Housing Crisis takes down Levitt

[richlevy]

From here,

Their builder is Levitt & Sons, a unit of the Levitt Corporation, which ran out of cash in October and declared bankruptcy in November. All work on this planned 460-home development for retirees, grandly named Seasons at Prince Creek West, has ceased. The Levitt employees were laid off, the subcontractors put down their tools, and the Costanzos found themselves in limbo.
The collapse of Levitt, the first big home builder to fail in the current slump, illustrates how the turmoil in real estate is spreading far beyond subprime borrowers who cannot pay their mortgages. Levitt had a fabled brand, decades of experience and enthusiastic customers with good credit, but none of that was enough to save it.

Levitt built the first Levittown in New York in 1947. It is not a fly-by-night builder, or even a regional builder. It is a national builder with over a half century of experience and one of the strongest brands in the country.

[smoothmoniker]

There is no housing crisis. There is a free-market, working as it should, to correct the exuberant and irrational behavior of its participants. I'm starting to get sick listening to politicos and economists talk about the "housing crisis" and how would need to "fix it". What you're witnessing IS the fix! In the most efficient, equitable, and ultimately effective way.

[lookout123]

that is the absolute truth. it is still painful to watch good people in a jam though.

[classicman]

IIRC They put a lot of their money in those corny resort communities advertised on TV which no one bought and now they are paying for it. Sure it sucks for them that they are going out of business, but it is the natural order of things.... isn't it. They lost like 6 million last year too didn't they? This was NOT a sudden thing. They have been on the decline for a bit.

[Griff]

We wish it were a free market but said politicos are tampering...

[deadbeater]

No, it is no free market. Predatory suprime lenders worked with realtors to stick it to customers.

[Undertoad]

Ever get a mortgage? There's absolutely no way in hell that anything can be hidden from the borrower. Every single detail is initialled 27 times and signed off in triplicate.

I have a subprime loan. My subprime lender explained the deal very precisely to me, and I took it.

The ARM just went up too. But I have what I wanted out of it all - got exactly what I expected... and in another little while I will re-mortgage at a better rate.

[classicman]

Originally Posted by deadbeater

No, it is no free market. Predatory suprime lenders worked with realtors to stick it to customers.

no they weaseled people who shouldn't have gotten, or didn't deserve a mortgage. This was done for their own shelfish gains, not to screw anybody.

[tw]

Originally Posted by deadbeater

Predatory suprime lenders worked with realtors to stick it to customers.

Then you don't understand the scope of this problem. Much of this 'crisis' is what also brought Enron down. For example, to obtain massive profits without admitting to risk, then once honest companies such as Merrill Lynch simply moved these risky investments to SIVs (Special Investment Vehicles). IOW the income appeared on spread sheets while the risk did not. They were playing money games, with the tacit encouragement of Wall Street brokers, and due to near zero security enforcement by George Jr's administration. A problem made so obvious when Harvey Pitts refused to accept a doubling of his budget by Congress for the SEC. A problem now widespread because even thieves during the 'bean counter invented' California energy crisis were not prosecuted.

And then it gets worse. For example, Merrill Lynch's president who promoted these 'get rich' schemes was warned by his Vice President of the impending disaster more than a year earlier. Instead he fired the VP. And then he took home an additional $200 million when Merrill let him go after losses threatened to bankrupt the firm.

There still remain unadmitted loan losses - made difficult for market analysts and credit rating agencies to see - because this stuff was routinely moved 'off book' to promote money games.

The economy was in a downturn many years ago. So we 'paid everyone to tear up their lawn and plant new grass'. That economic activity that had no productive purpose was masked further by many other factors - such as China buying American treasury bonds in mass just to be helpful and to avoid an American debt problem. Certain factors many years ago suggested trouble. The massive spending by a mental midget ("Reagan proved that deficit don't matter" - Cheney) to literally blow away the entire surplus and create a massive debt - and nobody even complained. Massive trade imbalance. Massive spending on wars that did not even appear in the budget - deja vue Nam. Housing prices that rose far in excess of historical values for no other reason but economic money games (ie excessively low interest rates and the mythical tax cuts). Concentration of wealth to the rich - this also preceded the great depression. Major companies claiming profits that don't exist by shorting pension funds (and not prosecuted for doing so). Tax cuts that only enriched the rich. Slowly decreasing incomes for the average American worker. People cashing out investment of their homes (equity loans) to pay for non-capital expenditures.

The most serious threat - interest rates lowered excessively to spur the economy while 'core inflation' numbers ignored actual inflation. Interest rates should be determined predominately by inflation. Lowering interest rated today to 'cure the economy' is paying people to replace their lawns. Spurred on an economy that did not need it and must now pay for sinning by deeper recession, inflation, too many dollars overseas, and other negative economic attributes such as dollar dropping, increasing commodity prices including oil, capital sales to foreign countries, and capital shortages.

To make matters worse, financial institutions are supposed to keep the economy liquid. But these firms have so rumored questionable investments as to fear loaning cash to other institutions (because they may need more capital AND don't know the condition of their peers who were also hiding losses in SIVs, et al). IOW capital markets have partially frozen.

Did the stock market crash of 1929 cause a recession then. Of course not. The symptoms seen in the 1929 stock market crash resulted in depression four years later. Do you think that long? Or do you assume spread sheet results are reporting current economic activity (IOW do you lie to yourself)? Today’s spread sheets are reporting economic situations 4 and 10 years ago. What may result from spread sheet losses can affect the economy 4 years later.

How much fear is on Wall Street? Did you see the stock market last week? 15% stock price drops in one week? Nobody knows how widespread these spread sheet games exist. For example, one institution moved seven SIVs back onto their books just to admit how bad these losses are. But most institution have not. Why not? How much worse is it in those other institutions?

So what is the Fed doing? Well they have little room to maneuver. The Fed has been pumping the economy with easy money. So the Fed has few options. The economy may now be ready to take revenge for those money games from 7 years ago.

Look. Did you recently hear all that propaganda from GM about how much better their products now are? GM products are still crappy despite the propaganda. So why was their propaganda so widely applauded? How many were listening to propaganda rather than looking at the products and GM's actual spread sheets? How many other institutions are hiding behind 'good time' propaganda? Many Wall Streeters have little to zero idea how these economic pillars actually work. They believe their purpose is to get rich - screw the reality in GM's product lines.

So much unknown is spooking investors who are not 'money game' players (ie stock brokers). It does not help that Wall Street does not even know the extent of their money games.

We really don't know how deep this sub-prime mess really goes because subverting the spread sheets has been defacto approved even by the current administration. Nobody really knows if more Enrons are out there especially in the financial industry because subverting the spread sheets has been acceptable. Enron was only one obvious example. How much trouble is CitiBank really in? How much of America will they have to sell to foreigners to survive? Nobody knows. Many were suggesting last November that the next three months are when we will learn how bad it is. You thought this is only about sub-prime mortgages? Do you realize how deep the greed is that even promoted and lied about the sub-prime risk?

Appreciate the problem. Stock brokers will not admit that brokers routinely underperform the market. They don't care. Record Christmas bonuses were handed out to Wall Street employees this year. How large is your Christmas bonus? Tens or hundreds of thousands of dollars? Welcome to Wall Street where getting rich - even moving SIVs off the spread sheets - is more important than serving the American economy. Enron was but the tip of an iceberg. How big is that iceberg? No honest person can say. And nobody wants to admit they don't know. That would only create more fear.

Finally this is a most pessimistic perspective. I don’t believe things are this bad. But one does not ignore all possibilities. Six months ago, nobody believed all major investment firms would be in this much trouble. Even the credit rating agencies were denying virtually all these problems. Most believe we have seen the worst of it only because the bad has been so bad. That simplistic reasoning makes me (and investors not from Wall Street) nervous.

This was previously discussed in Sub-prime Bail Out