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Pushing on a String Up Close and Ugly
With many economists arguing that Quantitative Easing II amounts to nothing more than pushing on a string, I’ll show you what it looks like up close and ugly. The online real estate firm, Zillow.com, has analyzed the results of tens of thousands of recent mortgage applications, with sobering results (click here for their site at http://www.zillow.com/ ).
Ben Bernanke can cut interest rates all he likes, but can’t raise personal credit scores, and that is a big problem. Some one third of Americans now have credit scores under 620 and are unable to obtain loans under any circumstances. Of the 47% who have good scores over 720, less than half are getting loans at the lowest interest rates. This is important because a mere 20 point improvement in scores leads to a $6,400 drop in the cost of an average conventional loan over its 30 year life.
This won’t change until banks return to risk accumulation mode, which is at least five years off. I never miss an opportunity to pile abuse on the residential real estate market, as I believe that for demographic and other reasons it will be dead money for another decade (click here for “The Hard Truth About Residential Real Estate” at http://www.madhedgefundtrader.com/may_26__2010.html ). This is just another nail in the coffin.
To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out-of-consensus analysis, please visit me at www.madhedgefundtrader.com . There, you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on “This Week on Hedge Fund Radio” in the upper right corner of my home page.
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FICO score won't matter soon. This ends in a debt jubilee.
Forget the economy, forget the American people, nobody cares anymore.
Wall Street is the only game in town now, and it's the only bubble left.
Everything is done to keep the Wall Street bubble inflated. Fed prints boatloads of money every day and throws it at Wall Street. All government legislation benefits Wall Street.
The stock market doesn't matter. It could collapse and Wall Street would make money on the way down just like they make money on the way up.
The bond market doesn't matter. It could collapse and Wall Street would make money on the way down just like they make money on the way up.
The dollar doesn't matter. It could collapse and Wall Street would make money on the way down just like they make money on the way up.
Wall Street doesn't care about the value of anything.
Wall Street cares about activity. They make money off activity. Trading activity. Broker fees.
Wall Street wants ups and downs in as many things as possible because ups and downs generate activity which generates fees.
Stability is the only threat to Wall Street. If everything was stable, trading activity would collapse, fees would collapse, and Wall Street would collapse.
The burn rate continues in currency and it will collapse when all confidence fails in the debased currency agenda.
To many braindead consumers to feed on to worry about for years since generations of agendas have fully permeated the masses splintered. Call it usefull, or cherfull idiots of whatever stain you wish since education is a crutch with which the foolish attack the wise to prove that they are not idiots.
Then they came for me -- and there was no one left to speak for me. Martin Niemöller (1892-1984)
ALL Voters deserve there fate since anger is a gift they ignore.
What was the point of the zillow reference? There was nothing in the remainder of the piece that tied back to this alleged study they performed. Just driving some traffic their way?
Sssshh.... Don't give these guys any new ideas...
hey I've got an idea, yeah mememe. How about making the credit card companies GSEs? yeah you know, not just so we can do a deficit busting cramdown on consumer lending rates, but so we can control the credit ratings of all these people. Imagine if your credit card debt was backed by the US Treasury department, your goddam credit score would double overnight!! Let's be truthful here, the cramdown on mortgage rates only helps those people who qualify for mortgages, and once they take on that debt they can start to monetize it? Did you know that's the plan, yes the cramdown on 30 year mortgagerates puts money in peoples pockets for 30 years! Its targeted DEFLATION, that's the feds plan, Inflation deflation, the important thing is to target.
But wait that's not nearly enough, what if there was a 100 year mortgage? The mortgage holder could monetize that debt for 100 years, or until rates go to zero. I know what you're thinking, zero rates, end of game. Not necessarily, we raise rates you see, back to 5%, but we don't mark the mortgage holder to market. He tightens his or her belt for a few months, then we DROP THEM AGAIN. The consumer double triple quadruples his own personal debt monetization scheme. and we keep raising credit scores, 700, how about 7000!! But wait if you can't afford a mortgage how are you going to get a slice of the AM dream? That's where the GSE credit card companies come to the rescue. You make 20K a year, you get a 20K limit card, and you max it out immediately, then as rates go down, you sell your debt back for a profit. Your card balance actually increases each month because you were maxed out. Those poor suckers who held cash will be standing in the soup line!!
Covered your silver shorts yet MHFT?
Another scary element to this debacle is the fact that people who have taken out large mortgages and then defaulted, have been successfully applying for mortgage loans again without a problem, because the banks are falsifying credit scores, effectively omitting the bankruptcies.
Deleveraging. Few can afford to put 10%-20% down on a house no matter how "cheap" it is. These bargain prices are only cheap if leverage (used to be 5% or less down) go back down, which it won't.
Seems the points and fees coming from dozens of tapeworms that want a piece of your action don't make it any better.
Credit scores are a scam. Recently, we obtained a preapproval for a loan with credit scores well over 740, 90 days later our preapproval was extended for another 90 days. Finally, we made a loan app and our credit score had fallen. Why, because there were too many credit report inquiries. Yes, 2 for the preapprovals and 1 for the loan approval. We have 1 credit card which we generally pay off at the end of each month. The charges rarely exceed $500. At the time of the loan application we had an outstanding balance of $345. The credit report stated that our debt was too high... It was the only debt on the report.
The credit card debt was insignificant compared to our income and monthly expenses.
We locked the most favorable rate with the bank. We were told not to apply for credit or a loan before closing because any action might lower our credit rating.
What a scam, $345 too much debt and credit inquiries by the banks affect the credit score. It seems that the point is to scam the highest loan rates and other costs on the public.
Wonder what is wrong with the economy? People are tired of being scammed.
And just what is the solution ?
You are getting warmer....in that you are getting to the core reason...
So what is it that can change such that the economy can dramatically improve ?
Now is it necessary to wave the magic wand...and give e everyone a great credit score....even though they do not have the income ?
Now you have uncovered the true stupidity of the Princeton Harvard Yale Club...or their indifference to the broad based US population....
SO just what is it...that should have...could have been done...rather than the current butchered and idiotic CRAP that Bernanke and whoever the rest of the fools are have put off on the American people such that every person now will have to pay the US governmnet $31,000 per annum for 75 years ?
$Trillions lost....and no one accountable ?????
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Look...to keep from pushing on a string....or fabricating credit scores like the FED is fabricating counterfeit money to buy US debt....for which is the second largest holder....with only $500 million in over 10 year maturities....Just what has to happen ....
The credit scores have to be good...right ?
This means that there have to be lots of good jobs ...right ?
So ...just what is it that the FED/Govt. COULD DO ?
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TAX STRUCTURE CHANGE....
ie The FAIR TAX which eliminates the IRS...and a proper currency...indexed to commodities including gold....
A dramatic reduction in the size of government...
The cost of government is a simple add on to the prices of all goods and services...
OK...so what should this number be ?
50% ? 10% ?
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The US is now calling on China to allow the Yuan to float...ok...
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So ...some US currency devaluation....along with TAX STRUCTURE CHANGE that would be reflective of a downsized government to the tune of no more than 10%....would build the number of credit scores for individuals....so that they can obtain sound credit...
Another category is to remake the securities market for RETAIL for the new INTERNET world....Stock is the best lever of capital...and the best means to broadly distribute wealth....
And since the US is currently FASCIST....perhaps the exchange should be located in a neutral domicile such as Switzerland....
And no I am not joking....And I have been trading markets for over 32 years...and still doing it...
I really thought that the Bush admin was the worst ever....but the Obama outfit is truly much worse....
Pathetic.....is too kind of a word....
You are exactly right here. I would go so far as to say that the 2005 bankruptcy reform act (making it significantly more difficult to write down debts) is partially to blame for the slow recovery.
At this point, the Fed simply doesn't have the tools to help - it requires Congressional action. Which means it is unlikely to happen until it's too late -- and any "temporary" solution would end up being permanent.
In order to get the bad debts (including two-ply-printed derivatives) out of the system, we need is easier bankruptcies (and easier "resolution" of larger institutions) - how to manage this is the problem.
In general you are wrong about the Obama administration - but clearly the Treasury/Fed part of his administration is the worst.
Nope...YOU are wrong about the Obam Admin...THEY are the worst ever....
THEY are doing exactly the opposite of what has to be done...
Just the opposite....
"The cost of government is a simple add on to the prices of all goods and services"
Agreed that government is an unnecessary intermediary: but then so is a shareholder. Profit is also a 'simple add on' to the prices of all goods and services.
As for your 'Fair Tax', does that apply only to earned income - where I agree that the tax is way too high or does it also apply to unearned income from privileged property rights?
I find it strange that my neighbour's property (in London) has earned more than he has in his 30 year's of hard manual work, and yet he is excessively taxed on his earned income, and not taxed at all on his unearned gains.
Something not right there, I think.
WTF? I think you have a serious misunderstanding of what a shareholder does (save through hard work and sacrifice and then provide capital to create and grow businesses)
Government is that institution that takes money by force from productive people and gives it to unproductive people.
Slight difference IMHO.
Exactly....Is the idea to make the individual or the govt. better off ?
America was America...in that over 90% of all jobs...were provided by entrepreneurial people...that have continual short shelf lives....The best of times in the US was reflective of the most entrepreneurs possible in motion....
However Globalization....the fact that China will provide $1 to $4 labor....means that the US currency must be cheaper....and the tax take has to be a lower percentage....
How WOULD YOU like to wake up in the am.....working for the government...knowing that you will never own your own business....or waking up....having a shot at owning your own business....
The government has to get small....and entrepreneurship has to get big....
It's that simple......
If YOU don't understand THIS....do not worry....you have plenty of arrogant PHD's at Harvard Princeton Yale....that either do not get it....or are totally indifferent to what has truly made America great.....as well....
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To best ignite entrepreneurship....both corporate and individual income taxes must be eliminated....In other words...instead of chopping down trees in the orchard while demanding more fruit....one gets more land...plants more trees...and demands more fruit....The tax side is just an eater of fruit.....and the tax trees need to be pruned ...and cut down.....thus allowing for the growth of real fruit trees....
The govt. has to be dramatically downsized....and the tax must be spread thin as possible...
And perhaps the broadest based fairest tax would be a small monthly basis point tax on cash balances....ie 10 basis points...and it should be mandated that the govt. cannot exceed 10% of the economy...
All sound points. Wishing that your proposals could be enacted, but not likely unless the whole house of cards collapses.
The Five Pillars of the U.S. mortgage market are Fannie, Freddie, Ginnie, FHA and VA.
That's where 95% of current mortgage issuance originates. If you can get a mortgage without going through one of the Final Five, you probably don't need a mortgage to buy a house. You can just write a check and take possession.
Ordinary channels for home loans are not about to recover until the shadow hanging over several million home titles is resolved. That's going to take a while, as there are millions of civil and criminal cases being filed, and the court dockets are already overloaded.
Ten years is optimistic.
Liquidity problem. No cash, no jobs, no money, no more credit, bad scores.
Add in the problems with chain of title, MBS and REMIC and QE2 is less like pushing on string and more like pushing on a .50 cal headed toward you from 2,000 yds away. Maybe even more than one :-)
One of the signs you live in a dying town: a majority of it's populace with poor credit ratings.
Yeah, America's a tough town.