1. Who wants credit these days. That is what the governments wants and that is how we get into these messes.

2. House is worth 375k and falling. Owe 490k. total pmts with T and I is over 3700.00. Can rent a home in the neighborhood for 1800.00. good thing for me is that the home and mtg is in my name and my wife has good credit and has been working for the past 5 years. Sit in a rental house and watch the priced drop and the rates drop and then snatch up another home( in my wifes name) in my neighborhood for 300k( saw a bank owned go for 290k last week )at a great rate and have a house pmt of 1800 to 2000k, Meanwhile I will probably be in my current home for a year while I save up cash for down pmt, security deposit, etc….

I tried to do the right thing 2 years ago when I tried to sell another home and it took 8 months and I lost money. I could have let that one go. I already had a home. I rolled that neg into this home. no help with the lender on the other home which had a 12k prepay penalty( 2 month away from expiring)

imagine saving 2k a month on house pmt. who needs credit, I will pay cashs and have some savings.

In the 60’s when something broke, we turned it over and read “Made in Japan” on the bottom. We laughed. Of course it broke, made in Japan explained everything. At the time, Japan was known for poor quality merchandise. To overcome this perception of low quality products, Japan as a nation, made quality a national goal. It was not long before Japan was banging on our doorstep with quality merchandise. Nowhere was this more apparent when comparing Japanese made cars to American made. US auto makers had to fight back on the quality issue. In retaliation, Ford came out with a new slogan “Quality is Job One”. In addition to the automotive sector, Japan selectively targeted our industries to gain market share. By then, everyone had stopped laughing, Japan had proved itself to be a serious economic competitor. The US responded with import quotas to protect the auto industry. Foreign suppliers responded with manufacturing on our soil.

What is the point? The point is that every developing country goes through a development stage. They move from infant, child, adolescent to adult. The developing country is eventually producing products on par or better than the United States. The only barrier keeping them from competing in our markets is the cost of shipping and the cost of labor.

The US in it’s stupidity, has pursued this consumerism policy where the theory is that we are going to buy stuff from emerging markets and as they grow, they will buy our advanced products creating trade. The developing country is going to supply us with all the basic stuff we need and we will ship back high tech at a high value added price and all will balance out. Well it has not exactly balanced out. Somehow they ended up with a pile of our Treasury debt. Amazingly, we went to Wallmart, bought all of their stuff thinking that we had gotten ourselves a deal, only to find that somehow out of the transaction we still owed money!

It must be quite apparent at this point that consumerism is not all it is cracked up to be. We were supporting our economy through the subsidy of government overspending. Yet there was another economic support at work in addition to government spending. It was the creative financial apparatus of securitized mortgages. Securitized mortgages provided economic support beyond the government debt issuance. Securitized mortgages provided jobs in the home building sector, constructing houses we didn’t need. It provided an abundance of jobs in the sale and finance of RE, such as appraisers, mortgage brokers, loan officers, RE sales people just to name a few. It also generated high commissions and fees. The huge amounts of money made off these fees showed up in the worker productivity numbers. Americans were very productive workers! What a marvel those Americans!

Yet there was another side to economic boost. That was the bonus of equity withdrawal obtained through rising home prices. Disposable income was boosted 6% or more during the bubble years, which when spent, augmented economic activity. How was this money spent? Mostly on higher lifestyles and reinvesting in real estate. Let’s characterize it as misspent. Sadly, our whiz bang American ingenuity financial products reverted to the equivalent of early era Japanese manufactured goods. They broke, with the primary difference being that nobody is laughing.

Let’s move on past the blame game and see where we stand. We have just run though a quick history of the last 40 years. We are left looking at China and India in the adolescent/young adult stage with the only continent left being Antarctica. That would give us South Pole Station and a bunch of penguins. Don’t get me wrong, I like penguins, it is just from a trade standpoint, after they are skinned, they are unable to consume high tech products.

Susan, the party is over. There are a lot more of them than there are of us. The rest of the world is reaching adulthood and we are not alone with this problem, Europe faces the same predicament. This however is about America’s problem. Our problem is that we produce too little and consume too much. If we want to buy something from someone else, we have to part with something of value that they want. Up until now, we have been able to satisfy that demand by exchanging US dollars but how long will they be satisfied with that?

Our mortgage crisis has turned into an economic one. Consumers took on way too much debt and in many cases, the homeowners just walk away, leaving the problem with the bank and the bank passing the buck to Uncle Sam. What does this do? We are pushing debts that we cannot afford from an individual basis to a national basis, we are passing individual risks to national risks. We are not just stopping with consumer risks though, it seems that we are taking all the risks of every business imaginable and placing them out to the national level as well.

This now moves us to the value of the USD. If you imagine the dollar to be the common share of USA and the USA is made up needy people and needy companies, it is not likely to be something you would visualize as being investment quality and certainly not AAA worthy. We have this American thing called Hollywood which projects out to the world what America is like. The rest of the world wants that vision that Hollywood projects. Hurricane Katrina served a purpose, it exposed the USA for what it really is, a bunch of fat Americans sitting on underwater homes looking for rescue.

With the USA unwrapped, it is just like the publicly traded company that does not make a profit and to continue its existence, it must raise capital to keep the doors open. In the Wall Street world, this is called dilution and commonly results in a lower share price. People will invest, but only so long as they see some future turnaround and are able to recoup their investment principle with a profit somewhere down the road. Can the USA make a turnaround? Absolutely, but if that is to happen, it is not going to happen with us sitting in a chair flipping through HDTV channels, higher resolution does not fix the problem.

We have been on this path over the last few decades of exchanging cheap products for higher paying factory jobs. Somewhere during that time, the common parting valediction became “Don’t work too hard” followed by the canned response of “Don’t worry, I won’t!”. For America to recover, this attitude is going to have to get beaten out of the system. It is going to take hard work and lots of it, and there is nothing like high unemployment to beat attitudes back into the system. Government nannying is not going to do it. Let me repeat that, Government nannying is not going to solve the problem.

What was our trade off for high paying factory jobs that produced real goods? From the looks of things they turned into finance and fast food. If there is one thing we are good at, it is that we can produce a damn fine hamburger. You take some meat bread and cheese and slap it all together on a toasted bun and slug it down with a soda pop. What we did was take raw food products and value added labor to produce a product. To compensate for our glaring loss of manufacturing jobs, the Bush administration ran up the flagpole of trying to reclassify fast food workers into the manufacturing sector. Rightfully so, the idea did not fly. You cannot replace the value added in fast food and use that as a replacement for value added durable goods. The value added from fast food has a life expectancy of 24 hours (Less for Starbucks) and ends up as a turd in the toilet.

What was the other thing that happened with trading American jobs for “Cheep Chinese”? It gave us cheap products that masked true inflation. As we replace jobs with inexpensive global labor, the cost of an equivalent American made product was undercut by a large margin. This would be a great accomplishment if it were in fact sustainable. The truth is that it is not sustainable by the simple fact that these “emerging countries” grow up. As they grow, they start competing world over, attacking what were previously “our markets” for goods and services.

There is another thing that we discovered as emerging markets came to adulthood. They wanted the same things America wanted, hydrocarbons and other raw materials. Suddenly the world became a very small place and adulthood for emerging markets came with a price tag. The price of oil, copper, steel lead and zinc reached historic highs. Our current financial meltdown only places a pause in emerging market growth, competition for raw materials will not go away long term but will rear its head once recovery starts to happen.

America has enjoyed decades of hard currency status. In the process however, America has turned soft and squishy, akin to the texture of a Big Mac. We are not going to be able to remain soft and squishy with a nanny government and retain our hard currency status. Unfortunately while CA government is dominated by the prison guard union, our national government is dominated by finance interest. Let’s dig into the bag and pull out a fast quote from Tomas Jefferson…..

“I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a monied aristocracy that has set the government at defiance. The issuing power (of money) should be taken away from the banks and restored to the people to whom it properly belongs.”

I am not going to go into that whole affair because that is a story for a different day! Let’s just take a section and see Jefferson was right.

“Already they have raised up a monied aristocracy that has set the government at defiance.”

We just saw that played out now didn’t we? Americans by a large margin opposed the TARP and in total defiance to the wishes of their constituency voted in favor of the bankers. That must have been one hell of tennis match, head going side to side, from whom they are supposed to represent to the money and back again. We all know who .won that tennis match and this is where the soft and squishy American comes into play. Americans should have en-mass marched and demanded a recall of their elected officials. Instead, because Americans assume that government is going to fix the problem, they stayed at home, placated by their Internet and HDTV’s.

What else did we learn from the TARP? We learned that in the most watched bill in the history of the world, congress could not pass a clean bill free and clear without including things like “arrows for small children”. What happened here? Obviously we had to buy votes in order to get the bill passed! This is nothing more than corruption exposed. What do you think happens when the rest of the world is not looking? If that is not a wake up call that Americans need to change the way business gets done, I don’t know what is.

At the same time, congress said “We don’t care what you think” to their constituency, Americans sent the message back “It’s OK, we are just going to roll over and let you have your way with us!” Sadly though, it also sent the message that Congress can do as it pleases and does not have to answer to the American people. In a way, this is “taxation without representation” because we certainly were not represented in Congress!

How did all this complacency happen? Maybe the stories about chem-trails and putting something in the water are true because apparently, we as Americans have turned into a flock of capons. For those of you that don’t know what a capon is, it is a rooster with no balls. Is there hope for America? Yeah, when Americans grow their balls back. Otherwise like the capon, they are just going to get carved and served up on a platter.

So when do we get our balls back? When government has clearly shown that they have failed our expectation to provide and protect us. Already we can see with social security and medicare that the numbers just do not add up. Yet we go on with “We can’t afford it this month”, next month comes and “We can’t afford it again”. Now we are building negative equity at an exponential clip because “We can’t afford higher taxes right now”.

Simply put ‘Susan, the life America is leading is on no sounder of a principle than that of the holder of a Pay Option ARM mortgage. Somewhere down the road America is going to get that hard reset and our payment is going to double. When that happens the 40hr workweek will be no more and your workweek will turn into “six tens” and subsistence living. At that time Americans will grow their balls back. God only gives us the seventh day, which I conclude means the other six should be spent working anyway.

Just so you know, no animals were harmed and no animal byproducts used in making this post….

Last I looked there wasn’t only one state, namely California that consisted of the USA. I am agreeing that the bubble states in general have and are continuing to affect most of the other states in decreasing values though.

In reading your posts, I am able to assume you are not only very intelligent but not very optimistic about the USA’s future in general.

Do you remember former Pres. Regan’s explaination of the difference of a recession versus a depression?

“Recession is when your neighbor loses his job and a depression is when you do”. Think of it, it is a true statement to how individuals think and feel about their OWN economy, whether they live in California or any other state, unemployment is rising in every state.

The majority of the population only cares about their OWN economy, rightfully so. The population of the USA expects its elected government officials to govern the country for the general well being of the majority and they all don’t live in California.

The current deflationary cycle affecting housing values, while NEEDED to restore and correct affordability, is NEGATIVELY affecting the largest majority of the population (69%).

The majority of the american public all surmise, some have proof, but most believe that the “unaffordabilty” and the excessive prices of housing came about due to a combination of lack of regulation from their government and “Wall Streets” greed for increased profits from “thin air” by creating un-sustainable mortgage products and their credit default swaps.

It doesn’t matter whether it is the lack of regulation or the products that gave housing the bubble, the end result is the same to homeowners.
The majority.

What can be different is the depth of the loss of equity, for example Japans homeowners lost 90% of their equity, do we need to lose the same amount?

What can be done to correct the situation, is my question. I am not just speaking of California but the entire USA.

I am not picking on you, but your posts and opinions while certainly different from mine show a level of insight that I respect.

The best way for California to recover is for individuals to walk and place the burden on the rest of the nation, rather than sending our political representatives on their knees begging and pleading.

From my observation prices are going to continue to drop, unemployment is going to continue to be magnified in California and people are going to leave the state looking for better pastures.

This combination not only places home prices lower but rents lower as well. From my perspective, the less debt and more money in hand for Californians, the better for CA.

Here is your political problem again.

45% mortgage contracts crappy loans in CA
60% of dollar volume of those contracts in CA due to higher home prices verses rest of nation.

But here is the big kicker Susan. Because the housing prices were inflated in CA, the losses on that 60% dollar volume is going to be higher on a percentage basis verses the 40% dollar volume that represents the rest of the nation.

Prices are deflating as we speak and what we end up talking about is likely to push the dollar benefit to 65-70% in CA. How do you push that though Washington? The tax credit for principal reduction moves it outside of the Homeowner bailout and in essence is a smoke and mirrors ploy that is in a more acceptable form for passage.

Meanwhile Californians using their right to walk away along with lawyers building skills in the bank verses homeowner arena will lower the size of any bailout proposal. We are just going to send the bill back to the east coast anyway.

Happy Holiday to you too. What is the difference between Mr. M’s principal reduction and mine being a dream? Oh I know, stablization of prices at 125% of the market peak loss amount for the location.

If I read your plan correctly, it places the entire loss on the taxpayer over and over again, what is so different than what Paulson already did with giving taxpayer money to the banks, except it is much larger?

Seriously, Happy Holiday to you regardless of your “dig”.

The are probably closer to $400 billion. I believe they are very responsible for price stickiness of entire middle to upper end communities in CA. I have done serious research on many 20k to 60k population cities in CA with median home prices above $500k and incomes over $85k that have held their value better than the median and most lower end.

What I have found is that these communities have hybrid intermediate term and pay option ARMs as their primary loan types. Unlike 2/28 Subprime, these loans reset in 5 years. Therefore, Alt-A and Jumbo Prime had time on their side. Not any longer.

Remember, most foreclosures are from lower income subprime loans in subprime regions. Subprime is a small slice. Wait until you see the damage caused by the Pay Option ARM failing – it will drop values across higher end areas so fast and start the lower end feedback loop in the higher end. We are already seeing it.