New York City
Washington DC Metro
Northern New Jersey
open house planner
manhattan condo market index
submit your listings
Benefits of FREE account
Become an Insider
post your listings
Will QE3 increase Manhattan RE prices in the near future by lowering mortgage rates/accelerating inflation?
it will keep the bubble from deflating for a longer period of time.
only thing that'll benefit is stocks. morgage rates will go down a bit but they are already low so will not have a significant impact. only way RE gets a boost is if markes rally causes bonuses to increase and employment to increase in finance.
No. Increasing in employment or higher incomes will help Re priced. Alls this does is slow the deflating bubble.
it will help keep the bubble inflated a bit longer but the pop at the back end will be that much worse
Low rates throught 2015, 3 more years is a long time.
Now that the Middle East has re-re-re-re-destabilized, there will be a flood of money coming in from Sana.
Too many Manhattan properties are above the limits set by the GSE's, so the answer is that qe3 has a very very very small effect....if any.
Curious - can you get two loans, RS? One up to the limit, and a private one for the amount above?
Jason, having spent a lot of time recently with private banking my sense is that if they'll approve you for the one above the limit, they'll approve you for the total.
Most retail banks are no longer writing mainstream loans that they keep on their books, there are a few exceptions, but I recently received noticed from Wells that they had discontinued private Co-op apartments, and I believe they listed the other three had done as well.
We received a loan through our private banking relationship. But we have two private banking relationships, and I can tell you that one of the largest four banks had no problems with a fourth-floor walk up in Harlem with no comps, 10% down (maybe because said bank had loan and parents had taken out another loan.) But couldn't believe the difficulties we had in a fully sold-out condo building in brooklyn. Our banker finally got it done, without PMI and with decent terms, so i'm giving props to citibank right now.
Jason, Silent second's were all the rage before the bubble. Everyone is on to them now. Fannie & Freddie are careful to understand if the down payment is done via borrowing or with real funds. They want skin in the game.
ar - don't quite understand why it was so difficult for you to get financing, particularly with the private banking relationships. What were the problems?
Borkerny is only gonna live 3 more years.... So sad.
Sprint $5.20 bitches. Told ya to buy on dips. I got morez at $4.80. Once it breaks $5.93 watch out. Next earning ls out in a month. I wonder if it's got more upside surprises? Downside? I don't know $3. Unlimited upside. Re not so much
What was it that created the detente between aboutready and ph41?
>Sprint $5.20 bitches. Told ya to buy on dips. I got morez at $4.80.
Why didn't you just buy at $4.80 the first time?
I don't like margin and needed to wait till my CDs my wife locked us into got unlocked. Yippeeeee my wife made $500 in one year. I made $20k in 2 weeks.
Whats wrong with margin on a sure bet?
"only thing that'll benefit is stocks"
woo hoo! took some profits today.
the fvckers will come with bags of newly printed money and snag all manhattan RE as they can
There will be a race to "hard assets" at some point when all this printed money from the QE's which is currently frozen hence the low velocity of money decides that inflation is coming and then all hell brakes loose. Condos will benefit as co-ops are not really liquid. Anything that could be considered a hard asset will benefit. When this will happen? No sure but am watching. Could be a while yet.
it definitely helps out building owners as you will see a ton of refi's. also make capital improvement projetcs look better. looks like someone in yorkville likes it lol
AR: We also had enormous trouble re financing through private banking. We originally financed in late 2008 and it was difficult. But this recent go round was crazy - especially since our finances were exponentially better. The paper work was staggering.
Clearly this QE will help the higher end RE market in NY-- those that can pay in cash.
For me, with the sale of my NYC apt in 2005 and the proceeds conservatively invested in the market, I have lived rent free from the profits since 2005. I have made enough in the last few months in the market to pay for my new, higher rent for two years. I don't see any reason to buy. In the last few years I have bought a lot of gold and I think that the profit from the gold in the next couple of years will allow me to increase my purchase price in NYC. The gold will assist my purchase power whether it is in terms of keeping up with artificially inflated RE prices or being able to increase my purchase level in a depressed RE market if the economy turns down. It is the back door policy of buying low -- buying RE in gold terms rather than dollar terms.
Only question is whether I will be able to outbid w 67 who will be buying in Sprint terms.
True, hard assets are the play when old Ben continues to step on the Gas, but look for the next bubble( maybe apt23 is right gold/commodities) not RE. Re is too illiquid plus leverage helps propell bubbles higher and financing is still too difficult fo RE to go much higher. Plus, locking up a large percentage of your wealth with a cash purchase in one asser is not wise, You really need to stay liquid in this market, because any since of inflation will pop the stock and bond markets in a nano second and higher rates will hurt the re market.
brooks, that's why i was only willing to buy if i could do so very cheaply with only 10% down. like apt23 we were far more qualified than our last condo purchase (more than double the income, far more assets (liquid and illiquid), and a less expensive unit at lower mortgage rates.
banks really don't want loans on their books any more. even with private banking one bank wanted 30% down on a conforming loan to get the amount to the lower conforming limit. i got an e-mail from a mortgage broker i've consulted in the past who said that wells, b of a, citi and chase had all ceased giving mortgages on regular non-conforming coop purchases. I'm not sure how people are getting mortgages on non-conforming properties these days, and I haven't spent much time looking at comps so I don't have any sense how the mid-range market is doing.
Imagine what the maintenance numbers are going to start looking like with major inflation... technically, wouldn't it be worse for condos given they don't have a portion coming from mortgage?
As a proportion it might seem so, but expenses are expenses. Those amenity-rich buildings will feel disproportionately pained. But not everyone, including me, is in the hyperinflation is just around the corner camp.
There is a great video of my finance guru, the love of my investing life, hedge fund hero, Ray Dalio about how deflation and hyperinflation are keeping each other in check. He was talking at the foreign relations counsel last week. I would post it but it is an hour long so you have to be a Dalio zealot like me to slog thru it.
Hey AR. Get on those comps. Your SE board needs you. Regarding loans --We had to put up 50% to get a loan. We have off the charts good credit and everything is liquid. Had to provide five years (5 YEARS!!!!!) of pay history and tax returns. It is a bitch. I thought it was hard in 2008 but now it is just crazy. I know someone who could buy and sell us ten times over and he also had a tough time -- he had to go to several banks before he could get a loan. I don't know what is going to happen with anyone with even the smallest blot on their credit record. When we run out of cash buyers (foreigners?) I wonder what will happen to the market.
Banks are CLEARLY lowering credit standards again. There have been countless articles on this. And my own proof is that I am again BOMBARDED with credit card and personal loan offers. My score is unchanged. But I got maybe one a month from 2009-2011, and now I literally get 2-3 offers A DAY.
It's going to be great for local business.
Nice big chunk will end up in the pockets of those working in the finance industry and as in the past, those dollars will trickle down towards those who serve their needs. It's what happened first quarter 2011.
Maybe not so much for residential re but as far as local Manhattan businesses are concerned.......
Happy days are here again!
Apt23 can u post a link? I'd like to see it
US debt downgraded by Egan-jones siting QE3 will hurt the economy thus the country's credit quality. Siting weaker dollar will increase commodity prices ......, etc
"Banks are CLEARLY lowering credit standards again. There have been countless articles on this. And my own proof is that I am again BOMBARDED with credit card and personal loan offers. My score is unchanged. But I got maybe one a month from 2009-2011, and now I literally get 2-3 offers A DAY."
Seems conflicting evidence. If they really did lower standards, they wouldn't need to hit the same people up over and over again. They're targeting the more qualified, because they may have given up on the less-qualified.
Either way, this doesn't seem evidence of much...
"As a proportion it might seem so, but expenses are expenses."
The challenge is for folks who bought just what they could afford... either way, it doesn't help the "lock in expenses" argument.
Brooks: Here is video - embedded in article. It is an hour of Ray Dalio. I have done very well adhering to his advice which is always macro.
Brooks: Egan Jones is going to have to go undercover soon. The govt went after him over legal technicalities about his application to be a ratings service. They raked him over the coals -- and it just happened to co inside with his previous downgrade of US. If there are any spider holes left after the weirdo video makers have taken cover, we will probably find Egan Jones in one some day soon.
apt23 - thanks for the link; Do you like Dalio more than Ackman?
Novice: Yes. Dalio is an an amazing being. I check in with him for the macro calls. I don't always like his stock picks. And the more complicated trades he makes, I don't have access to. I like Ackman for his individual stock picks. I did well with his Justice Holdings and at his conference they touted RNF @ 22 and man......through the roof and a 10% dividend. So yes, Ackman is a favorite.
Jason, it's not true for NYC mortgages
Dalio makes a great point about Fed easing and lending. Quantitative easing does not give banks an ability to expand the balance sheet. Another great point was not to expect outsized returns on stocks and bonds since there's no further room for rates to decline.
not as long as the fed continues to sterlize QE as they buy assets from primary dealers via open market operations. hence the buildup of excess reserves. seems like fed is continuing to recapitalize the banks, and politically taking the stance that all of this is to help the job situation and to stimulate lending. In reality, its recap the banks and allow restructuring of debt to those that can take advantage
Nothing new. He's been preaching this for the past year. Question is, how do you make investment ideas in this QE world? Can't trade macros views successfully most of the times.
Are you willing to watch a growing bubble on the sidelines, doubt it. With rental prices so outrageously expensive here in nyc and cap rates so low, I would argue that ppl will look to buy apts. incrementally once 30 years go down to 3.5% or at some point 3.25%. Right now banks aren't lending cause they are worried about credit and dodd frank regulations, but that will pass and with unlimited QE and cheap financing they will eventually loosen up in order to make money. Sure the yield curve is flattening, but watch banks start leveraging themselves to make that spread juicier. Have we seen regulations on JPM after their whale trade? No, because no one wants to shrink bank balance sheets, b/c that would mean less loans, growing unemployment, and unelectable politicians. Its a rigged game; regulators will modify new banking capital regulations to their benefit, they need to keep their jobs and careers.
Everyone seems to be so weary and negative with the markets, which makes me feel its right to be the contrarian and believe Bernanke scenario will work out. Not that I believe what he is doing is right or healthy, but I think it will do what he says, which is to create a growing stock market, more home buyers, more construction, and the feedback loop etc.
Question is how do we make money? NYC has relatively been strong in the past few years, but are there other markets that will outperform in this bubble? Miami, Southern CA? I am not an expert but interested to hear some ideas.
Bernanke had a limited tool set to begin with and has clearly run out of ideas. endlessly doing more of the same that hasn't done anything except perhaps keep us from the cataclysm clearly is illogical. for various reasons, he is not willing to do nothing and/or go public with his lack of effective options.
the problem remains lack of demand and lack of money available for the majority of the population.
Urban, I think you are wrong here.
Whether a bank's assets are invested in cash sitting as Fed Reserves, Treasuries, or MBS, the mix of assets, liabilities and equity has not changed.
Noah, the only way I might be inclined to agree with you is if you were talking about the decreased spreads in asset prices(e.g. higher prices) which helps repair the balance sheet, but simply swapping bonds for cash sitting at the Fed is balance sheet neutral. Banks are not lending because of balance sheet constraints (not liquidity), reserves sitting at the Fed has nothing to do with it.
1. Vacancies iin manhattan were at a 3 yr high I'm Aug.
2. The yield curve steepened after the qe3 announcement,
3. Financing as a result of lower rates is only better for a select few that have credt credit and have been paying there mortgage
4. Retail mostly missed the surge in stock prices
5. CPI is going higher as reported this week
6. Corporate earnings are worse
7. There it's havoc overseas
8. We are approaching a fiscal cliff.
So taxes will be going up and most likely a spending cuts
9. Unemployment is over 10% in NYC
10. Incomes is down
11. Forclosure pipeline will start to hit NY RE
12. RE is a depreciating asset, and with financing so difficult, it will require a larger percentage of wreath to be tied up in a depreciating asset.
13. Investment banks still are trying to figure out how to make money and the downsizing continues
..qe3 will lead to inflated commodity prices and put the economy in another recession
Sorry for the typos misspellings may e I should get a galaxy 5 instead of an iphone
Apple is all about hype
RS, what do you think of Gross' view that banks are not lending because with rates this low spreads are not wide enough to make enough off loans to justify the cost?
No, I don't agree with low interest rates discouraging lending in general. First and foremost its a balance sheet issue. That said, low rates discourages some forms of lending as the premium's don't make the risk worth it. Of course some forms of abusive lending are protected from government lowering of rates, such as pay-day and Credit card lending which no matter what rate the Fed sets, seem to always be at rates that make Vinny the loan shark foam at the mouth.
>Vinny the loan shark
Stop perpetuating ugly stereotypes.
Some Vinnies make excellent lawyers.
lowest interest rates of our lives
More money on corporate balance sheets then in any other time in our lives.
Highly favorable tax considerations
unlimited skilled, educated work force willing to work crazy hours for low wages
The problem is no confidence in the foreseeable future. That's what we should be focused on.
More money on corporate balance sheets then in any other time in our lives.
No not really. They just invest it in corporate debt issued by others. On a net basis, this argument does not hold up.
The confidence argument is way over-rated. Companies expand when they see excess demand. Banks lend based on a balance sheet.
"unlimited skilled, educated work force willing to work crazy hours for low wages"
Seriously? There are barely any. In fact this is probably one of our main issues, there is a huge gap between business needs and job applicant skills in my experience (Tech).
The odds of general inflation as a result of QE3 are vanishingly small.
It may increase demand slightly (by reducing interest rates, making it easier for people and companies to borrow and/or cut the costs of existing loans), which could reduce unemployment somewhat.
But it isn't going to encourage a lot of investment because businesses will see little point in expanding without customers to buy their products, and it isn't going to result in a lot of consumer spending because even with low interest rates, too many people feel stretched and nervous.
The issue isn't "confidence" in the abstract. It's very specifically: businesses are completely confident that they do not need to hire or invest. As a result, employees -- consumers -- are confident that they'll get no raise and worried they'll lose their jobs. That makes them reluctant to spend, which validates the business confidence that is the underlying problem.
With the economy running well below capacity, there is nothing that would drive a general inflation. Obviously, drought may drive up the price of corn, Middle Eastern instability and/or recognition of the environmental costs of fracking can always affect the price of energy, and the medical and finance industry may find new ways to extract rents from us. So prices, even important prices, may go up. But it won't be because of QE3 and it won't be a general rise in the wage/price level.
If the government were serious about reducing unemployment, it'd be spending -- there is no better time to invest in desperately needed infrastructure, transportation, education, scientific research, parks, museums, jumpstarting energy efficiency, insulation and renewables, and the other deferred public expenses than when costs are low because capital and labor are sitting idle with nothing else to do. Government hiring people would directly reduce unemployment and put money in the hands of employees -- consumers -- who'd then spend it and make businesses more likely to hire other people to produce.
And it'd be attempting to reduce the value of the dollar, so that American workers could produce for the world instead of the other way around.
But these actions require Republican votes in Congress, so they aren't going to happen.
As for NY RE, the Fed's actions might increase the fundamental value of NY RE somewhat if, for example, it drives sufficient money in the direction of the banks/Wall St to make them feel comfortable taking huge paychecks out of the taxpayers' money. Or if it, unexpectedly, is able to end the recession and improve wages generally.
But NY RE sales prices remain well above any arguable fundamental value. So even if that value increases, it is unlikely to drive sales prices up. At most, rents will rise marginally, thus closing the gap from that direction. The most likely direction for NY RE prices remains down. Probably slowly -- sellers are reluctant to accept nominal losses -- and probably for a very long time.
If the Republicans win the election, expect a quick jump in the stock market (and perhaps an associated upward blip in NYC RE) as Wall St celebrates the prospect of further government giveways (tax cuts) to the 1% and more permission to cheat the rubes. But the "sugar high" won't last long and the drop afterwards will be harsh. In the medium run, it is hard for businesses to prosper without customers, and Republican subsidize-the-rich and squeeze-employees economics destroy ordinary Americans' ability to earn the money they need to be customers. Not to mention that without umpires, the cheaters usually end up destroying the game, as the Wall Streeters did under Bush the Lesser.
LOw interest rates(low or negative real interest rates) and too much liquidity encourage mal-investment and bubbles. The Federal reserve gets a D when it comes to dealing with bubbles, always has always will. The only thing it gets worse grades on is fraud and corruption which it ignores as a regulator.
Nice post, financeguy
UD - the only thing that is sterilized by the Fed is Operation Twist, which is simply swapping out maturity dates. QE3 is not sterilized, and excess reserves have nothing to do with it. The Fed pays interest on excess reserves b/c the more excessive reserves a bank has with the Fed, the more it can lend.
Normally a flat yield curve would discourage lending - the open-ended nature of QE3 should prevent that, because banks will have no incentive not to lend because they're basically being told that it's going to last forever, so get used to it. That said, what prevents banks from lending is mostly the market for asset-backed securities; right now there's a big market for ABS's for subprime car loans, so they're making shitloads of subprime car loans. Not so much for mortgages, however, even though mortgages come with a government guarantee.
Liquidity does not cause inflation if there is no demand, because that means there is no velocity of money. Really all the Fed is doing is taking up the slack caused by consumer deleveraging - when all of this is unwound, as it will be, the air will be let out of the system, albeit much more slowly than would have naturally happened, thus avoiding deflation.
Banks' spreads are actually very high right now - much higher than they have been in a long time, because they get free money. Check out credit card rates: they haven't gone down along with the cost of funds. Rather, they've gone up.
I don't know what corporation RS thinks is buying the debt of other corporations. The corporate debt market is basically funded by money-market funds, not by other corporations. Corporations park their money in cash, and in some cases they pay a fee to do so.
And yes - financeguy is correct: the Republican trickle-down economic theory does not work, because it destroys the very customer base the companies need to buy their products. That's why - within reason - when taxes for the wealthy go up, the economy on the whole does better. The Bush tax cuts did nothing but help the rich get richer, and fool the hoi-polloi into thinking that housing prices could go up 25% a year every year forever.
Until they didn't.
Sorta like the Zynga IPO.
Fg died not have a clue.
Brooks, bubbles are not, per se, inflation. Investors seeking yield have caused fluctuations in the prices of many things over the past few years. With very few exceptions, those prices have proven vulnerable. There is a huge amount of slack in our, and the global, economy.
A slow long painful readjustment is occurring. We are turning Japanese.
the fed only started paying interest on excess reserves in Oct 2008 - that was done to sterilize the QE strategy and incentivize the banks to earn decent coin by parking money into excess reserves. This was the main mis-understanding of all the hyperinflationists that promised skyrocketing inflation from so much money printing. They failed to understand the brute force of debt deflation & the deleveraging process. That is what I meant by sterilizing. Also, the banks are indeed capital constrained and for 5+yrs now have seen consumers experience deteriorating credit quality (clearly not as much today as it was back in 2008) in a high unemployment environment (again, clearly more so in 2008). The only prudent things banks did was to tighten up lending and underwriting standards -- the system doing something to fix itself naturally.
As for the banks making money, I havent been in this mindset for 9-10 months now but I would think the Fed wants to continue the dollar carry trade environment via QE to allow the banks to continue to carry trade their mis-marked assets both on and off balance sheet, methodically and w/out disruptions. Purely for example: What was once marked at 90 cents and bid at 30 cents in 2008, is now marked at 60 cents and bid at 55 cents today. Therefore my thinking is the fed wishes to continue to implement an environment where banks can recapitalize, slowly but surely, by making ez cash on albeit low spreads and by trying to continue the carry trade for marked assets on and off bal sheets..
Been out of this game for a while now, trying to build more Manhattan tools...but curious to hear thoughts on this.
great post financeguy..completely agreed on govt spending now to upgrade infrastructure that is sorely needed across the country. Now is the time to do it, but as you say, politics is the biggest hurdle. So much to to do and the grid and bridges seem to be in the most need of repair/upgrades.
Policy wonks. Like two philosophers debating the merits and causes of nazism while millions burn to death.
Here it iz. When money is cheap the value of human effort is cheapened. Why earn $10/hr or get an education when it is easier to trade homes or financial products? Can't wait till interest rates hit 6%. Gonna lovez 12% mortgages and a Ferarri that no one else can afford. Where is the joy of buying a $50k Rolex or a $200k mclaren when a fking Borker pulls up next to you with the same watch and car?
Why wasn't W67thstreet out sailing on his boat today?
I was looking for his boat, expecting to see him flying the Sprint flag.
Kind of like the Jolly Roger.
and here's the alkiealanhart^^
I haven't been on se for over a week.
I'm not talking to him.
I'm not talking about him.
He's been waiting for me to post a comment all this time so that he now can post his insightful alkie troll comment. Within minutes of my comment.
Last time I posted on se, alkiealanhart made an ass of himself,yet again; calling me a liar.
He said that ali r. would tell everybody about my lies.
Whatever happened with that?
Don't wait for an answer, se readers.
The alkiealanhart has been lying about me, as usual.
Now he's trolling me, trying to start a fight.
Truth, you know I love you. Just ignore alan if you don't like what he says. He said the word "stifle". Why do you let that bother you?
Do people realize that financeguy is suggesting that the government exploit workers when they are at their weakest:
"there is no better time to invest ... when costs are low because capital and labor are sitting idle with nothing else to do"
Personally, I'm shocked.
I also find it odd some of the areas he wants to spend more money on:
>education - don't we already have an education bubble? and isn't too much public education dollars going to public employees who have riskless retirements, destroying the private incentive?
>scientific research - research for research's sake?
>parks, museums - oh yes, very important when the economy is bad to put more money into a museum
>jumpstarting energy efficiency - Solyndra, great idea
>insulation and renewables - government investment in insulation! What a brilliant idea. Why not just promote global warming so we don't need insulation?
>and the other deferred public expenses - government is clearly not spending enough
agree with brooks2 except #11. hey guess i don't need another alias
what's your decision process for when to write in broken English and when to write normally?
huntersburg: it's not that I don't like what alkiealanhart writes about me on se. He's an alkie fool.
It's that he is and has always been a liar.
He lied himself into an alkie corner last week, claiming that ali r. doesn't lie and would reveal the truth about my lies on se.
Never happened, never will happen.
alanfart, is home alone on a saturday night for 8 consecutive years.
aboutready, is sleeping in a different room from Ralph. LMAO.
financeguy, the world's fattest woman says you're wrong: http://www.latimes.com/business/money/la-fi-mo-richest-woman-pay-20120905,0,6971046.story
aboutready says you're wrong!
QE3, does not mean Third Quarter. LMAO. LMAO. LMAO. Stupid analhart and aboutready.
Interest on reserves is not sterlilizing inflation and Q.E. nth to the x, but acting as a bank subsidy. As you say the banks are capital constrained, They can't lend or extend their balance sheet. We aren't seeing the inflation effect feared because the banks are not in a position at the moment to circulate all the liquidity the Fed has attempted to create which is for the moment is having the effect of raising speculative and risky asset pricing and not resulting in increased lending to Main Street.
"low interest rates cause bubbles" -- No, that's just wrong. Bubbles are caused by investors who are willing to pay more than fundamental value for capital assets because they expect to be able to sell to someone else doing the same thing. That is, investors who read Inonada's analyses and say "but he hasn't accounted for the capital gains" or "NY real estate always goes up" or "In the long run, I can assume a 2% over-inflation increase in the value of my apartment even though construction costs go up with inflation" or "Argentinian flight capital will make prices rise" or "demand drives prices".
Bubbles happen with high and low interest rates and can even happen with no credit at all.
All that is necessary for a bubble is that buyers be confident that someone else will be willing to overpay even more later: paying $1m plus $2k maintenance for an apartment that rents for $4k makes perfect sense if you expect to be able to sell for $2m next year. The interest rate is as irrelevant as the taxes, maintenance, rental income and replacement cost in that calculation.
Bubbles end when bubble buyers lose confidence that they'll be able to sell to another bubble buyer for even more. The Fed can help that process along by tightening credit, which forces some potential bubble buyers to drop out, or by raising interest rates, which deters some fundamental buyers. But -- as we've seen in the last several years in NYC -- the bubble can keep right on going if there are enough buyers who don't need credit and they continue to believe in the pipeline following them.
Wow FG I thought you were going to blame the Republicans of that too. You Socialist rants were not missed.
shut up, huntersburg.
>Bubbles are caused by investors who are willing to pay more than fundamental value for capital assets because they expect to be able to sell to someone else doing the same thing. That is, investors who read Inonada's analyses and say "but he hasn't accounted for the capital gains" or "NY real estate always goes up" or "In the long run, I can assume a 2% over-inflation increase in the value of my apartment even though construction costs go up with inflation" or "Argentinian flight capital will make prices rise" or "demand drives prices".
I love neat, simple explanations with cool examples.
Watch the Video FG, Lean something.. The Socialist Agenda Transfer Wealth. How about get a job FG.
Finance lets' see what the economists say or at least one economics site.
Back in the 80's, Smith and his coauthors ran the first bubble experiments: Students (and professional traders!) kept creating asset price bubbles in these experiments. Lab subjects routinely traded these assets at freely-negotiated prices that were far above their objective cash value. But he found that as subjects played the same game again and again, bubbles became less common--people learned the lesson of The Who: "Won't Get Fooled Again."
One lesson a person could draw at this point: Perhaps lab bubbles don't really tell us about real life. After all, real life lasts a long time, and people in real life hear stories about bubbles, so maybe normal people are already at the Won't Get Fooled stage.
But a funny thing happened: The bubble literature grew. A key finding:
When you add liquidity to the market--even with the same set of experienced players--you can reignite bubbles. Liquidity creates bubbles.
In Minsky’s model....boom is fed by an expansion of bank credit that enlarges the total money supply. Banks typically can expand money, whether by the issue of bank’s notes under earlier institutional arrangements or by lending in the form of addictions to bank deposits. Bank credit is, or at least has been, notoriously unstable, and the Minsky model rests squarely on that fact.
Ironic that you're quoting something from delong's blog.
Paying interest on excess reserves is not to allow banks to earn "decent coin" - the rate is .25% per year. It is to encourage excess reserves to increase the lending capacity of banks. It does not "subsidize" banks either, as they would get interest if the parked their money at other banks; and make even more if they lent. The vast amount of bank lending (mortgages, credit cards, car loans) no longer sits on banks' balance sheets, but rather is sold as ABS's to third parties. The appetite of those clients is what drives what banks will lend on, not how much they have on their balance sheets.
Banks are not primary dealers, RS, so "banks are not in a position at the moment to circulate all the liquidity the Fed has attempted to create" is nonsensical (as usual). Securities firms are primary dealers, and they are separate from their banking parents, if the have one.
There is no evidence for: "is having the effect of raising speculative and risky asset pricing...." The reason that riskier assets increase in price is because their return is greater than 0, which is the return you get on bank deposits today. The lending you discuss is mostly a result of what ABS purchasers will pay for, not who banks will lend to.
And FG is correct again: anticipated future return is a huge part of asset pricing, but that is true in both bubble and non-bubble environments.
>And FG is correct again: anticipated future return is a huge part of asset pricing, but that is true in both bubble and non-bubble environments.
Why call out this obvious statement?
Why do you repeat the same stupid comments hundreds of times?
"The vast amount of bank lending (mortgages, credit cards, car loans) no longer sits on banks' balance sheets, but rather is sold as ABS's to third parties."
Most banks are retaining the few newly underwritten Mortgage lns on their BS.
Banks are buying Agency(govt guaranteed) MBS because they an not find enough qualified borrowers.
MBS=Mortgage Backed Securities
oh and FG has no clue. It starting to become obvious that you do not either
Brooks2, READ carefully what I wrote. I said there is not a big market for MBS's right now, & therefore banks are issuing fewer mortgages. Here are the figures for MBS's issued from 2001
Wells Fargo originates 1 in 4 US mortgages. Here are their mortgages held for sale figures
Their first mortgages held on the books were:
Notice how the figures are falling.
The total volume of MBS's issued is down, and the total volume of mortgages issued is down. If banks keep those assets on their books they can't continue to lend - that is why they sell them as MBS's.
Maybe I don't have a clue, but I was a bank auditor and I do have a degree in economics. The discounted rate of return is one of the principal factors in determining asset prices; that rate consists of interest cash flows for financial assets, and increase value of real assets. Unless you can explain to us why that is not true.
I think you've been watching Rick Santelli too much - it has nothing to do with "Socialist rants," and more to do with Economics and Finance 101.
Maybe you ought to try for an advanced degree then
I have a couple of those, too.
Upcoming BASEL rules and the poor state of bank balance sheets mean shrinking commitments to anything that doesn't have the Fannie,Freddie or GNMA label attached. The "best" of the large banks seems to be Wells Fargo in terms of commitment to this sector. But with mortgage rates at historic lows the duration and credit risk don't make this a fantastic place to be.
That will be pretty easy since there has been almost zero securitization of non-agency MBS sinse 07'.
Hey steve, can you put one of those advanced degrees to work and tell me who has done a non-agency securitization since 2008?
Maybe you can find the answer by using this amazing search tool called google.
Ok I will give you a hint. It was not Wels Fargo.
Need another hint? Ok, it was not a bank.
Redwood Trust has been virtually the only issuer of prime non-agency mbs in the last several years. I seem to recollect they typically go through Citigroup as lead manager. By the way, the typical size of an offering is like $300 million which is basically a non-event. I guess they are hoping to keep their name out and whet investor appetite. The loans tend to be fairly well underwritten so I doubt the securitizations bring much revenue(I mean profit)