Occasionally people in Government tell the truth. Usually this is a gaffe, but the Trustee in charge of the TARP program has written a well-researched and accurate report on the miserable state of the TARP program. I am impressed.
Today's featured property is a ridiculously priced Northwood tract home. I am not impressed.
Irvine Home Address … 2 BLUE SPRUCE Irvine, CA 92620
Resale Home Price …… $1,249,000
Do what I want cause I can and if I don't
because I wanna be ignored by the stiff and the bored
because I'm gonna.
Spit and retrieve cause I give and receive
because I wanna gonna get through your head what the mystery man said
because I'm gonna.
Hate to say I told you so.
I do believe I told you so.
The Hives – Hate To Say I Told You So
People ignore contrary or inconvenient information, particularly once they have made up their mind to do something. When our Government decided to act to save stupid
wankers bankers, they ignored the obvious problems their solutions were going to create — or to be more accurate, Government officials knew public relations problems were on the horizon due to the way taxpayers are being defrauded, and that these problems would require a bounty of bullshit to smooth over, but saving corporate campaign contributors (and enriching Goldman Sachs) was deemed more important, so you and I pay the price.
I came across the story TARP overseer says bank bailout program has mixed results that lead me to the SIGTARP Quarterly report to Congress (PDF). When I browsed the report, I was pleasantly surprised to read robust analysis and an accurate evaluation of the success (or lack thereof) of the TARP program:
This time of transition provides an opportunity to take a step back and examine whether Treasury’s efforts in TARP thus far have met the goals of the program. On the positive side, there are clear signs that aspects of the financial system are far more stable than they were at the height of the crisis in the fall of 2008. Many large banks have once again been able to raise funds in the capital markets, and some institutions — including some that appeared to be on the verge of collapse — have recovered sufficiently to repay their TARP investments years earlier than most would have predicted. These repayments and the sales of the warrants associated with them have meant that Treasury (and thus the taxpayer) has turned a profit on some of the individual TARP investments; as a result of these repayments, among other positive developments, it now appears that the ultimate cost of TARP to the American taxpayer, while still substantial, might be significantly less than initially estimated.
Many of TARP’s stated goals, however, have simply not been met. Despite the fact that the explicit goal of the Capital Purchase Program (“CPP”) was to increase financing to U.S. businesses and consumers, lending continues to decrease, month after month, and the TARP program designed specifically to address small-business lending — announced in March 2009 — has still not been implemented by Treasury. Notwithstanding the fact that preserving homeownership and promoting jobs were explicit purposes of the Emergency Economic Stabilization Act of 2008 (“EESA”), the statute that created TARP, nearly 16 months later, home foreclosures remain at record levels, the TARP foreclosure prevention program has only permanently modified a small fraction of eligible mortgages, and unemployment is the highest it has been in a generation. Whether these goals can effectively be met through existing TARP programs is very much an open question at this time. And to the extent that the Government had leverage through its status as a significant preferred shareholder to influence the largest TARP recipients to carry out such policy goals, it was lost with their exit from TARP. As important as assessing the effectiveness of TARP programs is, in the final analysis, TARP can truly only be a success if TARP is both managed well and its positive effects are enduring. The substantial costs of TARP — in money, moral hazard effects on the market, and Government credibility — will have been for naught if we do nothing to correct the fundamental problems in our financial system and end up in a similar or even greater crisis in two, or five, or ten years’ time. It is hard to see how any of the fundamental problems in the system have been addressed to date.
- To the extent that huge, interconnected, “too big to fail” institutions contributed to the crisis, those institutions are now even larger, in part because of the substantial subsidies provided by TARP and other bailout programs.
- To the extent that institutions were previously incentivized to take reckless risks through a “heads, I win; tails, the Government will bail me out” mentality, the market is more convinced than ever that the Government will step in as necessary to save systemically significant institutions. This perception was reinforced when TARP was extended until October 3, 2010, thus permitting Treasury to maintain a war chest of potential rescue funding at the same time that banks that have shown questionable ability to return to profitability (and in some cases are posting multi-billion-dollar losses) are exiting TARP programs.
- To the extent that large institutions’ risky behavior resulted from the desire to justify ever-greater bonuses — and indeed, the race appears to be on for TARP recipients to exit the program in order to avoid its pay restrictions — the current bonus season demonstrates that although there have been some improvements in the form that bonus compensation takes for some executives, there has been little fundamental change in the excessive compensation culture on Wall Street.
- To the extent that the crisis was fueled by a “bubble” in the housing market, the Federal Government’s concerted efforts to support home prices — as discussed more fully in Section 3 of this report — risk re-inflating that bubble in light of the Government’s effective takeover of the housing market through purchases and guarantees, either direct or implicit, of nearly all of the residential mortgage market.
Stated another way, even if TARP saved our financial system from driving off a cliff back in 2008, absent meaningful reform, we are still driving on the same winding mountain road, but this time in a faster car.
Kevin R. Puvalowski, SIGTARP's Deputy Special Inspector General, just earned my respect. The honesty and clarity of this assessment is remarkable for a bureaucrat — the program is not working, and the administrator says so. Perhaps I shouldn't be so cynical about our Government, but truth and reality are in short supply in Washington's public pronouncements, and this report contrasts and demands attention.
As Christopher Thornberg noted in Beacon Economics 2010 Orange County Forecast the main problem with our financial system is incentives and moral hazard, and Mr. Puvalowski hammers Congress with the truth — not that anyone is listening — but at least truth is being told.
Section 3 of the report (pages 109-130) contain great historical and current information on the GSEs, FHA and other programs the Government controls and uses to prop up house prices. It is worth taking the time to read in full:
Mechanisms for Supporting Home Prices
Supporting home prices is an explicit policy goal of the Government. As the White House stated in the announcement of HAMP for example, “President Obama’s programs to prevent foreclosures will help bolster home prices.”
In general, housing obeys the laws of supply and demand: higher demand leads to higher prices. Because increasing access to credit increases the pool of potential home buyers, increasing access to credit boosts home prices. The Federal Reserve can thus boost home prices by either lowering general interest rates or purchasing mortgages and MBS. Both actions, which the Federal Reserve is pursuing, have the effect of lowering interest rates, which increases demand by permitting borrowers to afford a higher home price on a given income. Similarly, the Administration is boosting home prices by encouraging bank lending (such as through TARP) and by instituting purchase incentives such as the First-Time Homebuyer Tax Credit. All of these actions increase the demand for homes, which increases home prices. In addition to direct Government activity, home prices can be lifted by general expectations among homebuyers of future price increases. Figure 3.7 provides a graphic representation of the relationship between possible Government actions and their impact on home prices.
Little things jumped out at me as I scanned the report. Did you realize that the Federal Reserve's program of buying GSE debt has now printed more money to buy toxic mortgages than it previously held in Government Treasuries? The Federal Reserve's balance sheet is bloated and holding more waste than patrons at an all-you-can-eat buffet.
Northwood is Immune?
When I saw the asking price on this home, I was floored. Can you pick out the estate asking $1,249,000 in the images below?
If the asking price was about half of what it is, the price may be reasonable, particularly when you factor in the upgrades, but I can see no justification for this asking price; in fact, I can see no rational for any price over $1,000,000. When I first saw the nearby 20 SILVEROAK for sale asking $958,000, I thought it was overpriced and likely to sit, but it wasn't so far out of reality to earn a WTF award; in contrast, today's featured property's pricing is beyond the pale, and both the realtor and the owner should be embarrassed.
Irvine Home Address … 2 BLUE SPRUCE Irvine, CA 92620
Resale Home Price … $1,249,000
Income Requirement ……. $260,092
Downpayment Needed … $249,800
20% Down Conventional
Home Purchase Price … $326,500
Home Purchase Date …. 12/19/1996
Net Gain (Loss) ………. $847,560
Percent Change ………. 282.5%
Annual Appreciation … 10.1%
Mortgage Interest Rate ………. 5.05%
Monthly Mortgage Payment … $5,394
Monthly Cash Outlays …..….… $7,110
Monthly Cost of Ownership … $5,100
Baths 3 full 1 part baths
Home Size 2,900 sq ft
($431 / sq ft)
Lot Size 5,917 sq ft
Year Built 1998
Days on Market 4
Listing Updated 2/5/2010
MLS Number S604335
Property Type Single Family, Residential
THIS IS IT!!! A beautifully remodeled Lexington home that shows like a model. The main living area has been opened into a spacious and elegant Great Room. The kitchen boasts granite counters, distressed hard wood cabinetry, double convection ovens, 5 burner range, built-in fridge/freezer, island with wine fridge, and more…. There are two entertainment areas, one down with surround sound and the other up in the added bonus room / loft. This home has a full bedroom and 3/4 bath downstairs and a full downstairs office. The outside is also an entertainers dream, with a large corner lot, the rear yard has a BBQ island, fridge, and sit up bar, covered eating area with a built in space heater and ceiling fan. There is a nice size yard and a raised 12 seat spa that is built into a vault. This home is a must see!!!
THIS IS IT!!! Is it just me, or do you smell the word shit in there somewhere?
This home is a must see!!! Can you feel the urgency?
entertainers dream? Perhaps Tempo MLS does not permit apostrophes?
Congratulations New Orleans Saints!
Sometimes Super Bowls are super duds, but last night's game was very well played by both teams on both sides of the ball, and I enjoyed the game thoroughly. As the Colts were driving for what looked like a game-tieing touchdown, only to be denied by a decisive interception, I thought it was a shame that one of these two great teams had to lose. The game was a marvelous capstone to a great NFL season.