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May 10, 2007
doom...DOOM!
The current U.S. housing market crash reminds me of the scene in the Mines of Moria in The Fellowship of the Rings. I can hear those drums beating nearby...
Doom, doom it rolled again, as if huge hands were turning the very caverns of Moria into a vast drum. Then there came an echoing blast: a great horn was blown in the hall, and answering horns and harsh cries were heard further off.
Maggie Hardiman cringed as she heard the salesmen knocking the sides of desks with a baseball bat as they walked through her office. Bang! Bang!"They are coming! ' cried Legolas.
"We cannot get out," said Gimli.
"Trapped! ' cried Gandalf. "Why did I delay? Here we are, caught, just as they were before."
" 'You cut my [expletive] deal!' " she recalls one man yelling at her. " 'You can't do that.' " Bang! The bat whacked the top of her desk.Doom, doom came the drum-beat and the walls shook.
Hardiman's account is one of several from former employees of New Century that shed fresh light on an unfolding disaster in the mortgage industry, one that could cost as many as 2 million American families their homes and threatens to spill over into the broader economy.The walls seemed to be trembling. Every now and again the drum-beats throbbed and rolled: doom, doom.
New Century has become the premier example of a group of companies that grew rapidly during the housing boom, selling working-class Americans with questionable credit huge numbers of "subprime" loans with "teaser" rates that typically rose after the first two years.
Doom, doom went the drum-beats again: they now sounded muffled and far away, but they were following.
But now, with home values falling and adjustable loan rates rising, record numbers of homeowners are failing to make their payments.
Doom, doom: the pillars seemed to tremble and the flames to quiver.
Once a little-used lending tool, subprime loans made up 20 percent, or about $600 billion, of all mortgages issued in the country last year. These loans carry a high risk of default because they generally are made to home buyers with questionable credit.They brandished spears and scimitars which shone red as blood in the firelight. Doom, doom rolled the drum-beats, growing louder and louder, doom, doom.
But because they require borrowers to pay high interest rates, they have been a gold mine for lenders in recent years, accounting for 30 percent of all profits made in the mortgage business, according to Mercer Oliver Wyman, a consulting firm."Ai! ai!" wailed Legolas. "A Balrog! A Balrog is come! "
Lenders also made a fortune selling subprime loans to Wall Street. Investment banks charged huge fees for packaging them into massive bonds called mortgage-backed securities. Investors received high returns for buying and selling these bonds.From out of the shadow a red sword leaped flaming.
But there is growing evidence that along this chain, the filters that were supposed to catch bad loans did not work.Doom, doom, doom the drum-beats rolled behind, mournful now and slow; doom!
Posted by jimbo at May 10, 2007 11:45 PM
Comments
My gawd that was pitch perfect. Excellent.
Posted by: Michele at May 10, 2007 1:45 PM
I always liked the goblin song from the animated Hobbit, "Down down to goblin town..."
I have GOT to get that on mp3
Posted by: tim at May 10, 2007 1:55 PM
I ain't afraid. Close on the Georgia place next week. Sissies...every last one of ya.
Posted by: Weatherwoof at May 10, 2007 6:59 PM
Nice juxtaposition!
Of course as much of a market "bear" as I am, I don't think we can say the real estate market has "crashed" when people are still buying 1 bedroom condos in the 400s - albeit not as quickly but if people are still paying then the bubble may only be deflating...
You'll know when the crash comes... the price of materials like granite, stainless steel, and marble will plummet and places like Restoration Hardware & Poverty Barn will (finally!) cease to exist...
Posted by: TOS at May 10, 2007 9:58 PM
i'm not familiar with the lord of the rings but you probably might just be spot on and i think it may be worse than that. check out this interview with Elaine Meinel Supkis at the Smirking Chimp - http://www.smirkingchimp.com/thread/7384. she talks about the housing indicators and a lot more.
Posted by: mike/ at May 10, 2007 10:13 PM
>>>I ain't afraid. Close on the Georgia place next week. Sissies...every last one of ya.
Mark: (or was it Mike? I haven't seen you in a while so I forget...) anyway, your statement implies that purchasing a home is an emotion-based decision with a dash of masculinitiy requirements involved (sissy reference). Real Men buy homes, eh? And if you're not a homeowner, you are somehow less of a person/man. Or as I hear a lot of the time, once you are of X age you should purchase a home - just because that's the way it is and it's the grownup thing to do. To me that is like a boyfriend who says I have to move in after exactly 6 months of dating, and after 1 year of dating you have to get a joint checking account, etcetera...
At my current income level (mid-50s) I really need to make sensible logic-based decisions, especially in such a volatile climate and in such a high-price range area. I refuse to be pressured into purchasing a home at this point, especially from sources that say I have to because I am of a certain age (30+), that I'm not brave (masc) enough, or because everyone is doing it. I have never followed those paths while making my decisions.
I will buy a goddamn house when I feel ready, when I am fiscally sound, and when the market looks stable.
I will NOT buy a house because I am of X age, because everyone is doing it, or because people who are not economists (realtors, most of whom are ex-porn stars) are saying I should. There is a lot of hype and voodoo in the DC housing market and I refuse to get burned - and I refuse to buy before it is MY time - not yours.
There is also a very romanticised element in housing purchases, especially in the gay community. I have been bored to tears by the near-exact same conversational script one hears at a cocktail party from the exhausted (but braggart) queen who bemoans the 'gutting' process of her home in X fab neighborhood, and how you should buy too. Then they suddenly and mysteriously disappear from either DC social life or the city itself, because they got foreclosed. Working retail at Hecht's just won't cut it in this town.
At 26 with a $35K job, somehow she couldn't make the payments after her amazing flexible loan that she got when EVERYONE was buying - because of course that was the thing to do.
Anyway, my point is, I'll buy when I'm goddamn good and ready. In the meantime I don't want to hear how superior you are for buying a home, or every detail of your home 'gutting' project - it bores me to tears.
Posted by: jimbo at May 11, 2007 12:54 PM
Manhattan continues at its own ascendant pace: about 20% a year. It appears fueled by some kind of manifest destiny that will end only when there is nothing "affordable" between the East River and the Hudson, making the island an "enclave" for the rich.
Although we are not rich, real estate has been good to us, and i liked it from day one because even in a down market, I can sleep in my Fort Lauderdale investment with just as much comfort as when it is escalating.
One interesting dynamic: in Provincetown, once the market went crazy, young gay men got priced out. The whole complexion of the place changed. The crowd changed. No more cheap lodging meant fewer hot out-of-towners at the bars and fewer "starving artists" at the beach. Lots of strollers clogging the coffee shops and everything sanitized and very 50-something. We looked about and said "This is not the Ptown we once loved and longed to live in". That made cashing out a little less wistful. I wonder what it will be like to be gay and living in Manhattan say ten years from now if real estate continues its transformation.
Posted by: farmboyz at May 15, 2007 7:30 AM