The poll results ran about 3 to 1 in favor of trickle, but I think we can agree that a flood is certainly possible. All it would take is:
1. Citizens revolt, resulting in a political uprising that turns off the backstop, or
2. One of the servicers who also owns a lot of paper breaks rank, and unloads. They decide that being the first one out wins. But it would take a real renegade.
Where is Angelo when you need him?
Hi Jim,
Thanks for letting me present the opposing case in the prior thread. I believe that a variation of #1 is eventually going to take hold; humans are basically (as a group) optimistic, and cannot bear crisis for too long. It wears on the psyche. I think we can bear about another 6 months before everyone in America just wants to forget all about the Great Recession and get on with their lives. At that point, there will be no political will to continue bailouts, and if needs be, there will be another RTC established that will simply unwind all of the assets.
Remember what I said… the crisis in subprime was not really related to foreclosures per se, those were the side issue, but rather that financial firms (and banks) had heavily invested in securities that were untradeable. That crisis is largely over, with the FED being the lender of last resort. All of the asset impairment on held-to-maturity notes is still ahead of us, but far less dramatic in its time scale. IMO. They’ll implode one-by-one over the next 3 years and need to get cleared out. We’ll see a lot more local and regional banks implode from these notes and FNM FRE will continue to bleed profusely.
Chuck Ponzi
If another RTC is created home prices will drop dramatically in the areas properties are auctioned.
I worked at the Small Business Administration HQ in Denver as a summer intern one year. I worked with one of the accountants that liquidated all the S&L assets. His group worked 8 hours a day 40 hours a week for 4 years selling/auctioning assets at 20% of their booked “value”.
The S&L crash was/is small potatoes (focused primarily in southwest states) when compared to the National Housing Bubble that’s been going on for the last 10 years.
Yes,
Consider the facts in this article that came out today:
http://finance.yahoo.com/news/US-largeloan-bank-losses-rb-3031314786.html?x=0&sec=topStories&pos=7&asset=&ccode=
You’ve got an exponential rise in potential bank losses (even from 1 year ago), and there still seems to be a debate whether banks can slowly “trickle” them out.
It’s like the little dutch boy with his finger stuck in the dike telling the townspeople that “it’s contained”.
Yeah, but pressure is building, not receding!
I try not to be alarmist, but anyone buying now should know what is likely to happen in the future.
Chuck
Jim,
What is your take on the Landmark Natl Bank vs. Kesler ruling? I know it only affects Kansas as of now, but it does seem to set a precedent that might greatly affect California and the abundance of Alt-A/Option Arm loans that were issued here. I think that this ruling, if or when something akin to it is brought about here in California, might make a huge difference in the trickle vs. flood debate.
Citizen’s revolt? Who do you envision doing that? Not sure what “backstop” means.
Chuck,
Are you saying it’s time to invest in SKF again? 😀
My only thought is that you’ll see more bank failures. A lot more.
As I noted before, markets can remain irrational longer than you can remain solvent. I thought we would have had the banking crisis and attendant plunge in the stock market back in late 2007. I was only off by 1 year, but that 1 year is an eternity in the investment world. At least now-a-days it is.
Chuck Ponzi
All I can say, from regularly attending trustee sales, is that the system is already near saturation. There is such a sheer volume of properties going through there, and so many buyers, that I don’t know how it could handle many more. It’s already difficult to even get near the auctioneer in LA County, and the sale goes on all day. In the winter it will be getting dark before the sales are done.