Chuck Ponzi June 26th, 2008

If you haven’t read the big news lately, I suggest you take a trip on over to Jon Lansner’s blog and read about Gary Watts’ Mea Culpa.  Except if you’re expecting him to admit fault and take the blame for blind boosterism, you’ll need to wait for a while.

What does he blame it on?  Banks.  Duh.  Isn’t that what everyone else is blaming it on?

OK, even in a way, I blame the banks too, but that doesn’t excuse the absolute unbelievable disregard for history, facts, trends, or truth.  However, I will extend an olive branch to Gary:  on one condition.  The condition is that I can get some of his speaking engagements (or at least as a ride along).  I figure that if the real estate industry is so brain dead that it can not only believe his past published crap, but buy it hook line and sinker, I have nothing to lose, and a whole lot of speaking fees to gain.

Some choice quotes from Lansner’s bag:

“I apologize for not knowing what Wall Street did to our mortgages,” Watts told about 360 attendees during the associations annual membership meeting at the Irvine Marriott. “I had no idea how Wall Street restructured these loans.”

No accounting for affordability?  No accounting for sales volume preceding price?   No memory of the written lashings he received publicly on blogs?  Does he have no memory of this?

Didn’t I write some verbal poundings here on this blog?  If searching Gary Watts on Google, my articles and sites linking to my articles were consistently on page 1 in the searches.  Did he really not know what was said about him?

What else?

Watts said today, however, that the tide of foreclosures likely will mean that the housing market will remain soft into 2009. He noted that short sales, or sales with asking prices below the owner’s mortgage balance, are taking at least six weeks to gain approval from lenders, forcing even more homeowners into foreclosure.

“It’s just inevitable that (foreclosures are) going to spill into the 2009 market,” he said. While a rebound still is possible this year, Watts said, he called the market too difficult to predict.

This is one thing that I am agreeing with him on.  The market is in such a disarray that it’s nearly impossible to predict what will happen through 2009.

Despite what the bottom callers are now saying, they are forgetting the achilles heel of housing.  It goes like this:

1.  Banks cannot hold nonperforming assets on their balance sheet.  Regulators will not allow it.  Bond covenants of RMBSs will not allow it.  Noone can hold onto REO property for very long.  They will price it to move, and if it doesn’t move, they’ll cut until it does.
2.  A  recession is a terrible time to sell houses, especially in bulk, or if you have to as above.  Buyers need to be assured they are getting a good deal before they are sure.

3.  Increasing numbers of NODs and NOTs ensures a parabolic supply of future REOs coming on the market for at least another 10 months, possibly as much as 36 months for Orange County because of the impending neg-am crisis about to unfold in 2009 and 2010.

4.  Whatever buyers there are today are still just setting bargaining points for future buyers.  The demographics of the situation does not allow it to be the bottom at this point.

5.  Voila!  The longer to wait will ensure lower prices.  This will likely be the case for the rest of the decade.  We’ll refresh predictions in 6 months.

I’ll part with an analysis of Gary’s assessment:

He also believes that subprime lending gets a bum rap for causing the housing slump. Rising subprime delinquencies merely acted as a catalyst, tipping a range of bundled “structured investment vehicles” into increasing trouble that alarmed Wall Street investors.

“It was so complicated. It’s a nightmare. A real estate credit crunch usually lasts six months, and this one, we’re in it almost a year, and it’s still not straightened out,” Watts said.

Jeebus, this guy is just reams of material.  It wasn’t, and isn’t just subprime.  It’s everything and I’m pretty sure he’s referring to MBS, not SIVs.  Credit crunches have been fairly uncommon, the last one of a similar magnitude in US history might have been the one directly preceding the 1930’s Great Depression.  And, those kinds of credit crunches take years to recover from the immediate effects, but the long-term effects were felt for more than a generation.  It’s likely that Gary Watts will be worm food before we see reckless abandon in lending like that again.  (at least I hope for the sake of all fiat currencies everywhere).

• SubPrime , Gary Watts , Denial