Tuesday, March 18, 2008

Where in the Hell are We Right Now?

Its not hard to see how the gov't missed the boat on the whole sub-prime mess. Banking regulation has been retreating for 50 years. Because of the accounting rules and methods, I suspect that the banks have no idea where they really stand. Which is why I think we aren't even close to the end of the write downs. It might be 2012 before we really get back on our feet. This chart, shows that the real storm of ARM resets isn't going to end until then.

There will be a trough late this year, but its fools gold. Even the National Association of Realtors have written off 2008, they will be reticent to do the same thing for 09, but its a write off too, however I think they will try to create some hope, just like they spent all of 2007 trying to do. With just about everyone holding an ARM being upside down on their loan, there will be no refi options out there, as things stand today. 2012, realistically is the first chance for a rally. By then, the backlog/inventory of homes and condos on the market will be staggering. Income growth and home price growth are way out of whack. Even today, they are way out of parity as shown here. The average salary has not kept pace with home price appreciation.

Freddie Mac's CEO told Congress last week that the housing market is only about 1/3 of the way done correcting, which would put us back at 1999/2000 price levels. He's probably pretty close to correct. The vibe I get from the way in which the Fed, Treasury and the other big banks are acting, is nothing short of sheer panic. I half expect to walk out of my office tonight, and see people running around in the streets around the Capitol, World Bank and White House with torches. Fortunately Nero is safe in the West Wing, trying on the new clothes he got from the emperor.

As I have said before, I don't think the gov't can bail out the individual borrowers. Its simply too massive and too expensive of an undertaking. I also question the wisdom of spending billions to benfit those few who have taken the short cut, while the rest of us have bought homes the old fashioned way or chosen not to buy because the market was dramaticly over bought. The banks have to be propped up. Its a matter of national security. The last thing anyone wants to see is the Russians, Chinese or middle easterners taking substantial stakes in our banking system. Bailing out the banks, benifits far more of our society than bailing out the troubled borrowers.

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