BiPolar Manhattan MArket

dmag, real estate markets don't work like that. without a bubble, that is.

"30yrs - yea that was me. yes, I think the NBER will wind up officially declaring this recession over sometime around now, give or take a few months. Maybe its SEP 2009, maybe OCT, but right around here I think will mark the end to this first wave. That would make this recession duration around 18-20 months or so, starting from DEC 2007, deeper than the early 70s and early 80s recessions.

However, I am of the camp that we will have a double dip or multiple shallower recessions over the course of the next 5-7 years for reasons stated on UD many times, 2nd wave. Too tired to get into those thoughts now."

So what I'm getting from that is "over by the technical definition, but not 'really' over"?

you cant get this amount of fiscal/monetary stimulus + the fierceness of this recession and NOT see a effect/bounce. We are in that period now. It will feed on itself for a while, perhaps 3-4 quarters. Who knows. But I see a 2nd wave at some point, unintended consequences from policy actions taken to stem this crisis, and no fundamental engine for sustainable growth looking ahead.

this is the worst bout of debt deflation since the depression. you dont get over that in 20 months. the effects will last years and the new world wont be anywhere as sexy as the old one, credit speaking. if the depression lasted 10 years, perhaps this cycle will last 5-6. we are in year 2. we can easily see effects of stimulus for a good year or two, complacency setting back in, before we see that 2nd wave (prime, cre, helocs, credit cards, jumbo, arm recasts) that surprises many that thought it was all over. deleveraging will last for a few more years and balance sheets will need time to get repaired as debts linger.

i forgot to add whole loans held on accrual books that in my opinion, is the big elephant in the room that is mismarked. these books are not marked to market. there are trillions held in whole loans. securities are marked down, these guys were too but not where they need to be. this would cripple us if they were marked right, and rather, we are taking an 'orderly unwind/markdown' process to get through. in the end, it all comes out.

"these books are not marked to market."

Nor do they need to be. Nonperforming loans are automatically set after 90 days of nonpayment. They are reviewed individually for likelihood of payment. Just as it makes no sense to pay investment bankers short-term bonuses on long-term risks, it makes no sense to "mark" a long-term loan to a nonexistent market.

If banks were allowed to willy-nilly mark their assets to a short-term market phenomenon, the capital accounts would be meaningless. Why not mark a building built in 1950 & fully depreciated to its new current market value? It's not allowed.

"Nor do they need to be. Nonperforming loans are automatically set after 90 days of nonpayment. They are reviewed individually for likelihood of payment. Just as it makes no sense to pay investment bankers short-term bonuses on long-term risks, it makes no sense to "mark" a long-term loan to a nonexistent market.

If banks were allowed to willy-nilly mark their assets to a short-term market phenomenon, the capital accounts would be meaningless. Why not mark a building built in 1950 & fully depreciated to its new current market value? It's not allowed."

Thanks for completely non-usable information.

stevejhx - i never said they need to be! you are just repeating what I stated basically. these hold to maturity books are not held for risky reasons, they are held for accounting purposes and will likely not have to be immediately liquidated. Daily pnl is meaningless.

they are marked as the book nonperforms and defaults, if 5% of the book defaults after a set period, the whole book is marked down 5%...these hold books are not required to be marked to market. I dont want anyone to think I am calling unfair FASB play here for whole loan books.

but lets talk a bit about where are these marks? 95 cents on the dollar? 90 cents on the dollar? Whole loans, trillions worth, as the book nonperforms (lets be real here) may be what prolongs the deleveraging/recapitlization process as reality sets in. Thats all Im sayin

in short, whole loan books are backward looking and I believe loan loss provisions for these books are done on a quarterly basis...

Melvin, can you confirm this? Thanks

Yes the loan loss provision is taken quarterly as a function of actual losses and likely losses. The loan loss allowance is subtracted from total loans. The figure to look for is whether the provision is greater than the actual write-offs. Normally it is.

The "book" is not written down; each loan is assigned a status. There are no "marks," nor could there be if they are held on the books. Every loan is individual. Which is part of the problem marking MBS's and the like: since each loan performs individually and not actuarily, it's not possible to make a generic assumption about its future performance, and it's too time-consuming to figure out the performance of each loan underlying the security, which loans may, in fact, have been divided and assigned to different securities.

The reinsurance model of risk allocation - which is statistically-based - fails for loans.

"The "book" is not written down" --- everything else seems fine but this..I was under the impression that the overall book is marked down, as the book nonperforms. I had this confirmed to me ways ago by a contact I have over at a major firm.

I wonder if anyone else out there can offer a comment on this whole loan book topic.

But thanks for the clarity steve

No a loan "book" is not written down. Each loan is treated individually. If I have a mortgage loan and you have a mortgage loan and I default, what effect does it have on your loan?

None.

However, if 5% of loans do not perform then the "book" will be written down by 5%; the difference is that the write-down is not on the book itself although the effect is. The write-down is on each loan.

Sounds minor, but the difference is key to understanding what went wrong with ABS's: all of the underlyings do not perform the same, therefore making a valuation of the overall security nearly impossible. In non-facultative reinsurance - the model it's based on - there are statistical probabilities determined actuarily for each risk assumed based on the population: 50-year old white men die at certain rates of certain diseases, and that can be predicted fairly accurately for underwriting purposes. 30-year fixed mortgages do not perform that way.

And Juicy: WHAT'S THE PROPER PRICE TO RENT RATIO if it's not 12x?

"However, if 5% of loans do not perform then the "book" will be written down by 5%; the difference is that the write-down is not on the book itself although the effect is"

that is both what I meant and how I understood it to be

thanks

Wow, perfitz is dumber than I thought.

"nyc10022 you again show your ignorance - the stock market crashed over the past 2 years, people lost money across the board.

Owners who owned and home and didnt sell it saw no loss. many had signifcant tax advantages over the last 2 years and many saw their payments go down - meaning they were paying less for the same housing. So homeowners who didnt sell did not see a loss at all."

So, if your house loses value but you don't sell, you didn't lose money.
But if your stock loses value but you don't sell, you DID lost money.

And did perfitz just try to claim that saving money helped owners "make" money (but paying less rent doesn't, right)?

Oh my lord! No wonder perfitz thinks he made a good decision losing all his money!

"You are a liar"

Only liar is you, perfitz. You claimed I said that stock owners made money, and I did not.

You lied, and you are a moron!