Comments on: Fed drops discount rate 1/2 point http://raincityguide.com/2007/08/17/fed-drops-discount-rate-12-point/ Seattle's Leading Resource for Real Estate Information Sat, 20 Mar 2010 16:06:23 -0700 http://wordpress.org/?v=2.8.4 hourly 1 By: The OC Coastal Real Estate Blog » Behold The Roundup of Rate-Cut Coverage http://raincityguide.com/2007/08/17/fed-drops-discount-rate-12-point/#comment-174431 The OC Coastal Real Estate Blog » Behold The Roundup of Rate-Cut Coverage Wed, 29 Aug 2007 03:10:16 +0000 http://raincityguide.com/2007/08/17/fed-drops-discount-rate-12-point/#comment-174431 [...] Published by Rory at 4:00 pm under General Real Estate News and Info, Mortgage and Finance Take a Deep Breath, Countrywide isn't Chrysler Fed drops the discount rate 1/2 point at Rain City Guide Mortgage mess creates lending drought. Proof that Countrywide is just fine: A Billion Here, A Billion There How to pay off your subprime mortgage. Plus funny real estate agent "code words" [...] [...] Published by Rory at 4:00 pm under General Real Estate News and Info, Mortgage and Finance Take a Deep Breath, Countrywide isn’t Chrysler Fed drops the discount rate 1/2 point at Rain City Guide Mortgage mess creates lending drought. Proof that Countrywide is just fine: A Billion Here, A Billion There How to pay off your subprime mortgage. Plus funny real estate agent “code words” [...]

]]> By: Jay http://raincityguide.com/2007/08/17/fed-drops-discount-rate-12-point/#comment-171681 Jay Mon, 20 Aug 2007 08:40:56 +0000 http://raincityguide.com/2007/08/17/fed-drops-discount-rate-12-point/#comment-171681 Ardell, having spent time in the financial industry, I really hope that your analysis runs a bit deeper than interpreting "too little - too late" to mean that the Fed should have cut earlier and more. The current problems are due to earlier bail out rate cuts by the Fed (Greenspan) creating our current Moral Hazard speculative financial and real estate environment. Roubini is saying we are headed for a hard landing (recession). Lowering rates earlier might have prevented it but that still does not make it the right thing to do if it perpetuates and magnifies the corruption of free markets and rewards reckless speculation and misallocation of capital. When you reflate recklessly you debase the currency. The end result will be far worse than facing a needed recession to clear out the excesses. Regardless, whether right or wrong, whether the Fed eased early or late, enought or too little, whether we have a recession or not, the unwinding of the credit crunch + mortgage crisis + real estate bubble will run it's inevitable course. A recession will just speed up the outcoume. The smart money has known this for months, that's why spreads began to widen early. It just takes a while for the mainstream media, retail investors, and everyone else to figure it out. Regarding how low prices will fall (ie, to 1990 levels) I won't predict that one way or the other. However, history (ie, Japan's experience) shows clearly that even more extreme outcomes are well withing the scope of possibility. Before you decide what the outcome will be, just remember to look through the windshield instead of the rear-view mirror... Ardell, having spent time in the financial industry, I really hope that your analysis runs a bit deeper than interpreting “too little – too late” to mean that the Fed should have cut earlier and more. The current problems are due to earlier bail out rate cuts by the Fed (Greenspan) creating our current Moral Hazard speculative financial and real estate environment. Roubini is saying we are headed for a hard landing (recession). Lowering rates earlier might have prevented it but that still does not make it the right thing to do if it perpetuates and magnifies the corruption of free markets and rewards reckless speculation and misallocation of capital. When you reflate recklessly you debase the currency. The end result will be far worse than facing a needed recession to clear out the excesses. Regardless, whether right or wrong, whether the Fed eased early or late, enought or too little, whether we have a recession or not, the unwinding of the credit crunch + mortgage crisis + real estate bubble will run it’s inevitable course. A recession will just speed up the outcoume. The smart money has known this for months, that’s why spreads began to widen early. It just takes a while for the mainstream media, retail investors, and everyone else to figure it out. Regarding how low prices will fall (ie, to 1990 levels) I won’t predict that one way or the other. However, history (ie, Japan’s experience) shows clearly that even more extreme outcomes are well withing the scope of possibility. Before you decide what the outcome will be, just remember to look through the windshield instead of the rear-view mirror…

]]> By: Matthew http://raincityguide.com/2007/08/17/fed-drops-discount-rate-12-point/#comment-171673 Matthew Mon, 20 Aug 2007 07:35:37 +0000 http://raincityguide.com/2007/08/17/fed-drops-discount-rate-12-point/#comment-171673 First of all, the discount window is always open. Second of all, the window is only used by the institutions that are really screwed. Why would you borrow money at 5.75 percent when the rest of the market is getting it at 5.25? The move by the FED is merely symbolic, it will do nothing to save lenders that have exposure to sub prime loans. The only reason that the market reacted in a positive manner is that they now feel that the FED is more likely to bail them out despite the fact that if you have been reading the FED minutes, you would realize that all their language is to the contrary. They still maintain that inflation is their biggest concern and that the overall economy is still doing well. I don't believe the FED will cut rates until it is painfully obvious we are in a recession. They most certainly aren't going to cut rates to save Wall Street, hedge funds, and the real estate community. Once the GDP numbers turn negative (which I believe they will shortly) look for a FED cut. Any cut before then would signify panic. First of all, the discount window is always open. Second of all, the window is only used by the institutions that are really screwed. Why would you borrow money at 5.75 percent when the rest of the market is getting it at 5.25? The move by the FED is merely symbolic, it will do nothing to save lenders that have exposure to sub prime loans.

The only reason that the market reacted in a positive manner is that they now feel that the FED is more likely to bail them out despite the fact that if you have been reading the FED minutes, you would realize that all their language is to the contrary. They still maintain that inflation is their biggest concern and that the overall economy is still doing well.

I don’t believe the FED will cut rates until it is painfully obvious we are in a recession. They most certainly aren’t going to cut rates to save Wall Street, hedge funds, and the real estate community. Once the GDP numbers turn negative (which I believe they will shortly) look for a FED cut. Any cut before then would signify panic.

]]> By: ARDELL http://raincityguide.com/2007/08/17/fed-drops-discount-rate-12-point/#comment-171590 ARDELL Sun, 19 Aug 2007 22:08:30 +0000 http://raincityguide.com/2007/08/17/fed-drops-discount-rate-12-point/#comment-171590 I could see them at $150,000. I could even see them at $120,000. But not pre-run up of $65,000. So far they just keep going up. When people were asking in the $170s this year I couldn't believe it. I could see them at $150,000. I could even see them at $120,000. But not pre-run up of $65,000. So far they just keep going up. When people were asking in the $170s this year I couldn’t believe it.

]]> By: ARDELL http://raincityguide.com/2007/08/17/fed-drops-discount-rate-12-point/#comment-171587 ARDELL Sun, 19 Aug 2007 22:04:44 +0000 http://raincityguide.com/2007/08/17/fed-drops-discount-rate-12-point/#comment-171587 So, given those one bedroom condos, where would that put pricing in your wildest imagination? Hold a sec and I'll get<a href="http://www.raincityguide.com/2007/08/13/16-appreciation-so-far-in-2007/" rel="nofollow"> the link</a>. So, given those one bedroom condos, where would that put pricing in your wildest imagination? Hold a sec and I’ll get the link.

]]> By: SS http://raincityguide.com/2007/08/17/fed-drops-discount-rate-12-point/#comment-171585 SS Sun, 19 Aug 2007 21:59:51 +0000 http://raincityguide.com/2007/08/17/fed-drops-discount-rate-12-point/#comment-171585 Ardell, I can see a rollback to inflation adjusted prices from before the current runup. Its hard to say how quickly that would happen but it is plausible based on a return to a sanity in lending. Ardell,

I can see a rollback to inflation adjusted prices from before the current runup. Its hard to say how quickly that would happen but it is plausible based on a return to a sanity in lending.

]]> By: ARDELL http://raincityguide.com/2007/08/17/fed-drops-discount-rate-12-point/#comment-171573 ARDELL Sun, 19 Aug 2007 21:37:13 +0000 http://raincityguide.com/2007/08/17/fed-drops-discount-rate-12-point/#comment-171573 SS, I've seen prices go up 100% and down to a 50% increase. $200,000 homes went up to $400,000 and then down to $300,000, correcting at a 50% increase. That was in the 80s and elsewhere. Then they went back up past $400,000 after 98. Where the person loses me that says 1990 pricing is, if you look at my 16% appreciation post, the condo that is now $175,000 or so was $40,000 in 1990. I can't see prices rolling back from $175,000 to $40,000. Can you? I can clearly see a correction, but not back to 1990 pricing. SS,

I’ve seen prices go up 100% and down to a 50% increase. $200,000 homes went up to $400,000 and then down to $300,000, correcting at a 50% increase. That was in the 80s and elsewhere. Then they went back up past $400,000 after 98.

Where the person loses me that says 1990 pricing is, if you look at my 16% appreciation post, the condo that is now $175,000 or so was $40,000 in 1990. I can’t see prices rolling back from $175,000 to $40,000. Can you? I can clearly see a correction, but not back to 1990 pricing.

]]> By: SS http://raincityguide.com/2007/08/17/fed-drops-discount-rate-12-point/#comment-171548 SS Sun, 19 Aug 2007 19:33:36 +0000 http://raincityguide.com/2007/08/17/fed-drops-discount-rate-12-point/#comment-171548 Ardell, Why is expecting a large drop in home prices unrealistic? Is it as unrealistic to have expected the crazy post-98 run-up in prices? I am paraphrasing Peter Schiff here. Unless there is a fundamental reason why housing has to be so much more expensive in such a short period of time, why would this crazy run up not run in reverse. Sure, it may not play out exactly in reverse but its plausible that it might. Ardell,

Why is expecting a large drop in home prices unrealistic? Is it as unrealistic to have expected the crazy post-98 run-up in prices? I am paraphrasing Peter Schiff here. Unless there is a fundamental reason why housing has to be so much more expensive in such a short period of time, why would this crazy run up not run in reverse. Sure, it may not play out exactly in reverse but its plausible that it might.

]]> By: ARDELL http://raincityguide.com/2007/08/17/fed-drops-discount-rate-12-point/#comment-171501 ARDELL Sun, 19 Aug 2007 15:42:47 +0000 http://raincityguide.com/2007/08/17/fed-drops-discount-rate-12-point/#comment-171501 From Roubini: "... Equity markets have moderately rallied today...at this point what the Fed will do in the next few weeks and months may be too little too late to prevent a US hard landing." Jay, Everyone agrees, including Roubini, that it may be too little too late. But Roubini saying "too little too late" suggests they should have done more and earlier...doesn't it? I didn't miss that yesterday's actions don't translate to changes in the mortgage rate. Still, my wish for rates to get back to where they were earlier this year is more realistic than some people's wish for housing prices to get back to 1990 levels...don't you think? From Roubini: “… Equity markets have moderately rallied today…at this point what the Fed will do in the next few weeks and months may be too little too late to prevent a US hard landing.”

Jay,

Everyone agrees, including Roubini, that it may be too little too late. But Roubini saying “too little too late” suggests they should have done more and earlier…doesn’t it?

I didn’t miss that yesterday’s actions don’t translate to changes in the mortgage rate. Still, my wish for rates to get back to where they were earlier this year is more realistic than some people’s wish for housing prices to get back to 1990 levels…don’t you think?

]]> By: Jay http://raincityguide.com/2007/08/17/fed-drops-discount-rate-12-point/#comment-171430 Jay Sun, 19 Aug 2007 08:32:31 +0000 http://raincityguide.com/2007/08/17/fed-drops-discount-rate-12-point/#comment-171430 Be sure to read Nouriel Roubini's take on the prospects for the Fed's actions to have the desired effect: http://www.rgemonitor.com/blog/roubini/ Be sure to read Nouriel Roubini’s take on the prospects for the Fed’s actions to have the desired effect:

http://www.rgemonitor.com/blog/roubini/

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