San Diego Housing Bubble News and Analysis

just for comparison, the debt level as a percentage of GDP in the late 1920's peaked at about 260%

you are talking about getting from our current 350% down to 280% debt a decade from now

260% debt was too much in the 1920's

are we capable of carrying these debt levels for another decade?

time will tell

~

not sure about keeping people in their houses

none of the bailout plans so far have made much difference to the housing market

what has changed in the housing market:
- must prove income to obtain mortgage
- must have down payment to obtain mortgage

those are two negative changes and the only positive change I see is that interest rates are coming down

the Option ARM mortgages that are resetting in 2009/10 will benefit from the current low interest rates

without a return of stated-income (liar's), nothing down mortgages I see a long hard road for So Cal and other high priced real estate markets

reducing mortgage principal might help some people but the 'forgiveness' plans I have read about just transfer the 'forgiven' part of the loan into a 2nd note or lien that remains a burden on the property - the new mortgage is likely to be a recourse loan so the 'forgiven' loan holder puts their other assets at risk - better to walk away IMO

outright forgiveness of mortgage principal would have to be widespread and dramatic - we are talking about millions of mortgages which, in some cases, are underwater by several hundred thousand dollars per mortgage - it is possible but I'm not holding my breath

rewriting mortgages is complicated by the layers of derivative paper written against bundled mortgages - what happens to these MBS, CDO, etc when the mortgages bundled within them are being written down? - some of these derivatives have clauses that force the issuer to repurchase 'bad' mortgages at face value

~

what signs do you see that indicate any slowing of debt build?

I see articles talking about $2 and $3 trillion dollar deficits in 2009 - lots of new spending with no reductions in existing spending

if anything, debt build has to continue on an exponential path to infinity (which of course it can't) to support the increasing burden of interest payments as well as feed new growth - this is one of the reasons why George Ure (www. urbansurvival.com) posits that fiat currencies are limited to a lifespan of about 83 years

in the 1920's the debt build reached 260% before collapsing - we have managed 350% (is that progress?) - how high can we take this ratio? - you think the ratio is going lower over the next decade

again, time will tell

develj, I like a lot of the things you post. You seem to be able to cover the macro situation pretty well, from a perspective. However I take real umbrage with your, "get over it life ain't fair," attitude.

Thats the sort of attitude that starts wars. You are right insofar as inherently life ain't fair. What I see however is that the govt has now blundered through a year of deflation without even admitting the problem. Sure they've talked about debt a little bit but not a single institution in our "system" of govt has performed its check or balance properly, which has allowed major fraud to accrue. The real underlying problem with this is that our economy is fundamentally dependent on that fraud for "growth."

Restructuring our economy away from fraud is what the discovery phase we are in is beginning to do. Our govt however has done everything it could to prevent that from happening and yet you seem to feel that as a general principal TPTB are slowly getting it right? We are now at the point where the Fed is the lender of ONLY resort.

Until we have an honest discussion as a nation about living within our means, we won't be headed in the right direction as in real economic growth and our debt to GDP will increase simply from GDP decreasing as people with real money take it out of the markets.

As the ultimate demonstration of that, the Fed is monetizing everything in sight, but banks aren't lending. People don't want to borrow and the Fed hasn't found a way to induce them to do so. How could it, we are currently in deflation despite its best efforts to the contrary. As another piece of evidence, gold (which I thought would decline) has stayed expensive and t-bills have increased in price as yield has declined quite sharply. That is because lots of money is trying to bridge the divide between the deflation we are seeing now and the inflation that they are really scared is around the corner if all that printed money does get into circulation, or one of our creditors goes with the nuclear option on their side.

barnaby, I don't disagree with anything you're saying but... I'm a pragmatist, not an idealist. My tax share of this bailout will be huge. But I'd rather pay my share than see the country go into a depression. And I suspect the govt will force it down our collective throats. So rather than get miffed about it, I find it more constructive to just accept it and plan accordingly. I would be more upset (and prone to "action") if I thought our officials were evil and that all of these measures were going to be permanent, but I don't believe that. They're just bumblers who very slowly come around to reasonable answers. The irony is that as each month passes and the economy and credit markets get worse (or don't improve in the latter case), I think the Officialdom has a better understanding of the problems and how to combat them. Again, it will be ugly and full of trial and error, but we'll trudge through this thing.

The structure of the debt of the late-1920s was very different than today. Much shorter-term and at higher rates, so the payments as a percentage of income were higher. Don't get me wrong, I think a more sustainable - that is, "healthy" - level of debt-to-GDP is under 250% (200% would be nice), but the total debt service ratio at 280% today (given mortgage and treasury rates and terms) would be materially lower than the debt service ratio of the late-1920s. Again, I'm all for less debt. I'm just trying to compare apples to apples from an economic standpoint.

Where the mortgage restructuring issue is concerned, as I mentioned in my original post, the issue is that restructuring these things is complicated. I'm right there with you on this issue. It all looks good on paper, but actually going through these things one by one is a major undertaking. Again, even though it rewards dummies, I'm for outright principal reductions that we - via our ownership of Fannie and Freddie - will eat. But that's just me. A year ago I would have been against it, but my tune has changed based on the severity of the situation. From a pragmatic standpoint, I'd rather eat my share of those losses via higher taxes than see a depression. Again, that's just me.

Regarding federal debt, recall that a lot of the debt we're taking on right now is backed by assets. Some of these assets are of dubious quality, mind you, but most are not. I think, for example, that the TARP money going into banks will be, net/net, money good. We'll lose some money in a few cases, but we'll make it back on the others. The vast majority of the banks getting the TARP money will survive, pay back principal and interest and the equity stakes will be worth something. But a few will fall over, undoubtedly.

The REAL NEW debt is comprised of (1) the various stimulus plans and (2) the losses we take on however we decide to tackle the residential mortgage issue. These are pure holes that have to be filled and will likely total a few $trillion, as I addressed in my previous post. And even the stimulus isn't a total hole - there will be some real benefits gained. But I think you get the point.

In a very real sense confidence IS liquidity. The Fed has taken 2 trillion of questionable assets and has pledged to up to 8 trillion. There are 2 lawsuits against the Fed now to disclose the assets. One from Bloomberg and one from, interestingly, Fox news. The Fed is stating that disclosure would cause lack of confidence. Actually they are citing a trade secret statute in their reason for not disclosing. Like it is the formula for Coke or something.

Ironically, the only thing that will bring back confidence is transparency which they refuse to give. You have to ask yourself WHY are Bloomberg and Fox are so nervous about those assets? Until everything is thrown on the table and all losing bets are accounted for it's a losing game and no confidence will return to the credit market, IMO

The structured finance market is dead and they are gambling with our money that it will come back when it is obvious it will not. What percentage of GDP was that? Those assets are losing value daily and foreign investors know this.

Adhering to an economy that relies on bubbles, over consumption and failed structured finance to survive wont and will only end in complete ruin. There is no plan b.

davelj,

thanks for your prognostication. As always, you seem to have a keen understanding of these matters and convey your thoughts with clarity.

Has anyone suggested or heard of the government providing down payment assistance? It seems to me to be a much easier proposition to let those who truly can't afford their debt to foreclose and then provide the bank with assistence on the back end by letting the house sell for close to what the original mortgage was worth. This can be achieved by providing some sort of first time buyer down payment assistance of 15-20%. If combined with current interest rates this would get credit flowing again. It would also take away the moral hazard of people defaulting on payments just to get their principal reduction.

I must admit that I'm conflicted on this issue. On the one hand I'm in favor of transparency - it's tax dollars, ultimately, at risk, after all. But... I have friends that work in the MBS and structured finance markets, who understand the innards of lots of these securities and they can't make heads or tails of the current prices. That is, the values based on cash flows under Armageddon scenarios are much higher than the quotes. But there's zero long-term liquidity (that is, liquidity for anything more than a quick trade) out there and a lack of folks who understand these securities. So, the prices languish. And these friends are Original Bears. They saw the debacle coming and now they think we're on the other side of mark-to-model. That is, the values 18 months ago were silly on the upside and now they're just as silly on the downside. So, when you say that these assets are "losing value daily" do you mean they're losing MARKET value or losing INTRINSIC value? There's a rather large difference. My sources say the market values decline but the intrinsic values are well above the market values.

Anyhow, I don't have a good answer for you. I want transparency but there are a lot of otherwise good assets and institutions out there that trade as if they are otherwise. The worm has turned and the Officialdom is in a pickle.

I can understand the desire to keep these things confidential. The Officialdom is trying to stave off a run on the whole financial system, which benefits no one. But whether they're handling this aspect of the crisis properly will only be known in hindsight. I'm sympathetic to their plight... but I'd rather see the holdings, even if the values have to be explained away via footnotes.

davelj, if you are truly a pragmatist and thought this through as you say, then why defend a bailout? The govt cannot create wealth, it can merely re-distribute it. We all agree that transparency is required to restore trust, but that if transparency is provided some sort of run on the banking system will occur. This is a seeming paradox. You can't have it both ways.

I don't think our leadership is getting smarter, I think they are attempting to buy time and praying that somehow someone will just fix it. I haven't seen a single criminal prosecution, yet I've seen trillions of dollars go down the rat hole. Your supposition that most of the assets in the TARP are money good is shot down by your later admission that your friends who work in that marketplace can't even accurately value these instruments. Again, you can't have it both ways.

There is NO SUCH THING as intrinsic value. At any given point a thing is worth what someone will pay for it. The mere fact that until quite recently valuations were ridiculous by any historic measure is by no means a justification for obfuscating their values on the downside. Unless you are secretly backing the socialism for the rentier class that is.

We have a process for transparency its called bankruptcy. I'm all for modifying it to speed it up! I'm all for getting everything out in the open so we can actually figure out what a house should be worth. I'm all for understanding that this isn't a black and white issue in terms of resolving the interlocking financial dependencies. I cannot however see how any good comes from taking as much private debt as has been issued, and socializing it simply to prevent people from losing their homes.

How exactly would any of this pragmatic approach help fix the underlying problem of our entire economy (or at least the profitable parts) becoming one large leveraged ponzi scheme again?

I'm honestly open to convincing that the path that the Fed and Treasury are taking does the least damage, but so far I haven't seen any evidence thus, especially when I think upon the cost of the process.

Oh, and a couple of stats to keep our bubble in perspective vis-a-vis the Japanese.

At its peak in 1990, the sum of the Japanese property market (commercial and residential) and the stock market were 7.7x Japan's GDP.

The same calculation for the US in 2007 was 2.6x GDP.

So the Japanese asset bubble was almost 3x as large as our asset bubble relative to GDP. 95% of the debt that financed Japan's asset bubble resided in Japan. Only 74% of the debt that financed our asset bubble resides here in the US.

So, again, we're in bad shape. But Japan's bubble was in a whole different stratosphere. And their total debt-to-GDP was almost 290%. While our relative debt level is higher, our bubble was a fraction of theirs.

Just something to keep in mind when comparing our respective asset bubbles.

That the government can't create wealth but can merely redistribute it is a tautology. In our current circumstances, the redistribution is a "bridge" - so to speak - to better times. Debt burdens on marginal borrowers are reduced and employment increased today at a cost to the taxpayer that is spread out over years in the future. All in order to prevent a precipitous decline in output today that would have even greater ramifications for years to come. This is Macro 101. We can debate the details - size, anticipated effects, etc. - but certainly you grasp the concepts, yes?

"There is no such thing as intrinsic value?" Huh? Warren Buffett (and every corporate finance department in the world) will be distressed to learn this. When I say that the TARP assets are money good, I mean down the road... in the long term... held to maturity in receipt of actual cashflows. That's what intrinsic value is all about. There are "prices" - what someone will pay for an asset today - and there are "values" - the discounted value of what someone believes an asset's cashflows will yield over its term. Sometimes they intersect often, other times they don't. I believe that in the LONG term, the TARP assets will be money good. In the short term, any asset can trade at any price. My point in my previous post is that my friends have a very good idea as to what these securities are NOT worth (as cashflow investments held to term), and that is the prices that they're trading at; they believe they're worth considerably more.

But the reality is that if you don't believe in a difference between price (today) and intrinsic value (based on cashflows held to term), then there's no point in discussing these issues. If you believe that illiquidity influences value, as opposed to price, then we can't have an intelligent discussion. I will suggest that, based on your supposition of no intrinsic value, you must pursue an interesting investment strategy.

"the redistribution is a "bridge" - so to speak - to better times"

spoken like a true Keynesian!

now tell me that the bridge money will be pulled back out of the economy once the 'crisis' is over - I always enjoy laughing out loud - it's good for my health

unfortunately history has shown that the Keynesian bridges only prolong the financial agony and add significantly to the amount of financial pain everyone experiences - ask Japan how their economy has been doing for the past 20 years

dave-
Do you think the AIG and C TARP funds will be money good in the long run?

davelj,

Two questions.

1) what makes these securities values better now? I mean, in a time of record defaults, foreclosures, and falling home prices; how can these guys know these securites "intrinsic" values? Everyone keeps talking about 'unpresidented' and 'never before seen since the depression'. What is it that makes the new assumptions about the long term worth of these securities so much better than the old ones? I have been hearing from morgage broker/securities traders all year about how "the worm has flipped" and how the valuations are gonna pop back up soon on bloggs and other more bullish websites. It is now very overdue according to them.

I dont question that our friends have a good understanding of these securities, nor that they recognized the bubble before. It was so obvious even a drunk rhino should have recognized it. What I question is why, if they are actually able to get their heads around it all, are we still heading toward a recession/depression? Why all the bailouts and secrecy and hand ringing? Why cant we now put a price on it all and move on? (What I was really hoping for is alittle bit more data)

Also:

2) Why do you keep talking about a depression? I can understand and even, maybe, support certain bailouts to avoid a depression. But I just dont believe we are on course for a depression. Maybe I am a pollyana, but I find little creditability in either our investment banking sector nor the people regulating them. It isnt like the bank/auto/insurance companies got hit by a metor or something, they have been poorly managed for a decade or more. I sometimes feel that the banking sector, in which many of my family work, is trying to blackmail us into saving them from themselves by having the government assume their debt.

Now if it is really just gonna be a strong/terrible recession, not a depression, (say 6-8% off GDP) we need to start recalculating the utility of that 2T in bailouts/tax payer rapeing you are talking about. Repairing bridges and fixing roads dont bring the same ROI as building them in the first place. Why would taxpayers taking it in the arse be better than just letting better managed companies devour the the good and letting investors learn the downside of risk/reward with the rest?

The stock bubble burst in 2000, and we had a recession, but it subsided as the RE bubble was inflated until that bubble burst as well, spreading far more pain than if we had just taken our recession, learned it isnt different this time, and made the necessary sacrifices. Instead we get to suffer more now for our unwillingness to suffer then. How is this time any different? How will we not pay in spades to 'avoid a depression' in the same way we pay now for trying to 'stimulate' our way out of the previous "jobless recovery"?

I guess what all this really is asking is why is it different this time?
(edit: or should we bail them out everytime?)

That the government can't create wealth but can merely redistribute it is a tautology

My statement was not a tautology. At best it jumped over a series of views and beliefs to encapsulate them. I think very much that it added to the conversation. If the govt cannot create wealth, but can redistribute it, then by doing so it is picking the winners. You can call it a bridge if you like. This is always true of govt policy, especially true when money (large sums) is involved. Normally the govts interference is limited to enforcing a series of rules that govern our collective marketplaces. However at this time those market places have broken down, due rightly to to much leverage (debt) and too much fraud. Instead of allowing the painful de-leveraging, which ultimately must occur, the govt is attempting to either slow or even stop the process. By re-distributing the pain from those who created it, to those who did not. It is creating extremely perverse incentives. Forcing otherwise healthy institutions to compete with those that are unhealthy and thus more likely to "win" economically because they have govt backing. It also forces those who exhibited correct behavior to foot the bill, which is of course, my ox being gored.

Debt burdens on marginal borrowers are reduced and employment increased today at a cost to the taxpayer that is spread out over years in the future. All in order to prevent a precipitous decline in output today that would have even greater ramifications for years to come. This is Macro 101. We can debate the details - size, anticipated effects, etc. - but certainly you grasp the concepts, yes?

I certainly do grasp the concepts, but I think in your pragmastism you've lost something. We've been doing exactly this now every year since at least 1983 with only two exceptions. At some point the thought process must come full circle to we are now dependent on that stimulation to keep some semblance of normal in the system. In other words no facade of demand could possible satisfy the title wave of supply that we have created in all facets of our society, without constant stimulation. At a certain point you pass the fulcrum where borrowing makes any sense, and someone finally asks, "how much are these assets really worth anyway?"

So the question always comes back to your ageless wisdom, "it all comes back to who's ox is being gored." In this case the solid majority of Americans who didn't go off the deep end of debt are being punished to subsidize the greed and profligacy of a minority of business and people. Now I could understand the argument about stimulus or debt creation if in the long term it really fixed the problem, but we keep going around and around with these credit inflation cycles and never fix the problem.

I don't even have children but assuming we can re-flate the economy temporarily what are we doing to another generation to feel less pain now? Just because the two generations before me kicked the can down to me, does that in any way justify me doing it to someone else? That's some kind of pragmatism.

As far as intrinsic value. Its a concept like anything else. You'll notice I don't use it, but did use historic value, because to me the current value of any object is a function of observing its price historically weighed against the current inputs of supply and demand (effective.) In computer science my valuation model is called a finite state machine. Its a simple machine who's next state or in this case price is determined by the current state and the series of inputs. If you believe in the intrinsic value of something and nobody else does, then how does it have intrinsic value? This is especially true in housing, where at most the intrinsic value of a unit is equal to some future discounted cash flow multiplier of its highest economic use. It stands to reason then that you must also have an intrinsic value for that multiplier, otherwise the value of the asset wouldn't be intrinsic as the multiplier changed. All I'm trying to illustrate is that we come up with models to value things, but ultimately its only true value is what someone else will give us for it, that we need.

'There is no means of avoiding the final collapse of a boom brought about by credit expansion. The question is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.'

Austrian School Economist, Ludwig von Mises

"That so many people trust in the power of their leaders to offset the natural progression from boom to bust in the economy is incredible. It can be demonstrated time and time again that leaders have always failed in their quest to arrest economic and financial decline. In fact, the more that these leaders believed in their power to maintain the status quo, the greater the ultimate damage and the greater the suffering endured by the people who had blindly placed their trust in them."

Ian Gordon, proponent of Kondratieff cycles

Folks, you all have some good questions. And there are good answers to them as well. Unfortunately, I would spend too much time getting to them all, as I've already spent more time than I wanted to addressing these issues. I have a life to attend to. So I'll let you all discuss amongst yourselves. My views will change when the facts change. And debating the facts doesn't really appeal to me. Best of luck. We're going to need it.

Folks, you all have some good questions. And there are good answers to them as well. Unfortunately, I would spend too much time getting to them all, as I've already spent more time than I wanted to addressing these issues. I have a life to attend to. So I'll let you all discuss amongst yourselves. My views will change when the facts change. And debating the facts doesn't really appeal to me. Best of luck. We're going to need it.

Drat, I knew you were going to say something like that. How about a hug, everyone could use a hug.
Josh

What! you mean your life does not revolve around an internet blog and the faceless people who staff it? What kinda blasphmey is this!?! :)

If anyone else can take a stab at why it is "different this time" id like to hear it. OH! BTW, anyone here that the retail industry wants a bailout now too?

http://money.cnn.com/2008/12/23/news/eco...

I know. I apologize. Hahaha... It's just that at some point I have to draw the line. The bottom line is that we're trying to get from Point A (declining employment, declining output, too much debt) to Point B (stable employment, stable output, and much lower debt-to-GDP). But we don't want to try to deleverage all at once, otherwise we end up in a depression that benefits no one. Thus, govt intervention - which will undoubtedly cost us down the road - is necessary, in my opinion. The best laid plans will still result in a long, deep recession. But the tools are there to prevent a depression and I think we should avail ourselves of such tools. The basic foundation of our financial system is sound. The problems are considerable, but are around the edges - too much leverage, off-balance sheet financing, too many derivatives, etc. But these problems can be addressed over time and through additional regulation. It's going to be ugly, but I don't think it's the End of Days. But the integrity of the backbone of the financial system has to be maintained (which requires govt assistance at this point)... otherwise we get Armageddon. Just my 2 cents.

Dave: A couple of things. First, you are approaching this as a banker, and I'd like to approach this an accountant. A cornerstone of the financial system is trust, from both a banking and an accounting perspective. The Enron/Arthur Andersen debacle showed what happens when a company (Andersen) ostensibly there to protect the public trust, abuses it for personal and company gain. We've seen the parallels on the banking side this year and it's led to the demise or acquisition of some the largest players in the market. You made the point some time ago that this situation wasn't driven by anything other than crappy assets and it was an easter egg hunt to find out who had what crappy assets that they were hiding off book. Similar to LTCM in 1998, it isn't the size of the company in question, it's how big their obligations are, and how difficult it is to unwind them. Until we have some level of better transparency, this problem is going to persist and the markets will remain frozen. No trust, no lending.

Second, there is not a politician at any level of American government that is willing to "bell the cat" when it comes to telling the American people the true state of wages, income and standard of living. Things have been going downhill since the 1970s and we've papered it over at every level with debt financing. Our manufacturing capability is a shadow of what it once was and we've gone from the world's largest creditor to the world's debtor. I don't see Obama, or anyone else for that matter, having a truly honest dialogue with the American people on this subject, because it would be political suicide. Many of the efforts of Paulson, Bernanke, Pelosi, et al, are nothing other than a means of extending the status quo ante and thus avoiding having to have that conversation at all.

wouldn't want the American population to realize that America peaked economically in the mid-1960's and everything since has been financial engineering

interesting that you mention "going downhill since the 1970s" - when did Nixon close the gold window?

oh yeah, 1971

Interesting article on Japan:

"Japan Should Scrap U.S. Debt; Dollar May Plummet, Mikuni Says"

http://www.bloomberg.com/apps/news?pid=2...

Public sentiment toward the accelerating economic fiasco has shifted, seemingly overnight, from a mood of nauseated amazement to one of panicked grievance as the United States moves closer to an apparent comprehensive collapse -- and so ill-timed, wouldn't you know it, to coincide with the annual rigors of Santa Claus. The tipping point seems to be the Bernie Madoff $50 billion Ponzi scandal, which represents the grossest failure of authority and hence legitimacy in finance to date in as much as Mr. Madoff was a former chairman of the NASDAQ, for godsake. It's like discovering that Ben Bernanke is running a meth lab inside the Federal Reserve. And out in the heartland, of course, there is the spectacle of Illinois governor Rod Blagojevich trying to desperately dodge a racketeering rap behind an implausible hairdo.

What seems to spook people now is the possibility that everybody in charge of everything is a fraud or a crook. Legitimacy has left the system.

http://jameshowardkunstler.typepad.com/c...

Allan from Fallbrook, I agree with your point of view.

Economists try to measure our material wellbeing. After a few decades, they came up with simple, crude measures like GNP and GDP. After a while, people forgot that they were crude and oversimplified, and the general public - and even many economists - came to accept them as gospel. Now almost everyone actually believes that these measures are true, accurate indicators of wellbeing. Real people's real activities are redirected to boost these measures. I think, Dave LJ, you may have fallen for this trap.

Consider an economy that is humming along with people making cars and food etc for each other, with a GDP per capita of $50,000. Now you change things, in the New Economy: You force everyone to spend the same time every day digging and refilling holes as they spend at work, and you pay them $25,000 a year for that. People can only produce half as much in useful goods as before, but the New Economy shows a GDP per capita of $50,000, same as before.

What's happening recently in our housing and asset markets in general is a very loud signal to us that we need to change what a lot of people do for a living. But in response, people who would lose in such a change spin a yarn that if we just boost this GDP per capita number, we'll be fine. Even if that number is artificially raised by paying people to do things that society at large doesn't want them to do any more. All this is doing is misleading people who need to change that change is unnecessary. And penalizing people who made good choices in order to transfer real wealth to people who made bad choices. This is not a good way to encourage people to make good responsible choices in the future.

Merry Christmas!

There are regions in this country already in a depression IMO - particularly the upper mid west (Detroit area for example).

I still say davelj needs a hug. Maybe even a peck on the cheek, though certainly not from me!
Josh

I remember reading once that those old-school telephone operators who used to manually patch calls through, if they had not been replaced by computer technology, that about 1/3 of the country would have to be employed patching calls through to handle current call volumes. clearly that would be inefficient. but with so many people patching calls through there would probably be fewer callers. The fear is always that there is nothing on the other side --nowhere productive for the unemployed call-patchers to go....and you know, maybe there actually is nothing on the other side...

There sure are a lot of people on this board who believe that government can save the economy. I'm not one of them. I'd prefer that the government completely remove itself from trying to prop up asset prices or the economy. I'm totally in favor of large public works projects that help keep the unemployment rate from getting out of control, but I don't see any reason why the government should be involved with the mortgage market.

Also, those who think low LIBOR rates are going to save the PAY Option ARMs should read Mr. Mortgage:

http://mrmortgage.ml-implode.com/2008/12...

The main problem for PAY Option ARMs is that most people are making the minimum payment, and it's the hard reset to full amortization that happens after 5 years that will take these mortgages down. Low rates have no affect on the fully amortized payment.

As for Davelj's assertion that most of the MBS's, CDO's, etc are undervalued right now, well, I think that's a crock of feces. There are still tons of foreclosures to come and valuing the three-letter-acronyms on current income is highly risky. Also, as another poster above said, do you really think AIG bailout money is "money good". Please.

I'm with you on this one 4plex.

Government intervention has always been sold as a temporary "rescue". However, the rescues become part of the budget so we've had rescues upon rescues, upon rescues.

Seriously, how does anyone know what Pay Option Arm holders are paying? Is there any real statistics or accurate data out there.