So What Could Possibly Go Wrong?

Wall Street Bank Run

By David Ignatius
Thursday, February 21, 2008; Page A15

It doesn't look like an old-fashioned bank run because it involves the biggest financial institutions trading paper assets so complicated that even top executives don't fully understand the transactions. But that's what it is -- a spreading fear among financial institutions that their brethren can't be trusted to honor their obligations.

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The public, fortunately, doesn't understand how bad the situation is. If it did, we might have a real panic on our hands. And there would be more pressure for bad policies -- ones that try to freeze the damage, rather than letting prices fall to levels where buyers will return and the markets will clear. Hillary Clinton's proposed moratorium on home foreclosures, in that respect, is one of the truly bad ideas of our time. It would make the situation worse by increasing even more the illiquidity and inflexibility of the housing market.

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These markets are now so complicated that most of us can't begin to understand the details. So I asked the chief financial officer of a leading concern to walk me through what has been happening. The problem, he said, is that financial institutions are required to "mark to market" their tradable assets (which is a fancy term for setting a value) even when there isn't a functioning market. In many cases dealers can do little more than guess at the value -- and other investors down the line know it.

Read the remainder via the link. It is very good. But he does not go far enough. It almost reads like his editor cut the story half way through. He does not come full circle on the "mark to market" concept. That will have to happen for housing prices also, not just stocks and derivatives.

This About Sums It Up

"What is going on with the market?"

Which market? Housing? Stocks? Bonds? Why are things going south, and why does it seem like nothing is helping? It all seems to be unraveling.

MSNMoney has a good summary:

Why Wall Street rescues are failing

The financial system has become dependent on debt and the transfer of risk via convoluted debt instruments, creating a mess that will require hundreds of billions of dollars and global cooperation to fix.

By Jon Markman

Since the wheels started coming off the stock market last summer, investors have looked to at least seven white knights to end the distress with a bold stroke.

Yet each, including Federal Reserve Chairman Ben Bernanke and U.S. superinvestor Warren Buffett, has failed to lift investors' spirits for more than a couple of weeks, ultimately leaving stocks to tumble ever lower. Why?

The fundamental problem in the world economy is that it grew over the past two decades to be incredibly reliant on optimistic risk takers' willingness to accept increasingly complex IOUs from companies, banks and government institutions as investments instead of real assets. Now we are seeing the same movie play back in reverse, as massive investor losses in debts once believed to be safe have led to falling confidence, rising pessimism and extreme risk avoidance.

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Where will that money come from? The answer is nowhere, at least not very quickly. And that is why the markets are in danger of asphyxiation. It's also why the economy is threatened: For despite the lower cost of money, it's hard for businesses to get loans for expansion because banks need to keep as many dollars as possible on their balance sheets to meet reserve requirements.

Notice there is not too much housing talk in the article. Alittle lead up with the subprime mess. But he left out the impending Alt-A and other possible problems. Only time will tell.

Can You Believe These People??

City transfer tax may expand to cover incomplete real estate deals

Unfinished real estate deals on city's radar

By Gary Washburn | Tribune reporter

February 19, 2008

The city's real estate transfer tax is a proven cash cow, but the Daley administration -- ever on the lookout for ways to generate revenue -- is considering ways to make Bossy produce more milk.

Revenue Department officials want to increase the number of people who pay the tax and to require others to come up with cash more quickly. The under-the-radar action comes as all Chicago property purchasers brace for a 40 percent increase in the transfer tax the City Council recently approved as part of a Chicago Transit Authority rescue package.

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Under one proposal now in draft form, City Hall would require the transfer tax to be paid even when the buyer forfeits the down payment, which sometimes happens when a buyer backs out of a deal. Under a second proposal, the requirement to pony up would be triggered immediately when there is an installment agreement--a contract in which the buyer pays the seller over a period of months but does not receive title to the property until the last payment is made.

So.......they want to tax us on a transaction that did not happen?? ARE OUT OF THEIR FREAKIN MINDS?!?!?! Lord help us.

Helllllo???

Home prices in the state of denial

Thursday February 7, 5:58 pm ET

By Chris Isidore, CNNMoney.com senior writer

Despite numerous reports showing home values in historic decline, more than three out of four homeowners believe their own home has not lost value in the past year, according to an online survey.

The survey was conducted by Harris Interactive for Zillow.com, a Web site that gives estimated home values.

The survey of 1,619 homeowners found 36% believe their home has increased in value, and another 41% believe their value has stayed the same. Only 23% believe their home has lost value.

"This survey reveals that despite the data to the contrary, people either aren't paying attention to their housing market or are in denial about their own home's value," said Stan Humphries, Zillow.com vice president of data & analytics.

"Maybe your house, but not mine!"

Ok pal.

**MAYOR DALEY ADMITS CHICAGO PRICES ARE B.S.**

Flash! Daley just destroyed Chicago housing market!

Daley proposes overhaul of property tax system

CITY HALL Mayor says assessments skewed by fraud

February 8, 2008
BY FRAN SPIELMAN City Hall Reporter/fspielman@suntimes.com

Three months after pushing through the largest property tax increase in Chicago history, Mayor Daley tried Thursday to get back on the good side of homeowners.

The mayor unveiled a five-part plan to reform a property tax assessment system that, he has long complained, is so unfair and unpredictable, it needs to be “blown up.”

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“If you look at the whole mortgage foreclosure crisis, much of it is fraudulent appraisals. You’ve loaned money. It was worth $200,000. Now, the home is worth $500,000 and the banks can get their money back. … Fraud is skewing the comparables” used to make assessments, Daley said.

HOLY F-! This crazy wack just said that houses that claim to be worth $500,000 are really only worth $200,000!! That is it. Game Over.

CNN Foreclosure Ranking

#89

Chicago's very own West Pullman neighborhood tips in at #89 of the top zip codes that have the most foreclosures. Congrats!

$200,000

How far will $200,000 go?

Depends on where you look

February 15, 2008

BY KAY SEVERINSEN SearchChicago - Homes editor

If you think you can afford a $200,000 property, you’ll have lots to choose from. That price range, which we set at between $190,000 and $210,000, garnered 1,841 listings on SearchChicago, more than appeared in any of the $100,000, $300,000 and $400,000 ranges.

Chicago has a lot to offer. Lot's of food, booze, museums and high taxes. What it lacks is good public schools, solid roads, snow and ice removal and safe neighborhoods. If you want all of that, live in the burbs. You can always visit the retsurants, bars and extras.

They Would Eat Their Young

Chicago politicains are just simply unbelieveable. Just when the RE market is heading into it's toughest the spring selling season, they pull this stunt.

Chicago OKs real estate tax hike

February 6, 2008

BY FRAN SPIELMAN City Hall Reporter

Chicago aldermen held their noses today and held up their end of the deal that staved off massive CTA fare hikes and service cuts. But not before giving senior citizen homebuyers a reprieve.

Beginning April 1, Chicago homebuyers will be hit with a 40 percent increase in the city’s real estate transfer tax. Instead of paying $7.50 per $1,000 of sale price, they’ll pay $10.50.

I will predict a spike in closing before April. However, the damage this will do to prices and comps will yet to be seen. Stay tuned!