Shadow Inventory – The Flood that May Never Come

[sdduuuude]

A theory – presented for your discussion.

So, the banks have these loans on their books, which making them look fairly well capitalized because the value in the books is based on the on the original value of the loans.

Now, we all know lots of those loans won’t be paid back. We also know if they aren’t paid back, the bank will take posession of the house backing the loan, and that house isn’t worth as much as the loan, either.

When the bank sells the house on the market, the true value of the underlying loan is revealed in the books and that really hurts their balance sheet.

With the Feds doing “stress tests” the banks want to look as well capitalized as they possibly can. Also, much of these securities are used as collateral on loans they have taken. They’ll have to pay back the loans if the security is revalued.

If the Feds are expecting the bank to have a certain level of capital, and the bank owns a house that is worth 100K but on the books as 200K, and the bank sells that house, they have to go out and raise $100K capital through other means. So, the bank really has little incentive to put these things on the market.

This mark-to-fantasy marking of these loans and houses has completely reversed the workings of a normal foreclosure market. Usually, the first one to panic wins. Currently, the first one to panic has to go raise capital.

Now, the banks have to work through this inventory somehow, so eventually they are going to sell it off. But they aren’t going to sell it off any faster than they can raise capital through “normal” means – such as by accepting deposits into savings and checking accounts, or they’ll hurt their own books.

As such, I can’t really say I’m expecting all this shadow inventory to come on the market in any form of a flood, but in a very long-lasting trickle.

I see this lasting for years and years and years, with the banks just pushing enough inventory out there to bleed the bad assets out the door without forcing their books into the dirt. Meantime, the gov. will keep them propped up with loans based on those assets and it becomes a slow, painful waiting game.

It may be possible that the PPIP could force the inventory onto the market. That is – if a bank sets up a fake company, uses that fake company to buy their own assets through the PPIP with taxpayer-backed money, the fake company would probably want to ditch the houses ASAP. The bank takes the capital onto their books, the fake company sells the house for less than they paid, and the taxpayer forks over the difference.

Still, it seems PPIP isn’t moving alot of product out the door, so a trickle it remains and likely will for at long time.

[Mark Holmes]

Well, it certainly seems like that’s what is happening right now, and I don’t see a reason for it to stop any time soon. I’ve given up on the idea of buying a house for now. The idea of “investing” in what is clearly a game controlled very tightly by the house (the banks) is not to my liking. It’s like going to a casino that you know is run by the mob, where all the slots are rigged and every game is fixed.

I’ll keep renting…

[Mark Holmes]

Well, it certainly seems like that’s what is happening right now, and I don’t see a reason for it to stop any time soon. I’ve given up on the idea of buying a house for now. The idea of “investing” in what is clearly a game controlled very tightly by the house (the banks) is not to my liking. It’s like going to a casino that you know is run by the mob, where all the slots are rigged and every game is fixed.

I’ll keep renting…

[Mark Holmes]

Well, it certainly seems like that’s what is happening right now, and I don’t see a reason for it to stop any time soon. I’ve given up on the idea of buying a house for now. The idea of “investing” in what is clearly a game controlled very tightly by the house (the banks) is not to my liking. It’s like going to a casino that you know is run by the mob, where all the slots are rigged and every game is fixed.

I’ll keep renting…

[Mark Holmes]

Well, it certainly seems like that’s what is happening right now, and I don’t see a reason for it to stop any time soon. I’ve given up on the idea of buying a house for now. The idea of “investing” in what is clearly a game controlled very tightly by the house (the banks) is not to my liking. It’s like going to a casino that you know is run by the mob, where all the slots are rigged and every game is fixed.

I’ll keep renting…

[Mark Holmes]

Well, it certainly seems like that’s what is happening right now, and I don’t see a reason for it to stop any time soon. I’ve given up on the idea of buying a house for now. The idea of “investing” in what is clearly a game controlled very tightly by the house (the banks) is not to my liking. It’s like going to a casino that you know is run by the mob, where all the slots are rigged and every game is fixed.

I’ll keep renting…

[carlsbadworker]

Slightly off the topic but the whole “stress-test” is a joke. But it did accomplish one thing: now that the government is the conspirator of the banks to hide those shadown inventory, or else it will contradict itself. We are going down the same route as Japan.

[carlsbadworker]

Slightly off the topic but the whole “stress-test” is a joke. But it did accomplish one thing: now that the government is the conspirator of the banks to hide those shadown inventory, or else it will contradict itself. We are going down the same route as Japan.

[carlsbadworker]

Slightly off the topic but the whole “stress-test” is a joke. But it did accomplish one thing: now that the government is the conspirator of the banks to hide those shadown inventory, or else it will contradict itself. We are going down the same route as Japan.

[carlsbadworker]

Slightly off the topic but the whole “stress-test” is a joke. But it did accomplish one thing: now that the government is the conspirator of the banks to hide those shadown inventory, or else it will contradict itself. We are going down the same route as Japan.

[carlsbadworker]

Slightly off the topic but the whole “stress-test” is a joke. But it did accomplish one thing: now that the government is the conspirator of the banks to hide those shadown inventory, or else it will contradict itself. We are going down the same route as Japan.

[blahblahblah]

sdduuuuude is absolutely correct, this is going to happen. As for the carrying costs of all these dead assets, well the bailouts will help. They may choose to rent some of them out or do loan reworks that basically turn “homeowners’ into renters. There will also probably be some mysterious fires from time to time that take care of some of the unoccupied ones. Home prices may come down but it won’t be because of these foreclosures. The values of homes must be kept high! It’s just like the Soviet Union pretending that their harvest are at record yields while all of the store shelves are empty; the party line doesn’t reflect reality, everyone knows it but we just keep playing along. Be brave, comrades!

[blahblahblah]

sdduuuuude is absolutely correct, this is going to happen. As for the carrying costs of all these dead assets, well the bailouts will help. They may choose to rent some of them out or do loan reworks that basically turn “homeowners’ into renters. There will also probably be some mysterious fires from time to time that take care of some of the unoccupied ones. Home prices may come down but it won’t be because of these foreclosures. The values of homes must be kept high! It’s just like the Soviet Union pretending that their harvest are at record yields while all of the store shelves are empty; the party line doesn’t reflect reality, everyone knows it but we just keep playing along. Be brave, comrades!

[blahblahblah]

sdduuuuude is absolutely correct, this is going to happen. As for the carrying costs of all these dead assets, well the bailouts will help. They may choose to rent some of them out or do loan reworks that basically turn “homeowners’ into renters. There will also probably be some mysterious fires from time to time that take care of some of the unoccupied ones. Home prices may come down but it won’t be because of these foreclosures. The values of homes must be kept high! It’s just like the Soviet Union pretending that their harvest are at record yields while all of the store shelves are empty; the party line doesn’t reflect reality, everyone knows it but we just keep playing along. Be brave, comrades!

[blahblahblah]

sdduuuuude is absolutely correct, this is going to happen. As for the carrying costs of all these dead assets, well the bailouts will help. They may choose to rent some of them out or do loan reworks that basically turn “homeowners’ into renters. There will also probably be some mysterious fires from time to time that take care of some of the unoccupied ones. Home prices may come down but it won’t be because of these foreclosures. The values of homes must be kept high! It’s just like the Soviet Union pretending that their harvest are at record yields while all of the store shelves are empty; the party line doesn’t reflect reality, everyone knows it but we just keep playing along. Be brave, comrades!

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