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“Mortgage Meltdown” a digitage on Flickr

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1965-2005 Between 1965 to 2005 there was no national US real-estate bust as home prices surpassed inflation by a percentage point or two on average. However local reversals have taken place and some cities have never recovered (Christie 2005).

1973-5 US investors in the S&P 500 lost 14% in 1973 and 26% in 1974 but gained 37% in 1975 (Mann 2000).

1970s “The additional grades or risk have arisen from the willingness to underwrite mortgages for more risky borrowers, encouraged by the democratization of credit since the 1970s. Lending to more risky borrowers is, by definition, more risky. More loans to risky borrowers increases the total amount of risk to be sold in the marketplace” (Mason and Rosner 2007).

1980-1990 In Los Angeles real estate was turbocharged for nearly 10 years (Christie 2005).

1985 In Peoria, Ill. a more traditional area the average home price fell from $60,800 in 1981 to $51,400 in 1985 partially because of strikes and lay-offs at Caterpillar, the city’s biggest employer (Christie 2005).

1987 Canadian families saved 20 percent of their take-home pay (Ed 2007).
1987 Stock market crash
1988 In “oil patch” cities like Oklahoma City prices plummeted 26 percent from 1983 to 1988. They only returned to 1983 levels in 2003 fifteen years later. In Oklahoma City, the inflation-adjusted price in 1983 was $196,600. Today, it’s just $135,100 (Christie 2005).

1988 Houston home prices fell 22 percent from $111,000 in 1983 to $86,800 in 1988 rebounded only in 2003. Counting inflation, the average Houston home, which cost just $159,700 in 2004, is actually worth less [in 2005] than it was [in 1983]. When, adjusted for inflation, a home cost about $219,000 in 1983 (Christie 2005).

1988 – 1990s Real estate prices fell in Northern California first followed by the rest of the state “as employers fled, incomes dwindled, quakes rumbled, sales fell and prices slipped. [. . .] Silicon Valley’s housing market crashed into recession along with the state’s economy (Perkins 2001).

1989-90 The notorious price bubble of 1989-90 was linked to central banks specifically the Bank of Japan. “The Japanese economy continued to suffer during the early 1990s, and remained in recession until the end of 1993. Nominal GDP growth rates, which had been around 7 percent during the bubble period, fell beginning in 1990 and by 1991-93 were close to zero. Profits in the manufacturing sector fell 24.5 percent in 1991 and 32.1 percent in 1992. Bankruptcies began to rise starting in the latter half of 1990; by 1992, bankruptcies with debt more than Y10 million totaled 14,569 cases. Failures of real estate firms or of firms engaged in “active fund management” constituted more than half the corporate bankruptcies in 1991 and 1992 (Miller 2001).”

1991 Inflation-adjusted take-home pay in Canada froze to this level (Ed. 2007).”

1992 A new car in Canada cost $20, 000.

1992 – 2000 “Japan remained pretty stagnant in the last eight years, with the majority of the loss coming in the first two, when it eventually fell by more than 60%. There was never a big drop, just a constant and inexorable drift downward. Real estate prices plummeted, almost no Japanese company ended 1992 higher than it started 1990. In the interim, banks have failed (and if it weren’t for the financial props of the Japanese government, many more would have), and companies have had to reassess some of their basic assumptions, such as lifetime employment and large benefit packages” (Mann 2000).

1996 There was a housing market reversal in Los Angeles with average house price dropping from $222,200 in 1990 to $176,300 in 1996, a loss of 20.7 percent. “Furthermore, those are nominal prices, not real values. To calculate the loss more realistically you would have to figure in the cost of inflation: $222,200 in 1990 would have been worth $266,700 in 1996 dollars, which means the actual loss for homeowners buying in 1990 and selling in 1996 was closer to 34 percent (Christie 2005).”

1994- 1996 “In 1994, [Japanese] banks wrote off non-performing assets of Y5.7 trillion, exceeding the previous high of Y4.3 trillion in fiscal year 1993. As yet, no major bank has failed, although a number have reportedly encountered serious difficulties. In December, 1994, the Bank of Japan supervised the takeover of two credit cooperatives, the Tokyo Kyowa Credit Cooperative and the Anzen Credit Cooperative, through the creation of a bridge bank with government support. The Bank’s decision not to let these institutions fail and pay off depositors under the deposit guarantee program was based, largely, on concern for the potential systemic effects of a deposit payoff on public confidence in the banking system in general. The “jusen,” or housing finance banks, suffered the most serious problems; these institutions, which were typically organized and sponsored by major commercial banks and staffed, in part, by former officials from the Ministry of Finance, lost tens of billions of dollars as a result of the collapse of the price bubble, and became one of the most contentious political issues of the day during 1995-86 (Miller 2001)”.

1996 “How do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade? And how do we factor that assessment into monetary policy? We as central bankers need not be concerned if a collapsing financial asset bubble does not threaten to impair the real economy, its production, jobs, and price stability. Indeed, the sharp stock market break of 1987 had few negative consequences for the economy. But we should not underestimate or become complacent about the complexity of the interactions of asset markets and the economy. Thus, evaluating shifts in balance sheets generally, and in asset prices particularly, must be an integral part of the development of monetary policy.” – Alan Greenspan (December 5, 1996)**

1998 There was a market correction in the United States in October of 1998.
1992 – 2000 “Japan remained pretty stagnant in the last eight years, with the majority of the loss coming in the first two, when it eventually fell by more than 60%. There was never a big drop, just a constant and inexorable drift downward. Real estate prices plummeted, almost no Japanese company ended 1992 higher than it started 1990. In the interim, banks have failed (and if it weren’t for the financial props of the Japanese government, many more would have), and companies have had to reassess some of their basic assumptions, such as lifetime employment and large benefit packages” (Mann 2000).
2004 British Columbia graduates from university have an average debt of $20, 000.
2005 Real-estate investing spiked, pressuring prices upward. In Phoenix, according to Bill Jilbert, president and COO of the Coldwell Banker brokerage there, investors from Nevada and California have invaded the Arizona market, and “affordable housing has been pushed to extremes (Christie 2005).”
2000 In Tampa Bay Florida, high risk adjustable-rate mortgages (ARM) made homes “seem affordable when wages stagnated as prices soared. They were just the ticket for cash-out refinancings and home equity credit lines that bought cars and swimming pools and paid off credit card debt. “What happened in a lot of expensive real estate markets is that first-time home buyers who felt they could not afford a home otherwise, took on a loan that had lower monthly payments than a traditional mortgage would have,” said Allen Fishbein, director of housing policy for the Consumer Federation of America. “They weren’t being underwritten on the basis of the borrower’s reasonable capacity to handle these loans.” The payments started out manageable, especially since many loans offered teaser rates. But borrowers are getting a lesson in what the word “adjustable” means. More than $130-billion in mortgages payments were reset in 2006″ In 2006 nearly a third of Tampa Bay mortgages were the high-risk varieties, up from 10 percent in 2003 (Huntley 2006).
1991- 2005 “[I]ncreased complexity from increased grading of risk can also result in increased opacity. Risk that is more difficult to see, by virtue of complexity, is risk just the same. There are plenty of reasons to believe that the amount of risk in the marketplace has increased. Figure 3 shows that defaults on ABS and residential mortgage-backed securities (RMBS) increased substantially between 1991 and 2005” (Mason and Rosner 2007).
2006 Fitch Global Structured Finance 1991-2005 Default Study revealed that, “the overwhelming majority of global structured finance defaults over the 1991-2005 period were from the U.S., accounting for more than 97 percent of the total. While the 1,000 U.S. defaults were mainly concentrated in the Asset-Backed Securities._ (ABS) sector, the 27 international defaults were primarily from the collateralized debt obligations (CDO) sector.” See Mason and Rosner (2007) warn that risk continues to increase, as ratings agencies revise their loss expectations to account for the dynamics of the mortgage meltdown. For instance, on March 27, Standard & Poor’s raised its expectation for losses on
2006 In Florida millions of homeowners were warned of the mortgage meltdown in which they will “face a financial nightmare brought on by a combination of higher interest rates, risky mortgages and a housing market gone cold (Huntley 2006).
2007 Since 1991 inflation-adjusted hourly wages rose only 10 cents (Ed. 2007).”
2007 A new car in Canada cost $32,000 a 60 percent increase from 1992 (Ed. 2007).”
2007Canadians collectively owe three quarters of a trillion dollars in personal debt. Canadian families not only have no savings, they draw on pension savings to make ends meet.

“The result of the easy credit is that an average family now owes far more than it takes in. That means we remain solvent only so long as the book value of our assets — things like our home, pension funds or investments — continue to increase (Ed. 2007).”

2007 British Columbia graduates from university have an average debt of $27, 000.

2007 It is now acceptable for Canadian families to pay 60 percent of income to pay monthly payments of their home mortgages (Ed. 2007).

2007 The British Columbia government will allow home owners who are over 55 to defer property tax payments for as long as they live. The government will claim unpaid taxes after you die or sell effectively placing the tax burden on the children (Ed. 2007).

2007 “The number of corporate failures in Japan rose for the third month in a row totaling 896 cases in December up 18.2%. November flops were up 6.5% and the number of companies going belly up in October were up 7.8%. The amount of debts the insolvent companies left behind were up 30.6% to 463.09 billion yen (Belew 2007).

2007 In March Bob Lawless reported in his blog that, “The folks at Automated Access to Court Electronic Records or AACER regularly collect data from all the bankruptcy courts for creditors and attorneys. They have a wealth of information that does not show up in the mainstream media. Most recently, they tell me that there were 58,640 total U.S. bankruptcy filings in February 2007 as compared to 55,088 total U.S. bankruptcy filings in January 2007. OK, that looks like a slight increase, but looks are deceiving. It’s actually a fairly hefty increase. The February filings were spread over only nineteen business days while the January filings were spread over twenty-one days. On a daily basis, the February filings were up 17.7% as compared to January (Lawless 2007).”

2007 Jayson Seth analysed data in National Association of Realtors (NAR) June 24, 2007 report. Seth argues that “America’s easy-credit, quick-flipping, borrow-now-and-forget-the-consequences lifestyle is coming to an increasingly painful, grinding halt” and the “confidence of homebuilders is at a 16-year low (Seth 2007).”

2007 Lawrence Yun, National Association of Realtors announced that the real estate market is softening due to psychological factors, tighter credit for subprime borrowers. NAR’s Lawrence Yun explained that since late 2006 housing sales have slowed as buyers double up with family, friends or just mortgage helper units in their homes to be able to pay for higher-priced homes.

2007 Mason and Rosner (2007) warn that risk continues to increase, as ratings agencies revise their loss expectations to account for the dynamics of the mortgage meltdown. For instance, on March 27, Standard & Poor’s raised its expectation for losses on 1. “Residential mortgage-backed securities (RMBS) market has experienced significant changes [from 1997-2007]” Furthermore they caution that “structural changes in mortgage origination and servicing have interacted with complex RMBS and highly volatile CDO funding structures to place the U.S. housing market at risk. Equally as important, however, is that housing market weaknesses feed back through financial markets to further weaken financial instruments backing today’s CDOs. Decreased housing starts that will result from lower liquidity in the MBS sector will further weaken credit spreads and depress CDO and MBS issuance. This feedback mechanism can create imbalances in the U.S. economy that, if left unchecked, could lead to prolonged domestic economic implications for U.S. standing in the world economic order [. . .] The potential for prolonged economic difficulties that also interfere with home ownership in the United States raises significant public policy concerns. Already we are witnessing restructurings and layoffs at top financial institutions. More importantly, however, is the need to provide stable funding sources for economic growth. The biggest obstacle that we have identified is lack of transparency.” (Mason and Rosner 2007).

2007 In a Marketplace interview Amy Scott asked interviewees about the disturbing consequences of the interconnections between banks, hedge funds, high risk mortgages and pension funds. In June two major hedge funds managed by the investment bank Bear Stearns, who purchased securities that were essentially a “repackaging of all kinds of risky mortgages” to tap into the subprime mortgage market are now verging on collapse as the number of borrowers defaulting on these mortgages increases. Joseph Mason explained that “this isn’t just a Wall Street problem. Your 401k or pension fund may be invested in similar mortgage-related securities.” The investor-base is broad and it is difficult to know who is at risk. “Investment managers don’t have to report their holdings. And unlike stocks, these securities aren’t quoted on an open market.” Mason has been a firm proponent of more transparency in financial dealings (Scott 2007).

2010-05-06 According to a report entitled “The Microstructure of the ‘Flash Crash’: Flow Toxicity, Liquidity Crashes and the Probability of Informed Trading” in The Journal of Portfolio Management, “The ‘flash crash’ of May 6th 2010 was the second largest point swing (1,010.14 points) and the biggest one-day point decline (998.5 points) in the history of the Dow Jones Industrial Average. For a few minutes, $1 trillion in market value vanished.” Report authors argued that the ‘flash crash’ was the result of the new dynamics at play in the current market structure.”

Easley, David, Lopez de Prado, Marcos M. and O’Hara, Maureen, “The Microstructure of the ‘Flash Crash’: Flow Toxicity, Liquidity Crashes and the Probability of Informed Trading.” (November 19, 2010). The Journal of Portfolio Management, Vol. 37, No. 2, pp. 118-128, Winter 2011. Available at SSRN: http://ssrn.com/abstract=1695041

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1695041

See also article was written by Heather Stewart and Simon Goodley, for The Observer on Sunday 9th October 2011 00.06 Europe/London

Credit crunch, Financial crisis, Financial sector, Banking, Global recession, Stock markets, Business, Lehman Brothers, Margaret Thatcher,

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Belew, Bill. 2007. “ Corporate Bankruptcies climb for third month in a row.” Uploaded January 21, 2007. Accessed June 24, 2007.

Christie, Lee. 2005. “Real estate: When booms go bust: Home prices can and do go down. Here’s what declines have looked like in the past.” CNN/Money. September 19, 2005.

Editorial. 2007. “Family finances under pressure.” Victoria, British Columbia. Times Colonist. June 24. D2.

“Leonhardt, David. 2008. “Economic Scene: Can’t Grasp Credit Crisis? Join the Club.” New York Times. March 19, 2008.

Fitch IBCA, 2006. Fitch Global Structured Finance 1991-2005 Default Study, Nov. 26, 2006.

Huntley, Helen. 2006. “Mortgage Meltdown.” Tampa, Florida: St. Petersburg Times. Uploaded October 2, 2006.

Jayson, Seth. 2007. “Housing Slumps. Who’s Surprised?” The Motley Fool. Uploaded June 25, 2007. Accessed June 25, 2007.

Lawless, Bob. 2007. “Bankruptcy Filings Up 18% in February 2007.” Credit Slips: A Discussion on Credit and Bankruptcy. Uploaded March 6, 2007. Accessed June 24, 2007.

Mann, Bill. 2000. “An Investment Opinion: What a Real Bear Market Feels Like.” >> Fool on the Hill. Uploaded April 26, 2000.

Mason, Joseph R.; Rosner, Joshua. 2007. “Where Did the Risk Go? How Misapplied Bond Ratings Cause Mortgage Backed Securities and Collateralized Debt Obligation Market Disruptions.” Uploaded May 2007. Accessed June 24, 2007.

Miller, Geoffrey P. 2001. “The Role of a Central Bank in a Bubble Economy.” July 16, 2001.

Molony, Walter. 2007. “May Existing: Home Sales Show Market is Under Performing.” Washington. Uploaded June 25, 2007.

Perkins, Broderick. 2001. “California Real Estate Won’t Mirror Silicon Valley Volatility.” >> Realty Times. Uploaded May 18, 2001. Accessed June 24, 2007.

Scott, Amy. 2007. “Mortgage meltdown hits Bear Stearns.” New York: Marketplace. Uploaded June 20, 2007. Accessed June 24, 2007.

Winzer, Ingo. 2005. president of Local Market Monitor, which sells real-estate market analysis to corporate and consumer clients.

Flynn-Burhoe, Maureen. 2007. “Democratization of Debt: Wall Street’s Bear Stearn’s and Tampa’s Mortgage Meltdown.” >> Speechless. June 24, 2007.Flynn-Burhoe, Maureen. 2007. “Democratization of Debt: Bear Stearn & Mortgage Meltdown.” >> Google docs
http://docs.google.com/Doc?id=ddp3qxmz_320dqk9nt

Selected Bibliography and Webliography on the Mortgage Meltdown (content to be added to timeline)

Andrews, Edmund L. 2008-03-16. “Fed Chief Shifts Path, Inventing Policy in Crisis.” << New York Times. March 16, 2008.

Andrews, Edmund L. 2008-03-17. “Fed Acts to Rescue Financial Markets.” << New York Times. March 17, 2008.

NYT’s autogenerated keywords: Federal Reserve System, Bear Stearns Cos, Morgan J P Chase & Co, Treasury Department, Finances, Interest Rates, Stocks and Bonds, United States Economy, Mergers Acquisitions and Divestitures, Bernanke Ben S, Paulson Henry M Jr, Schwartz Alan D, Wall Street (NYC), Washington (DC)

Flynn-Burhoe, Maureen. 2008. “Merrill Lynch Bull Reflecting on Enron.” « oceanflynn @ Digg.

Adobe PhotoShop/Flickr image Tag Cloud of Tse’ (2008) article: Tse, Tomoeh Murakami. 2008. “Economic Downturn Emboldens Shareholder Activists.” Washington Post. February 19, 2008. tag cloud. business economy economics risk.society risk.management banking.sector cyber.citizens Del.icio.us flickr flynn-burhoe semantic.web tagging Tag.Clouds tags corporate.governance CEO activist.investors Wall.Street subprime.mortgages hedge.funds credit.crisis transparency recession Merrill.Lynch

Grynbaum, Michael M.; Bradsher, Keith. 2008-03-17. “U.S. Markets Volatile After Fed Actions. Permalink << New York Times.
March 17, 2008.

NYT’s autogenerated keywords: Stocks and Bonds, International Trade and World Market, United States Economy, Bear Stearns Cos, Morgan J P Chase & Co, Federal Reserve System.” http://www.nytimes.com/2008/03/17/business/worldbusiness/17cnd-stox.html?
ex=1363492800&en=ed6b8e647d5b59ed&ei=5124&partner=permalink&exprod=permalink

Sorkin, Andrew Ross; Thomas, Landon Jr. 2008. “JPMorgan Acts to Buy Ailing Bear Stearns at Huge Discount.” Permalink<< New York Times. March 16, 2008.

Most emailed NYT story March 16-7, 2008. NYT’s autogenerated keywords: “Bear Stearns Cos, Finances, Morgan J P Chase & Co, Federal Reserve System, Cayne James E, Schwartz Alan D, Molinaro Samuel Jr, Banks and Banking, Bankruptcies” My delicious tags: 2008 2008-03 Bear.Stearns bankruptcies banking.industry business finance governance US.economy Wall.Street http://www.nytimes.com/2008/03/16/business/16cnd-bear.html?em&ex=1205899200&en=ca62f6b1b4fd516e&ei=5087%0ASorkin, Andrew Ross. 2008. “Sale Price Reflects the Depth of Bear’s Problems.” << New York Times. March 17, 2008. http://www.nytimes.com/2008/03/17/business/17cnd-bear.html?ex=1363492800&en=8e8e9fbff8c8f606&ei=5124&partner=permalink&exprod=permalink

Tse, Tomoeh Murakami. 2008. “Economic Downturn Emboldens Shareholder Activists.” Washington Post. February 19, 2008.

Tag.Clouds tags corporate.governance CEO activist.investors Wall.Street subprime.mortgages hedge.funds credit.crisis transparency recession Merrill.Lynch << Google docs http://docs.google.com/Doc?id=ddp3qxmz_525cb82bcdn

Thanks to Corey Beaman for his stunning photography and video clip shown above which he made available via the Creative Commons license in Flickr. He also recommends the www.audi.com/ironman on his blog http://oneighturbo.com/. Billionaire technophile, Tony Stark is Iron Man, who directs a major industrial complex, wearing either his indestructible, hi-tech suit of armor or driving in his invincible Audi R8 which is oddly similar to his armour right down to details like Stark’s artificial heart which resembles the Audi’s mid-engine (http://oneighturbo.com/).The Audi R-8 was chosen by the Automobile Journalists Association of Canada as the “2008 Canadian Car of the Year, ” a 420 horsepower, 250 km/hr, two-seat sports car.As Quirks & Quarks’ Bob McDonald wrote in his blog, “Now there’s a clean, efficient car for you, perfect for a country with speed limits of 100km/hr and snow deep enough to ground this low rider on the first turn.”  McDonald used the Audi R-8 as an example of what might happen when publicly funded science is limited to one kind of science: applied science driven by building, nurturing and protecting investment climate and the economic environment See Mobilizing Science and Technology to Canada’s Advantage . He argued,“Take clean cars for example. Scientists have been working for decades on emission controls, fuel efficiency, fuel cells and alternative ways of making wheels go around. But until regulations are in place that force automakers to use these technologies, they often don’t make it to the road. [. . .] It seems the automakers and the journalists who write about them still think it’s 1969. So if the government is going to invest in new technologies, then regulations, penalties and tax incentives must also be in place to help those technologies get out of the laboratories and really make a difference. Here’s the other danger of focusing on applied science: it doesn’t really develop anything new; it just improves on what’s already out there.”

“The 2008 Federal budget includes more money for science, which is a good thing, but the cash comes with a catch. The scientists have to do what the government wants, not pursue the basic questions of the universe. The new budget is mostly aimed at supporting the auto industry, manufacturing, fisheries, genomics and nuclear power. In other words, applied science that contributes to the economy. Of course, we need clean cars and new products. Applied science is aimed at developing new technologies, new industries, jobs and perhaps a boost to the economy. If it all happens within the four-year tenure of a politician, everyone looks good. But here’s a word of caution about this approach to funding research; it may not actually produce anything, and basic science can end up on the back burner. When the government invests in new technologies, industry doesn’t have to adopt them, and often resists doing it if extra costs are involved.”

More

Webliography

Bernier, Maxime. 2007. Mobilizing Science and Technology to Canada’s Advantage Corporate Publications. Industry Canada. (May 2007)  http://www.ic.gc.ca/cmb/welcomeic.nsf/vRTF/PublicationST/$file/S&Tstrategy.pdf

McDonald, Bob. 2008-03 http://www.cbc.ca/technology/quirks-blog/2008/03/new_government_adds_insult_to.html

McDonald, Bob. 2008-01-25  http://www.cbc.ca/technology/quirks-blog/2008/01/no_science_in_the_pms_ear.html 

McDonald, Bob. 2008-02 “Budget for science, or at least one kind of science.” http://www.cbc.ca/technology/quirks-blog/2008/02/budget_for_science_or_at_least.html

McDonald, Bob. 2008. Budget for science, or at least one kind of science quirks Friday, February 29, 2008.

Senator Tom Kent was a guest on the popular weekly television show Front Page Challenge with host Fred Davis and panellists: Pierre Berton, Betty Kennedy, Gordon Sinclair on Dec. 6, 1981. He managed to stump the panellists.
“Senator Tom Kent was the head the 1981 Royal Commission on Newspapers called the Tom Kent Commission. Kent described the state of media concentration such as newspaper monopolies in Canada as “monstrous.”    The Kent Commission made some tough recommendations. These included making Thomson sell its recently acquired flagship paper, the Globe and Mail, putting a stop to Southam’s expansion, and breaking up regional monopolies like the Irving empire in New Brunswick (CBC 1981).”.

The commission want[ed] to forbid companies from owning newspapers and television or radio stations in the same market. Both publishers and reporters attack[ed] the Kent report saying it [was] too harsh. They sa[id] the commission want[ed] to put the government in the newsrooms of the nation, which would infringe upon their freedom (CBC 1981).”

“The Kent Commission wasn’t exclusively about concentration of media ownership but also looked at press councils, quality of print journalism in Canada and new technologies such as the introduction of computers in newsrooms. Kent proposed a Canada Newspaper Act aimed at controlling media concentration, particularly cross-ownership of newspapers and other media. But the government largely ignored Kent’s recommendations as it did a decade earlier with the Davey report (CBC 1981).”

CBC placed this story under Politics and Economy > Concentration to Convergence: Media Ownership in Canada > Tom Kent stumps Front Page Challenge panel

Third world votes lured by msoft freebies but European courts stall adoption of proprietary ISO standards. Open source for the public versus private ownership?

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