In a shocking surprise, all of those people who could not pay-off their mortgages are also having problems with their credit card bills. Late payments on consumer loans have reached 16 year highs. This does not bode well for the financial sector.
There are now a slew of plans being put forward by Washington to bail out homeowners struggling with their mortgage payments. Most of these plans reward brainless homeowners for taking risky loans, buying at the peak of the market, purchasing more home than they could afford, and not having any financial discipline. Of course, the smart homeowners who only purchased what they could afford within traditional lending ratios and used common-sense are the suckers in the proposed Washington plans. The majority of these hard-working homeowners will be paying for this bail-out via higher taxes and bank fees for a long period of time.
The concept that the loan values for under-water home owners will be set to 90% of the current house value, and the loss to the existing loans be taken by the banks and tax-payers is obscene. Especially when the government (meaning the taxpayer) will be on the hook for any of the new loans that still default. While Congress is at it -- why don't they just pay off all the late credit card debt, surely this will be a popular earmark attached to some bill.
Socialize Loss, Privatize Gain – Welcome the new Wall Street motto
On the other hand, now that the Fed has seen it fit to socialize investment banking losses by allowing trading firms to borrow at the discount window, and bailing-out Wall Street institutions; most of main-street America sees nothing wrong with bailing out homeowners directly for their poor decision making to the tune of 400 billion dollars in government loan guarantees. The axioms that currently apply to Wall Street should equally pertain to the individual consumer according to most sentiment surveys.
The discount borrowing by investment companies from the Federal Reserve ‘Discount Window’ reached $38.1 billion in daily borrowing this week; much greater than $7 billion averaged by standard banks. Rather than using these funds to improve liquidity in the credit sector, most of these firms appear to be using the borrowed funds to implement more risky carry strategies to make money. Someone at the Fed needs to close the barn door. The intent of the Fed program was to ease a potential liquidity crisis; in reality the action is expanding the bubble. The Fed should have placed more conditions on these loans when it agreed, for the first time, to let big investment houses temporarily get emergency loans directly from the central bank.
Thanks to Washington, it appears that there is no longer any punishment for poor business practices. No harsh (and proper) lesson will be learned by either the financial markets or individual homeowners about risk control or avoiding excess greed. A significant educational opportunity is being missed, and unfortunately it badly needs to be taught. The recent actions by the government will only increase risky behavior by institutions and consumers in the future.
Friday, April 4, 2008
Thursday, April 3, 2008
Are you being throttled by your ISP?
Comcast recently was caught throttling P2P traffic leaving customers fuming. More than one has filed lawsuits accusing Comcast of false advertising over claims the service offered “unfettered access to all the content, services, and applications that the Internet has to offer”.
Many customers find that their broadband service slows to a crawl when they use particular bandwidth extensive applications. Multiple cable companies have been accused of throttling customer bandwidth. In some cases, the customer simply has the misfortune of being located in an over-subscribed node. In other scenarios, it is probable that the cable company is “managing” bandwidth. Throttling types of traffic or information exchanges with particular web locations violate the concept of Net Neutrality, one of the founding principles of the internet until large corporate interests decided to attempt to squeeze more money out of the web. SaveTheInternet has continued to fight for the rights of all Internet users.
The following video that explains why discrimination on the Internet is a problem and will continue to be as long as net neutrality rules are not enforced.
Another excellent video (and winner of the 2007 Webby People's Voice Award) is Save the Internet!
FreePress outlines 5 Ways to Test If Your ISP Throttles P2P.
Take action now to save the Internet by supporting the Internet Freedom Preservation Act.
Many customers find that their broadband service slows to a crawl when they use particular bandwidth extensive applications. Multiple cable companies have been accused of throttling customer bandwidth. In some cases, the customer simply has the misfortune of being located in an over-subscribed node. In other scenarios, it is probable that the cable company is “managing” bandwidth. Throttling types of traffic or information exchanges with particular web locations violate the concept of Net Neutrality, one of the founding principles of the internet until large corporate interests decided to attempt to squeeze more money out of the web. SaveTheInternet has continued to fight for the rights of all Internet users.
The following video that explains why discrimination on the Internet is a problem and will continue to be as long as net neutrality rules are not enforced.
Another excellent video (and winner of the 2007 Webby People's Voice Award) is Save the Internet!
FreePress outlines 5 Ways to Test If Your ISP Throttles P2P.
Take action now to save the Internet by supporting the Internet Freedom Preservation Act.
From across the pond: The Banking Crisis
The mortgage credit crunch has not only impacted banks in the U.S., but has shocked financial institutions overseas. Filmed after the demise of Northern Rock in the U.K., this edition of Dispatches featuring Jon Moulton outlines the financial meltdown. The clip is an excellent educational summary of the greed-driven problems in the credit market that has left the world on the brink of recession.
Wednesday, April 2, 2008
New Poll: Gold
Gold rose above $1000 in March but has recently re-entrenched to below $900. The strengthening of the dollar and the perceived improvement with the credit situation on Wall Street put pressure on the price on gold. Gold is normally perceived as a precious metal which outperforms when the community has a lack of confidence in mainstream investments.
Where will gold be on July 1st? Take the new survey at the top left of the blog and give your thoughts.
Where will gold be on July 1st? Take the new survey at the top left of the blog and give your thoughts.
What is that sound? It’s the market bubble bursting in China
Previous Hingefire articles in 2007 outlined the increasing risk in Chinese stock markets and how the Chinese indexes were not strongly correlated with other world markets. The Plunge Continues – China in June 2007 warned of the risk that the Chinese markets were in a bubble and it was just a matter of time till they burst. The lack of correlation to the world markets was discussed in August. A HingeFire article in November recommended ETFs to short the Chinese market.
Fast-forward the clock to April of 2008, the Chinese stock market has become the world’s leading example of a bursting bubble. The Shanghai composite index has plunged 45 percent from its high, reached in October 2007. While markets world-wide have been down since this time, other major world indexes have all dropped less than 20% in the same time period.
The frenzy that surrounded the upside of the market in China has now dissipated leaving many investors angry and demanding that the government take action. A good number of the speculators lost their entire savings. Many have learned a harsh lesson in how quickly a bubble bursts.
To See a Stock Market Bubble Bursting, Look at Shanghai
“Look,” he said, “it took two years to go from 1,000 to 6,000 but two months to go from 6,000 to 3,500.”
Fast-forward the clock to April of 2008, the Chinese stock market has become the world’s leading example of a bursting bubble. The Shanghai composite index has plunged 45 percent from its high, reached in October 2007. While markets world-wide have been down since this time, other major world indexes have all dropped less than 20% in the same time period.
The frenzy that surrounded the upside of the market in China has now dissipated leaving many investors angry and demanding that the government take action. A good number of the speculators lost their entire savings. Many have learned a harsh lesson in how quickly a bubble bursts.
To See a Stock Market Bubble Bursting, Look at Shanghai
“Look,” he said, “it took two years to go from 1,000 to 6,000 but two months to go from 6,000 to 3,500.”
Tuesday, April 1, 2008
Triangle Housing Update
When driving around town, the pull-back in the Triangle real estate market is obvious to the casual observer. Houses sit on the market for many months and are still not sold. Land that developers planned to use for the next state of sub-divisions suddenly has large for-sale placards. Some developments have come to a screeching halt with no further construction
Most of the builders and real estate agents are absolutely glum about the local prospects. Many are fleeing to pursue other career opportunities.
Still the local real-estate organizations cheerlead, publicizing that the Triangle market is better off than other regions. Considering the state of real estate nationally, this is merely the equivalent of stating that being trampled by a wildebeest is preferable to being squashed by a hippo.
An N&O article today outlined that sales of the Triangle's existing homes fell for the eighth consecutive month in February. The local foreclosure rate has sky-rocketed while unemployment is now at 5%. Despite over 40,000 people coming to the region each year, most of the new-comers have not been able to unload their existing homes in other markets.
Despite the rise in inventory and drop in sales, the average price has managed to rise 3.1% from a year ago. Despite the attempts of the real estate industry to tout this, the news is actually dismal. Each month the average price rise decreases; shortly the figures will turn negative based on any type of statistical evaluation.
Local realtors are hoping for a strong spring/summer selling season, any type of evaluation of the market over time demonstrates that it is likely that their hopes will be crushed. There are no meaningful figures that indicate the local real estate market will improve during 2008. While the Triangle may not be as negatively impacted as other speculative markets, by no means is the region immune from real estate downside.
Sales of Triangle homes off again
Most of the builders and real estate agents are absolutely glum about the local prospects. Many are fleeing to pursue other career opportunities.
Still the local real-estate organizations cheerlead, publicizing that the Triangle market is better off than other regions. Considering the state of real estate nationally, this is merely the equivalent of stating that being trampled by a wildebeest is preferable to being squashed by a hippo.
An N&O article today outlined that sales of the Triangle's existing homes fell for the eighth consecutive month in February. The local foreclosure rate has sky-rocketed while unemployment is now at 5%. Despite over 40,000 people coming to the region each year, most of the new-comers have not been able to unload their existing homes in other markets.
Despite the rise in inventory and drop in sales, the average price has managed to rise 3.1% from a year ago. Despite the attempts of the real estate industry to tout this, the news is actually dismal. Each month the average price rise decreases; shortly the figures will turn negative based on any type of statistical evaluation.
Local realtors are hoping for a strong spring/summer selling season, any type of evaluation of the market over time demonstrates that it is likely that their hopes will be crushed. There are no meaningful figures that indicate the local real estate market will improve during 2008. While the Triangle may not be as negatively impacted as other speculative markets, by no means is the region immune from real estate downside.
Sales of Triangle homes off again
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