House of Paine

beware the bubble smiler

frisco fed top gal
sez
what?
  we worry ?

naaaaaaah



question:
what  " lies of  the mind " 
lurk behind this bubble smile ?

============================


here's her tale of decline 


"First, there would be 
an effect on consumers’ wealth 
With housing wealth nearing 
$18 trillion today
 such a drop in house prices 
would extinguish about $4½ trillion 
of household wealth"


 "Standard estimates suggest 
that for each dollar of wealth lost,
 households tend to cut back 
on spending by around 3½ cents"

 "This amounts to a decrease 
in consumer spending 
of about 1¼ percent of GDP"


" To get some perspective 
on how big the effect would be, 
it’s worth comparing it 
with the stock market decline 
that began in early 2000.
 In that episode, 
the extinction of wealth was much greater
—stock market wealth
 fell by $8½ trillion 
from March 2000 to the end of 2002". 

"This suggests that if house prices 
were to drop by 25 percent,
 the impact on the economy 
might be about half 
what it was when the stock market
 turned down a few years ago"

------------ see analysis below -------------------
 

"Wealth effects—positive or negative—
tend to affect spending 
with fairly long lags."

" So, a drop in house prices
 probably would lead 
to a gradual cutback in spending,
 giving the Fed time to respond 
by lowering short-term interest rates
 and keeping the economy steady"

"Now let’s complicate things. 
Suppose house prices started falling
 because bond and mortgage interest rates
 started rising "

 

"say, because the risk premium in bonds 
rose due to concerns 
about federal budget deficits
 or other factors."

" Then we’d have the cutback 
in spending because 
of the wealth effect,"


plus 

"there’d likely be further spending cutbacks,
 as borrowing costs for households rose."
 
--------- -- ----ie the income effect ----------------------

Furthermore, 

"a rise in long-term rates
 would have effects 
beyond just households—
it also would dampen business investment 
in capital goods 
through a higher cost of capital."


-----------interest rates effecting investment directly?
none sense
thrown in to feed the ignorant -----------------

"How manageable would this scenario be? "

"Like the wealth effect, 
these added interest-rate effects 
operate with a lag, so, again,
 there probably would be time 
for monetary policy to respond 
by lowering short-term interest rates"

------- but what if other considerations 
   over rode 
the rate drop ???-------------

" This obviously 
would not be a “slam dunk,” "

"but in many circumstances 
it would seem manageable"


-------- see her language 
   slipping and sliding here ???
"no slam dunk" 
but 
  " in many circs .."
        total loop holery ---------------

"A matter of more concern 
is whether this scenario 
would lead to financial disruptions 
that could cause spending to slow 
sharply and quickly"


------ leap of line here

now she's answering the unststed alternative
previously ruled out
of a big fast drop
in lot vales
'and a sudden quake in the mortgage market -----------------

" One issue that receives 
a lot of attention 
is the increasing use 
of potentially riskier types of loans
 like variable rate and interest-only loans 
that may make 
borrowers and lenders vulnerable
 to a fall in house prices 
or increase in interest rates"

" I believe that the odds 
of widespread financial disruption 
on this count are fairly slim,
 although, clearly, some borrowers are vulnerable."
 

----------- system secure
but losers beware ------------


"First,
 the shift to these new instruments appears 
relatively modest overall" 


------------ really ? not the buzz we hear -------------------

"Second,
 the equity cushions available 
to both borrowers and lenders
 still seem, on average,
 to be pretty substantial."

---------- very deceptive 
where's the cushionunder all the wrong asses i'd say -----------

one hand in ice 
one on fire?

average...just right ---------------

" This is evident 
in looking at loan-to-value ratios, 
which have fallen,
 on average, 
as home valuations have risen 
faster than mortgage debt."

--------and what happens when 
          house values fall ...

   home equity loans go zoink 
 first home sales tank
etc etc 
as credit availibility vanishes ---------------------

" In addition,
 most financial institutions 
enjoy comfortable capital positions, 
so they’re better able to weather
 any problems with their mortgage portfolios"


------- "better able "
 bad faith slip showing here
'89 's shadow ----------------

" Finally, some of the risk 
associated with mortgages 
has been transferred
 from banks to investors" 

" banks have sold off 
securitized bundles of mortgage debt
  investors may be in a better position 
to handle the associated risk"

 ----------- idea here
investers are diversified
into other types of investments 
and the whack is  diluted by 
  being spread far and wide
but what if these pokes
stop buying  new issues....
don't the circus organ go silent ?
 ------------ ----------------

"undoubtedly  there would be 
some fallout 
from a substantial drop 
      in house prices"

-----but shit ....----------

" the financial system 
and consumers appear to be
 in reasonably good shape
 to handle the situation"

--------- pretty damn breezy eh ? ------


               --------------

        big   flaws?


well 
the central analogy between stock bubbles
    and house lot bubbles 


one word here


distribution 

 as in
        of ownership 


stocks vs lots 

  big shots d 
 household spending level is not much tied 
to  their portfolio's ups and downs 

  and to the real point
its the debt burden of the lot deals
that is totally unlike the stock set up 

at least since clinton 
   got blown by that foxy 
                   weight watcher 

borrowing against stocks
 for household spending
has been 
  a silly  dwarf 
next to lot colateralized  borrowingss  

cut that off and ..... 


see the  
 methodical flaw here ?

un dissected 
by our  frisco chick's 
      wealth effect doodling



  credit constrained consumers 
ie  lots and lots 
of lot holders 

have a hugely higher
   "wealth effect"
propensity to spend
then 
  the big shot stockholder

so the dampening effect 
of a fall in creditworthiness 
on  household spending
 would be massively greater 
then say 401k declines 


401 k loses   
only scare
        regular folks 
                 not 
                    croak em 

flaw:
    the next biggest  


investment by corporations
was  the real bug a boo
in the last recesssion 

obviously

so why confuse that episode 

with the ....next one 

when stocks in regular folks 401k's tanked
last time 

their house lots 
  started rising in value
like pegasus after a  wicked  shit 



whats to off set this lot drop ?????

okay so i could go on here


u  all get the flavor



------------------------
sum up 



stocks vs lots

generalized wealth effects on spending
conflate the two sources 

obviously lots have a far bigger punch
both up and down 

so using rule of thumb averages 
like above 
x cents on the dollar
  is mostly
   bull shit 
----------------

 so why is she  so smug ?

maybe cause 
her e corporate backers
   want wage households to get squeezed

maybe squoozen jobsters 
 perform better on the job


and hey
 isn't 
on the job 
the place where their
        surplus value gets extracted ?

if household spending
 goes into the dumpster
cause  lot value drops
whack
 availible  co lateral
and 
there just
  ain't  any more
to borrow against
and
then 
small potatos' type  interest pay outs 
                     keep goin
                             up  too ....

hey 
no matter how the fuckers 
juggle the numbers
the 2001 stock recesssion
and the 20xx house lot recession
will not look anymore alike
 then 
laurel looked like hardy 


next time
i predict 
the popular misery quotient
will rise more like
say 
        during 
the inflation strangling 
volker - carter  fuckle buck  


and as  you  may remember 
that led to 
           worse yet

reagan's 
        emotional   " rescue "