Update 031807: The comments on both these posts are worth reading. GM
Also update 031807: The Great Unraveling, by Stephen S. Roach (not Dr. Krugman), morganstanley.com, March 16, 2007 and
The Fingers of Housing Instability, by John Mauldin, safehaven.com, March 17, 2007
“BOCA RATON – Retired Federal Reserve Chairman Alan Greenspan, speaking at a Futures Industry Association annual conference here on Thursday, said the problems of the subprime mortgage market had more to do with home prices than easy credit.
“‘If we could wave a wand and housing prices go up 10 percent, the subprime mortgage problem would disappear,’ he said.
“What kind of a rock does this fucking idiot Alan Greenspan live under?”
Amazing Mental Rot, JH Kunstler, March 17, 2007
“Irvine-based New Century Financial Corp. wasn’t the only so-called sub-prime lender, passing out easy-money loans to people who probably shouldn’t have gotten one. But the company’s collapse has so far been the most dramatic, and already appears to be impacting the economy as a whole.
“Now, if more and more homeowners default on their loans — flooding the market with foreclosures — and the marketplace starts to clamp down on who qualifies for a loan (limiting the number of available buyers), all of us homeowners could be in for a shock.
“If home values start to really drop, those of us who bought in the past few years could suddenly see our homes worth less than our mortgages.
“Of course, this is exactly what a lot of people — including me — thought would eventually happen: Loads of defaults and foreclosures once the rash of ARMs first approved in 2005 and 2006 suddenly adjusted.
“This was a recipe for disaster: Take people with low credit scores and no downpayment money. Give them a manageable adjustable rate mortgage to get their foot in the door — but with a catch: The loans will soon adjust to a new rate nearly double that original rate. C’mon!
“New Century apparently couldn’t help itself. Risky loans were the only way to prop up their sales volume last year, as the market began to cool. Perhaps they were deluded — after all, defaults were rare until recently, as people who couldn’t afford their adjusted mortgage rates could either sell their house at a hefty profit, or refinance.”
Angelenos of the Week: New Century Financial Corp., Franklin Avenue, March 16, 2007
You’re damned if you rent and you’re damned if you buy. I think I’ll sit tight in my little one-bedroom in a well-kept fourplex in Lincoln Heights a little longer. My landlord’s cool; he knocked $20/month off the perfectly legal rent increase when I asked him to, so I might as well stick around.