trader Timothy Nick, center, works with specialist Michael O’Mara on the floor of the New York Stock Exchange. The U.S. stock market opens at 9:30 a.m. EDT on Monday, Nov. 12. (AP Photo/Richard Drew, File) The Associated Press
      By JOE McDONALD, AP Business Writer

      BEIJING (AP) — Asian stocks sank Tuesday after a tech sell-off dragged Wall Street lower.

      KEEPING SCORE: Tokyo’s Nikkei 225 tumbled 3.2 percent to 21,554.45 and Hong Kong’s Hang Seng lost 1.1 percent. The Shanghai Composite Index was off 0.2 percent at 2,625.37 and Sydney’s S&P-ASX 200 gave up 1.9 percent to 5,825.60. Seoul’s Kospi retreated 1.6 percent to 2,047.10 and benchmarks in New Zealand, Taiwan and Southeast Asia also declined.

  4. No guarantees that San Diego will emerge unscathed from the current fire weather episode. The Santa Ana winds are gusting up to 30 miles per hour today, and the humidity is so low that my humidity gauge fails to register a numeric reading (e.g. the humidity is below 10%). Any large fire in these conditions will spread at a rate over ten miles per day.

    1. “Any large fire in these conditions will spread at a rate over ten miles per day.”

      …. and the realtors jump for joy.

    2. Same her and its buring all around- lucky all fires are east and south so winds not blowing smoke at me. Works closed though because of fire.
      It mostly burned hilltop homes up canyons. Saw a open house sign had to laugh at that .

    3. Fire Danger Extends to Coast in Windy, Dry Santa Ana Weather
      By R. Stickney
      Published Nov 12, 2018 at 6:38 AM | Updated 2 hours ago

      Hurricane-force wind gusts were recorded around San Diego County Monday as local fire crews staffed up in anticipation of 48 hours of extremely dangerous fire conditions.

      The red flag warning issued for San Diego County extends from the desert to the ocean and is paired with a high wind warning. Both alerts last through Tuesday evening.

      Humidity was expected to drop between 5 and 10 percent from the mountains to the coastline.

  5. “‘If you can’t allow a large firm to fail,’ he said, ‘then you’re in the situation where in a crisis every large firm is a time bomb.’”

    Why not announce that large firms will automatically qualify for too-big-to-fail bailout insurance claims payments in a moment of panic? This will ensure that there will be an extremely large number of financial corporation time bombs that qualify for a big payday in the next financial crisis. So long as the government owns a printing press technology, it’s turtles all the way down.

    1. Here’s Eric Holder, former Obama Attorney General, explaining why his catastrophically misnamed “Justice Department” never went after the really big criminals on Wall Street, who were, after all, Too Big to Jail. They also made sure Holder was handsomely rewarded for turning a blind eye to the Wall Street fraud and criminality that caused the 2008 financial crash once he’d left “public service” and could receive his bribes more or less openly.

      https://www.youtube.com/watch?v=pzDoWlXmNUw

  6. “He doesn’t see a halt to the populist wave, because the conditions that created it are still largely intact. ‘What’s really going on is you have a global economic system that has basically been running on cheap money, easy capital since 2008 and [now] I think the global economic outlook is trending downward,’ Shapiro told Yahoo Finance.”

    Globalism benefits only a corrupt and venal .1% in the financial sector who use their control of central banks and rigged markets to concentrate all wealth and power in their own greedy hands.

  7. Someone in our circle currently owns two houses. They bought the newer, more ginormous model before offloading the previous home. Word is that they had an offer on the place they want to sell, but financing fell through.

    It seems like a historically bad time to be double-exposed to San Diego residential real estate. I’ll be curious to see whether they are able to find a buyer willing to pay what they believe their home is worth.

    1. Seems like they are trying to sell it by Dutch auction.

      I find it odd that the price history for a home built in 1991 only goes back to 2015. What is Zillow trying to hide?

      Date Event & Source Price Appreciation
      Nov 9, 2018 Price Changed
      SDMLS #180051288
      $1,659,000 —
      Nov 8, 2018
      Price Changed
      CRMLS #180051288
      $1,659,000 —
      Nov 1, 2018
      Relisted (Active)
      CRMLS #180051288
      — —
      Nov 1, 2018
      Price Changed
      CRMLS #180051288
      $1,669,000 —
      Nov 1, 2018 Price Changed
      SDMLS #180051288
      $1,669,000 —
      Oct 31, 2018 Relisted (Active)
      SDMLS #180051288
      — —
      Oct 18, 2018 Pending
      SDMLS #180051288
      — —
      Oct 17, 2018
      Delisted
      CRMLS #180051288
      — —
      Oct 12, 2018 Price Changed
      SDMLS #180051288
      $1,694,000 —
      Oct 10, 2018 Price Changed
      SDMLS #180051288
      $1,699,000 —
      Oct 8, 2018 Price Changed
      SDMLS #180051288
      $1,749,000 —
      Sep 25, 2018 Price Changed
      SDMLS #180051288
      $1,769,000 —
      Sep 12, 2018 Listed (Active)
      SDMLS #180051288
      $1,798,000 —
      Sep 12, 2018
      Listed
      CRMLS #180051288
      $1,694,000 —
      Jun 9, 2015
      Sold (Public Records)
      Public Records
      $1,379,500 —
      Jun 9, 2015 Sold (MLS) (Sold)
      SDMLS #150014253
      $1,379,500 —
      Mar 25, 2015 Pending
      SDMLS #150014253
      — —
      Mar 17, 2015 Listed (Active)
      SDMLS #150014253
      $1,398,500

      1. (1659000/1798000-1)*100% = -7.7% reduction thus far off the initial listing price two months back.

        It should be pretty interesting to see how far down from here they need to go to move the place. A click glance on Zillow reveals no shortage of $1+ million listings or pre-foreclosure listings in San Diego County. This is an immense amount of competition during the holiday season, especially given that buyers have caught a collective case of cold feet.

  8. “the concern about Home Depot”

    I bought a new pair of Klein wire strippers there today for $34.77.

    That’s $34.77 more than I’ve spent at any Home Depot in the last 12 months.

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