[FoRK] alternative bailout plan?

kelley kelley at inkworkswell.com
Thu Oct 2 01:27:57 PDT 2008

At 02:53 AM 10/2/2008, Eugen Leitl wrote:
>On Thu, Oct 02, 2008 at 05:22:54AM +0000, geege4 at gmail.com wrote:
> > Just had the most interesting convo with someone about a secret 
> congressional meeting in March during which this country's forthcoming 
> economic collapse was discussed.
> >
> > In March. 2008. It was impending in March.
>We're talking about it since, when? 2,3,4 years?
>It's been readily apparent to anyone with two spare neurons
>for years.
>What do you think is the drive for all the security theater
>for a decade+?
>Not just pork barrel.

thank you. Maybe it's because I hang out with economists and like-minded 
folk who either report on the economy or work in some part of the financial 
industry, but we've been talking about the real estate bubble and what 
happens when it bursts for years. early on in that discussion, which 
started around 2003 -- yes! -- and heated up in the summer of 2004 through 
2005, the comparisons were made to Japan which, if I'm remaining correctly, 
did not find it easy to extract itself from the deflation when its RE 
bubble burst.

Looking through the archives of that discussion list, I saw this article 
(below) and many more like it. A few spare neurons devoted to thinking 
about how we got out of the last recession (the RE bubble) and why all this 
money was floating around, would have got them to thinking, "Ahhh. If I 
believe my own tenets about the ups and downs of markets and business 
cycles, this is going to crash some time. Let's see now...."

People were warning of a marked increase in crazy lending practices _while_ 
the markets started slowing down in key areas. But they kept on lending, 
hoping against hope that they'd escape the winds of creative destruction.


USA Today - January 17, 2005

43% of first-time home buyers put no money down
By Noelle Knox, USA TODAY

WASHINGTON - As housing prices soared last year, an eye-popping 43%
of first-time home buyers purchased their homes with no-money-down
loans, according to a study released Tuesday by the National
Association of Realtors.
The trend is potentially ominous. The real estate market is cooling
in some areas, and rates on adjustable-rate loans are creeping up. As
a result, some no-money-down buyers could owe more than their homes
are worth.

The median first-time home buyer scraped together a down payment of
only 2% on a $150,000 home in 2005, the NAR found.

Already, home prices in many areas are declining, and the "For Sale"
signs are hanging in front yards longer. There's now at least a 50%
risk that prices will decline within two years in 11 major metro
areas, including San Diego; Boston; Long Island, N.Y.; Los Angeles;
and San Francisco, according to PMI Mortgage Insurance's latest U.S.
Market Risk Index.

"In a number of areas, particularly on the coasts, they have a high
risk of price declines in the next two years," says Mark Milner,
chief risk officer of PMI.

Red-hot home building, acquisitions, remodeling and refinancing in
recent years helped drive the economy and raise fears of a real
estate bubble. Dean Baker of the Center for Economic and Policy
Research says that if housing prices fall at least 10%, it could be
even more damaging than the collapse of the high-tech stock bubble in

"If we do get a spike in mortgage rates, and a modest decline (in the
housing market) turns into a rout, there's almost no bottom to that,"
Baker says. "That's a crash scenario."

Baker and other economists are concerned that many lenders have
pushed a series of creative but potentially dangerous loans to help
more Americans afford a home. The traditional 30-year loan with a
fixed rate remains the most popular way of financing, according to
the Mortgage Bankers Association. But about one-third of homeowners
take out riskier loans, such as interest-only or flat-minimum-payment

"These non-traditional loans transfer risk to the borrower," Milner says.

NAR President Thomas Stevens says he isn't worried that nearly half
of first-time home buyers put no money down, but adds, "If the number
was higher than that, I'd be concerned."


Who are entry-level buyers?

Survey of home buyers reveals:
Median age:

Median household income:

Median down payment:

Purchased with no money down:

* - on home costing $150,000

Source: National Association of Realtors, 2005 Profile of Home Buyers
and Sellers

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