Big Wheeler

Left a good job in the city,
Workin for the man evry night and day,
And I never lost one minute of sleepin,
Worryin bout the way things might have been.

Big wheel keep on turnin,
Proud mary keep on burnin,
Rollin, rollin, rollin on the river.

Proud Mary — Creedence Clearwater Revival

Link to Music Video

IMO, there are four kinds of people in the market right now:

  1. Those who are stressed out and losing sleep because of the housing slump.
  2. Those who are in denial and not stressed out yet.
  3. Those who can afford their payments and don’t care about prices.
  4. Those who are not in a market position and can watch the carnage from the sidelines.

BTW, Group 4 is also sleeping well at night. Big wheel keep on turnin…
20 Wheeler Front20 Wheeler Kitchen

Asking Price: $850,000IrvineRenter

Income Requirement: $212,500

Downpayment Needed: $170,000

Purchase Price: $880,000

Purchase Date: 9/21/2005

Address: 20 Wheeler, Irvine, CA 92620

1st Loan $650,000
Downpayment $230,000

Beds: 4
Baths: 3
Sq. Ft.: 2,574
$/Sq. Ft.: $330
Lot Size: 5,000 sq. ft.
Type: Single Family Residence
Style: Other
Year Built: 1986
Stories: Two Levels
Area: Northwood
County: Orange
MLS#: S509104
Status: Active
On Redfin: 2 days

From Redfin, “This is a fantastic highly desirable corner lot home in the wonderful city of Irvine. This two floor home is great for entertaining with open areas, beatiful back yard, and a bbq area. This home features 3 bedrooms upstairs, one of which is the master bedroom, and two full bathrooms. Downstairs you will find an additional bedroom with another full bath. The kitchen has been remodeled recently and has a breakfast area. There is an indoor laundry room with room for full size washer and dryer.”

Highly desirable corner lot. You mean the one backing onto the arterial at the main entrance where you will have maximum traffic?

.

.

The seller of this house put up a substantial downpayment, so this is not a short sale. If they get their asking price and pay a 6% commission, they stand to lose $81,000.

I don’t know why they are moving, but I admire that they are selling at a loss when they are not being forced out in a foreclosure. Perhaps they recognize they will lose all their equity if they wait. If so, it is a smart move.

.

.

This has nothing to do with the post, but I am always scared by this graph — updated in September 2007.

September Foreclosures

From our friend at Piggington’s.

76 thoughts on “Big Wheeler

  1. lawyerliz

    My house is nearly paid off and I am losing sleep, not about housing, but about a possible depression.

    Everywhere I go, on the space coast and Miami, I am hearing about middle to upper middle people who are speculated and now are losing houses, and people who cannot make their
    payments. We have the insurance crisis bumping payments up also.

    The Ford dealership guy where I had my car serviced yesterday, said his relative the car salesman was having a really bad time, and agreed that we might be in for a depression.

    The lady who cut my hair said her mom (who had HELOCed apparently), and whose insurance went up by thousands, was having great difficulty paying her mtg.

    Many mini starter offices where I have my offices are vacant. Much more so than ever before.

    The stock mkt tv channel was just doing some interviews in which the interviewees were admitting we were NOT at the bottom.

    Gosh.

    Off to Miami.
    —–

  2. NanoWest

    It is good to see a seller price their home in Irvine at $330 per square foot. This is far below the normal first asking price of $420 per square foot that you see so often. At least they have a chance of finding a buyer in a reasonable time period. They even took a picture that makes the house look reasonable. That being said, the home will most likely languish on the market until next year and then sell at about $280 per square foot.

  3. Nic

    Aren’t we in depression already? It always takes a few years to realize it. However, how worse could it be right now. War, Health Care, Housing, all this is not in a really good shape right now. IMO we are in a recession since 2006 and will be until 2010 or so. I’m no economic major, but isn’t it obvious? By the wasy, so glad to be number 4!

  4. HONESTLY

    $850,000 and it doesn’t even come with washer/dryer?????? I live in Glendale, I come here for entertainment only. IR is better than SNL.

  5. Larrygg

    I don’t agree with the comment that $170K is a substantial downpayment on a $900K house. It’s a drop in the bucket and I would venture to say they will probably be losing all of it when the dust settles. The house is worth about $685K tops.

  6. MovingToIrvine

    I enjoy reading your blog everyday. I am changing jobs and the job will be in Irvine. From reading your blog, I learned that its not the time to buy. Is there a good site to find out about places to rent in Irvine or around Irvine?

  7. Eric West

    I am headed to Sunny San Diego here in the next several weeks. Moving there after having spent 30 years in Mid-Michigan and tired of the insane weather, depressed economy and run down cities.

    There could be a graph such as that one made out for any major city in the US right now. Foreclosures are increasing daily and I predict it only to get much worse over the next 6 months to a year before there is any leveling off. I read that next year a lot of loans are going to adjust in 08 and that should be the peak of the problem. It will take a long time to turn the market around and get rid of all this inventory however. Here in Genesee County, MI there is over a years worth on the market right now and average time on the market is nearly a year. We are hit largely by the automotive decline in recent years and add that on top of everything else Michigan has the highest unemployment rate and 3rd for foreclosures in the nation.

    I enjoy your blog, I will definitely be subscribing to it.
    Eric West
    No Down Payment, No Qualifying, No Credit Check

  8. Irvinexpat

    Everyone stop, this is just another flip, it is listed for $950k (mls#-S509104 7 dom). Most recent sale in the tract was $815k.

  9. Irvinexpat

    That most recent sale is 17 woodlawn, Closed for $815k on 8/31/07, decent remodel, 2200 sq ft, 3/2.5.

  10. mark

    If you’re going to claim we’re in a depression, maybe you should define your parameters for making that determination. With unemployment below 5% (basically full-employment of willing market participants), that’s gonna be a tough case to make.

  11. Condor

    Uh…I got to ask, how is $170,000 down payment their purchase price “a drop in the bucket”? I’m not arguing the owners may not ultimately lose the whole amount, just don’t understand your logic.

    Oh and we’re not in a depression yet. We may ultimately be in one. But as long as JW keeps pumping $$$$$$$ into his war, some of that flows back into propping up the economy, however unproductively that money is spent. I think the depression begins when the war stops. Not even China will be able to bail us out when that happens. Of course, none of that changes the fact that the weather will be great and OC will be a great place to live. If that weren’t true none of us would be circling this board trying to divine when would be the time to strike.

  12. zoiks

    I like hearing about how “next year” the problem will peak. Sure, it’s possible, but I think the following scenario is at least as likely:

    2008 – peak in ARM resets
    2009 – peak in defaults
    2010 – peak in trustee sales
    2011 – peak in REOs coming to market
    2012 – peak in bank failures
    2013 – peak in inventory
    2014 – peak in inflation
    2015 – peak in interest rates
    2016 – peak in unemployment
    2017 – bottom in housing
    2018 – Mad Max battles the bad guy gangs for water, gas, and women

  13. mark

    You can’t throw the “depression” case around using anecdotal evidence ignoring all relevant macro-economic data. There will be turmoil. Capitalism destroys and rebuilds.

  14. SawItComing

    I agree with a Larry about the down payment. Most buyers in this price range SHOULD be rolling in equity from a prior sale and putting more than 50% down.

    $230k sounds like a huge down payment, but $650k is a heck of a lot of money to borrow and hopefully pay back….Even if you make $212K

    Liz, no question the entire nation is already in recession. Most people I know are struggling and if they aren’t they are getting nervous about the future. The new Master Craft boat dealer near here has over 35 boats still in stock going into winter. At ~50k each is there any wonder? This is in an area where they usually sell most of their inventory by Memorial Day.

    There are now 3 foreclosures within 1/4 mile of me and I just saw one of the owners name on another foreclosure on a golfcourse lot south of here.

    Does anyone else think that $500k is still a lot of money?

    Admittedly, I am way too financially conservative but that comes from seeing first hand the destruction of our manufacturing base by Communist Chinese loving Americans..(our govt, corporations, AND consumers)

    Glad I stocked up on precious metals. Not (Au) but (Pb)+(Cu/Zn) πŸ™‚

  15. mark

    So because a guy with an inventory of unsold $50k boats can’t sell ’em, and there are three foreclosures in your neighborhood, the nation’s economy is in a recession?

  16. Sue

    Seconded. I am enjoying renting from the Irvine Company. It’s expensive, but the services are good. And I don’t have to worry about renting from some homebuyer a few months away from foreclosure (ie. lose your deposit, get kicked out by the bank later).

  17. DeadBeatRenter

    There is no doubt that the Orange County economy is in deep trouble, call it what you like. Big ticket items are in the tank, Housing, motorhomes, boats, cars. Job losses have only just begun….There really is no bottom to all of this in sight and no light at the end of the tunnel.

  18. Sue

    Huh? Wasn’t the lender standards tightening supposed to have been started before 2007?

    Default rate on U.S. subprime mortgages continues to rise

    http://www.iht.com/articles/2007/10/16/business/mortgage.php

    Borrowers who took out loans in the first six months of 2007 are falling behind on payments faster than homeowners who took out loans last year, according to a report by Friedman, Billings, Ramsey, an investment bank based in Arlington, Virginia.

    The data suggested that more Americans could lose their homes and that the housing market’s troubles might persist longer than many analysts have been predicting.

  19. skek

    I agree that claiming we are in a depression because of a few anecdotes is premature. By some standards, a depression is an economic downturn where real GDP declines by more than 10 percent. (A recession is an economic downturn less than 10 percent, or by another measure, a decline in GDP for at least two consecutive quarters).

    Using this formula, the last depression in the United States was from May 1937 to June 1938, where real GDP declined by 18.2 percent. We haven’t had anything even close to a depression in the post-war period. The worst recession in the last 60 years was from November 1973 to March 1975, where real GDP fell by 4.9 percent.

    The housing market may be bad, but we are far, far from a depression. In fact, outside of the housing sector and the credit markets, the economy is doing pretty well. Didn’t the stock market just set a record high? Someone is confident out there.

    I used an About.com entry to get my stats and dates: http://economics.about.com/cs/businesscycles/a/depressions.htm.

  20. Pete

    Sanity will return when people will understand the difference between “capitol” and “capital”, and between “principle” and “principal”

    Hard core capitalists now throw away their conservative “principles” and look at the “capitol” to repay their “principal” and save their “capital” !

    Sad …

  21. Iblis

    19th century – “panic”
    1930’s – “depression”
    1970’s – “recession”
    1990’s to present – “correction”

    A depression is not possible. We just don’t use that word for it anymore πŸ™‚

  22. Sue

    Adjustable rates still a mystery to many, study says

    http://www.startribune.com/535/story/1486722.html

    Nearly half of homeowners with adjustable rate mortgages don’t know exactly how they work, according to a national survey released Monday by the AFL-CIO.
    Three-fourths also couldn’t say what their new monthly mortgage payments will be after an interest rate reset, according to the survey of 500 homeowners who took adjustable-rate mortgages (ARMs) from 2002 to 2006.

  23. Sue

    http://www.ofheo.gov/newsroom.aspx?ID=392&q1=1&q2=None

    FOR IMMEDIATE RELEASE
    October 16, 2007

    NO DECLINE IN 2008 CONFORMING LOAN LIMIT
    Additional Comments Sought on a Revised Loan Limit Guidance; New Mortgage Market Note on Historical Trends in Conforming Loan Limit

    Washington, DC – The Office of Federal Housing Enterprise Oversight (OFHEO) announced today three actions regarding the calculation of the conforming loan limit, which establishes the maximum mortgage loan value eligible for purchase by Fannie Mae and Freddie Mac.

    OFHEO Director James Lockhart announced that, based on provisions in the proposed guidance, the current conforming loan limit will not be reduced for 2008. If the index used to calculate the maximum loan level should increase, the amount of the increase in 2008 would be reduced by the decline calculated in 2006 of 0.16%. Under no circumstance, however, would the maximum loan level for 2008 drop below the 2006 and 2007 limit of $417,000.

  24. hoover

    Very informative article. One cannot help but admire Goldman, which managed to make money both ways. Never bet against the house.

  25. Sue

    September Southland home sales lowest in more than 20 years

    http://www.dqnews.com/RRSCA1007.shtm

    La Jolla,CA—-Home sales in Southern California plunged to the lowest level in more than two decades, as financing with “jumbo” mortgages dropped by half. The median price paid for a home dropped sharply as a result, a real estate information service reported.

  26. lawyerliz

    My anecdotes are from the Space Coast and Miami area,
    3,000 miles away. We are not in a depression right now, we
    are merely speeding toward one, full speed ahead. I see nothing that can stop it.

    I don’t think you can trust the data coming out of the govt.

    I think that there are a whole lot of people about to become unemployed in the next few months.

    My mtg broker buddies down the hall have no business. None
    at all. They have some possible business for the future, but only if the banks relent from extreme strictness or the Sellers get real, neither one of which is going to happen soom.

    These people are not counted in any unemployment figures, but they are merely hanging on because they haven’t found other jobs yet. I think there are many people who are in this situation, who will dribble into the unemployment figures as slowly as the Bush administration can manage it.

    I just think that knowing what we do, it would be prudent to cover ourselves. . . just in case. At worst we will lose a few thou in opportunity costs. At best (best being not good) will will have food on the table and a roof over our heads.

  27. lawyerliz

    Hunh? I thought that there was pressure for them to go up and nobody was thinking a single thought about lowering them.

  28. lawyerliz

    Yeah, but now he’s not in a position to tell the truth. If he thought there was going to be a recession, would he say, ok
    folks, there’s going to be a recession, batten down the hatches?

    Certainly not.

    I wouldn’t in his place, it might bring it on sooner rather than
    later.

    Greenspan has some much residual admiration (maybe not by you guys, but by many people), that he can’t tell the truth either,
    hence the 50-50 chance of recession he predicted.

    The only reason to come clean would be if there were a clear course you could follow, no matter how painful, and the pres/congress were opposing it, which they would be, and you needed to blast them out of the water. I see no clear course, I see no course at all except to buy physical objects of various kinds, or maybe mining stocks, or selling short, and this is a course to follow for
    people, not gov’ts. there may have been something to be done
    2-3 years ago, but that water has long since flowed over the dam and out to sea.

  29. lendingmaestro

    Mark,

    I would definitely say that the average american citizen is experience a recession. I speak with many customers, co-workers and friends across the country. The problem is that our economic data that we use is skewed to reflect a globalized economy.

    The DOW is not only poor reflection of the stock market, but an ineffective measure of the american citizen’s financial outlook. The companies that are doing well giant globalzed companies that are outsourcing jobs, exporting to foreign countries due to the cheap dollar, and enjoying a flood of new money from real estate and long term bonds.

    Our country has become a country of salespeople. Our manufacturing base went out the door years ago. The number one savings/spending vehicle in the US is the housing market. When values collapse it crushes people’s wallets.

    I have never been a big fan of the umeployment rate, which is only a survey conducted for people that are “currently looking for jobs.” It doesn’t reflect what wages people are earning, or if they can afford their current lifestyle with their current job.

  30. Genius

    The stock market may be setting record highs, but the dollar is nowhere near a record high.

    Smoke and mirrors.

  31. Sue

    I think that historically, the conforming loan limit is indexed to home prices in some way.

    So if the home prices fall, the conforming loan limits automatically falls as well, unless the formula is changed in some way (which, it looks like they did).

  32. Major Schadenfreude

    Changing the rules as they go along.

    Doesn’t seem fair.

    Not sure how much it will help the market though, as it says 2008 limit will have a bottom fixed at the 2006 limit. It can decrease further after that though.

  33. tonye

    Mad Max wouldn’t last three days in Irvine.

    First he’d get a ton of speeding tickets.
    Then his car would get impounded because it “looks” illegal.
    Then they’d haul him to jail because he “might” be be planning to something illegal.

    Simple. IPD is like a cross between the Thought Police and a fortune teller: they give you tickets because they “think” you “might” be up to something no good.

    Proactive Law Enforcement with a smile.

  34. tonye

    Actually, if you sold you a house and were sitting on a big pile of cash and went to buy another one, it would make sense to take as large a 30 year fixed conforming loan as you could afford and minimize the exposure of your down payment cash.

    That way you would sit tight in your house, not worry about home prices and invest your money on something safer.

  35. mark

    I’m just trying to provide a voice of reason and “middle-ground” in these comments. The comments (excluding IR) here are always so negative and extreme. “$600K for that house? It’s not worth two pennies!” “That house is horrible, it’s next to a busy street!” “My broker friends have no work so we’re heading for the next depression.”

    The future is uncertain, but the economy is far more likely to swing much less negatively than commenters here seem to think.

  36. SawItComing

    Correct me if I misunderstood but this only makes sense if you:

    a) look at housing more as an investment than a place to live.
    b) you are willing to walk away from legal debt/obligation.

    I sleep fine at night knowing that my house might be worth less than I paid for it, considering how little I owe on it.

  37. MadMax

    2029 – Terminators destroy swaths of O.C./L.A. houses
    2032 – Found 2008 almanac in a demolished O.C. library that describes how Obi-wan Bernanke was supposedly the only hope.

  38. DeadBeatRenter

    From Matt Drudge:

    Southern Calif. home sales plunge 30 pct in Sept
    Tue Oct 16, 2007 3:33pm EDT Email | Print | Digg | Reprints | Single Page | Recommend (0) [-] Text [+] Market News
    Intel quarterly profit rises 43 percent
    Yahoo rises after results beat estimates
    New businesses seen key to Google growth long-term
    More Business & Investing News… By Jim Christie

    SAN FRANCISCO (Reuters) – Sales of houses and condominiums in the most populous Southern California counties fell 29.9 percent from the previous month and 48.5 percent from a year earlier, DataQuick Information Systems said on Tuesday.

    The report covers the counties of Los Angeles, Orange, San Diego, Riverside, San Bernardino and Ventura and showed a total of 12,455 new and existing homes and condos sold in September, the lowest since the company began recording the data in 1988.

  39. OCrefugee

    After the ‘Great Depression’, the term was retired. All downturns since then have been recessions, just as all downturns before recessions were depressions, back to the 1800s when the term used was panic as in ‘Bank Panic’. Before that, money was not as important when you grew your own food. With that said, GDP has to decline for several quarters in a row for a recession to be declared. I agree that anecdotal such as ‘war, health care etc…’ is irrelevent, these things may make you unhappy, but even in the best of times, if you loook, there;s always something going wrong (Yugosalvia unravelling, First Al Quaeda bombings, No Fly ZOnes over Iraq) during the tech boom, yet the tech boom was the focus and things were generally agreed to be good.

  40. FamilyGuy

    Couldn’t agree with you more Mark.

    Time will ultimately tell what happens to the OC RE market as well as the broader economy, and regardless of the rhetoric nobody here knows for sure. IR does a great job of supporting his beliefs with fact-based intelligence but even he is making assumptions about certain variables. They are certainly not unreasonable assumptions, but are still just that.

    I personally place more faith in the resilience of the American consumer and economy than many here do, and believe that when the dust settles things we’ll all realize the sky did not actually fall.

  41. lawyerliz

    Amen.

    They aren’t coming after people yet for $$ judgts after foreclosure, but I predict they will.

  42. awgee

    hoover – You are so right. Never bet against GS. Even if GS is losing money, it is gaining power.

  43. rastaman

    when i was younger, i would always be worried by the “coming depression” books at barnes & nobles (or whatever). but, by and large, the invisible hand/capitalism works wonders. having said all that, this country has lived off credit cards/debt every since Ronny Reagan. there can be only one outcome of living beyond your means: a negative adjustment in the average standard of living is far over due for the US consumer. it is taking place and it is not all bad. for example, used cars are much higher quality nowadays: my 3 series bimmer runs like a swiss watch at 10 years old/115K miles. purchased it for 12K in 2003. had to replace the radiator (around 400) and that’s all. were talking shiny!

    you need mechanical intuition to buy the good stuff, let the car talk to you, you’ll know if it’s a POS. so you see, even if you can’t get that 2008 lexus, life can be good. wait for the “mens half yearly sale” at nordstrom, you can stock up bigtime on quality shirts: they last 10 years, trust me.

    so don’t worry, be happy!

  44. awgee

    How does Paulson propose to help underwater mortgage borrowers and tighten lending standards at the same time? Is it just me, or does it seem a bit contradictory to say you are going to tighten lending standards and you will help to refi a bunch of bad mortgages with even worse borrowers?

  45. IrvineRenter

    I used to be bullish on the economy and bearish on the housing market. Now, I believe we are in for a minor to moderate recession nationally and a major recession locally.

    I think the local economy is going to get hit very hard by the fallout of the housing bubble. The bubble stimulated our local economy in two ways, 1. it allowed all local homeowners to borrow against their houses and fuel consumption (which they did,) and 2. it provided huge commission incomes through mortgage originations on a national level. Both of these sources of income are going away, and they will probably never again be anywhere near what they were during the bubble.

    Subprime went from 2% of the market to 25%. Much of that money flowed into OC because so many subprime lenders were located here. Subprime will likely drop back down to 2% again and stay there. Investors are going to learn a very painful lesson about risky lending. They won’t be doing it again any time soon. All that loan origination money is going to stop flowing into the OC economy.

    Somebody please convince me that is not going to have severe repercussions locally. I don’t see how it cannot.

  46. tonye

    Not really at all.

    Note how I mentioned the “ability to pay the mortgage comfortably”.

    If you think that RE is gonna go down, why not just put enough into your house, take as much loan as today’s rates which are still historically low and the invest the remaining cash into more liquid assets.

    RE prices in the future look to go down and interest rates will surely go up… so why put your money into losing proposition?

    Buy your house, keep money in the bank and pay it off in 30, 24, 20 years, whatever.

    And if times get tough, you should still have that nest egg to make the payments for a few years.

    Just make sure you INVEST reasonably your stash. Don’t blow it in a new car or something stupid like that.

  47. Sue

    Well, you’re likely right about the second part, the best the Fed can do is not to make it worse than it has to be (ie. not have tigthter monitary policy flip flops like in the 30’s).

    Don’t really get the first part – where does the 100% wrong come from?

  48. lendingmaestro

    Just imagine if you sucked out tons of cash and did a 30 year fixed @ 5.25%. You’d have that money in a liquid or semi liquid account yielding an APR above your mortgage rate.

  49. Stupid

    Ha ha ha ha .. maybe. I went to the mall on Alton with the Sunny Fresh Cleaners and saw the strangest thing.

    There was a yellow Lambourgini with some kind of custom plate (didn’t make it out) with the door up. Outside was a large athletic looking African American guy. Inside one of the stores, was a guy with an earpiece (security?). And parked right beside the yellow Lambo were two Irvine PD cop cars.

    What’s up with that?

  50. Stupid

    I think it’ll hurt locally a bit more, but that’s mostly because of the job losses in the RE/finance industry.

    The OC in general has a huge, vibrant economy. It’s not a one company or industry town (ex. like Detroit). It’ll come back fast. But real estate will tank big time first.

  51. awgee

    Bernanke writes that the depression was caused by the gold standard and the non-willingness of the Fed at that time to inject liquidity, ie. dropping money from helicopters. He fails to realize the problem was the couterfeit “money” created by the fractional reserve in the first place. Fractional reserve banking is the problem, not the solution. If you need an example, you need only look at the reaction of the 10 year treasury to the latest drop in the fed funds rate.

  52. N Cty

    Who is going to shop and support the high-end retail (district/spectrum/grove/etc) that has been going up the last few years all over OC as we head into a period of possible negative growth?

  53. Commentor

    I work near the new Tustin District (yes it’s Tustin) development, and I swear people cannot get there fast enough to part with their money! It’s really a sight to see, the parking lot is consistently packed. And the weird thing about it, is that there is absolutely nothing special about the retail or restaurants there; all national mega chain corp throughout. It’s like a smaller version of the Tustin/Irvine marketplace just a few miles up Jamboree from there. Why the District gets so much business is beyond me. Maybe it’s those giant blimp garages that attract everyone. If anyone thinks we’re headed for recession, just go to the District and be amazed at how much people are spending. Either Irvine residents are completely oblivious to the imminent market crash, or the (local) economy really is doing much better than people on this blog seem to believe.

  54. acpme

    the restaurants and coffee shops dont seem to get much traffic. there are a lot of people who venture into whole foods to check it out although i know few people who actually shop there. costco, target, tj maxx home goods, lowes… the fact that those parking lots are busy might be deceptive. i wonder how many of the people crowding those stores were shopping at bed bath beyond, crate & barrel, & gelsons but now at the discounters instead.

  55. Stupid

    You are sorry you didn’t spend even more money washing a depreciating asset? Doesn’t sound like a typical awgee move … πŸ™‚

  56. Stupid

    That’s because you’re thinking like an economist.
    If you’re thinking like a politician, it makes total sense.

    Quote from http://www.latimes.com/news/printedition/front/la-fi-homes17oct17,1,6588480,full.story?coll=la-headlines-frontpage

    Mickey Levy, chief economist at Bank of America Corp. in New York, said Paulson’s giving a speech about housing was enlightening.

    “The fact that he addresses this issue reflects heightening concern by the administration regarding the implications for the rest of the economy of the housing downturn and the growing problem with housing finance,” Levy said.

  57. Sue

    Huh? Looked up fractional reserve banking (http://en.wikipedia.org/wiki/Fractional-reserve_banking) and it looks like it’s bascially a money supply problem.

    Isn’t that pretty much what Bernake says in his speech? It certainly is in the book he quotes (Monetary History).

    Sounds like you and he are pretty much saying the same thing.

    Not that it’ll help him a whole lot (ie. he can say calming things to try and prevent a panic, and try to arrange banks behind the scenes to do smarter things to avoid blowing up and causing a panic, but that’s about it). People are still pulling money out for gold or what have you and banks are still reluctant to lend, which of course, is reducing the money supply. And, of course, that’s just the tip of the iceberg – as the money goes “poof” in bad debts, they can’t keep a lid on it forever, eventually there will be more panic and more pulling out of money to be lent out.

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