What Is It Really Worth?
Whats it Really Worth? ... Park Nicollet Health Services CFO David Cooke:
"The rate on $98 million insured by Ambac climbed to 6% on Jan. 30 from 3.06% on Jan. 2.
We'll have to reduce our capital expenditure program, which means less equipment, less modernization of facilities.
The hospital paid Ambac to count on that AAA insurance for 30 years. Now it's going away on us."
The hospital may pay an extra $5 million to $6 million this year, about a quarter of its operating profit,
because interest on $375 million in floating rate debt doubled in the last six weeks as investors are shunning insured bonds.
Universities and Municipal Governments are also suffering... In Jefferson County, Alabama,
the rate on $221.3 million of auction-rate sewer bonds issued in 2002 and insured by downgraded XL Capital Assurance soared to 10% from 3.06% on Jan. 9.
Worcester Polytechnic Institute's XL Capital Assurance-insured auction-rate securities rose to as much as 6.25% from 3.9% at the beginning of the year.
Whats it really worth? II At American International Group, Q3 net income declined 27%.
Today, auditors found a "material weakness" in how the company values its credit default swap CDO portfolio.
AIG, the world's largest insurer by assets, said it has
"yet to determine the decline in value of its portfolio, and is still accumulating market data to update its valuation."
The CDO contracts declined by about $4.88 billion in October and November, according to data in a regulatory filing today.
The stock fell 11%, the most in 20 years. AIG has lost about a third of its market value in the past year.
Whats it Really Worth? III... from Flecks latest Housing Mess Too Big For A Quick Fix...
The problem in this country is that too many people have houses they can't afford and debts they can't service.
Many financial institutions are owed those debts, which are impaired.
For those folks who think still-lower interest rates would reinvigorate demand,
Bob Campbell of the San Diego Real Estate Timing newsletter counters with this undeniable fact:
"When an asset like real estate becomes overvalued, even if you drop interest rates to zero,
you can't force consumers to borrow more, because they've already borrowed too much.
Nor can you force lenders to lend, because they're already puking on 'bad paper.' It's called a liquidity trap."
Whats it Really Worth? IV...according to analysts at Goldman Sachs:
"Californian homes are overvalued by as much as 40 percent and stricter lending standards will probably contribute to "material" price declines.
In August, the median price for houses in California was $589,000, though economic conditions only support prices of $350,000 to $380,000."
The Nattering One muses... something we have nattered about previously, reversion to the mean.
Average wage $17 per hour, California median household income = $54K, do the math, that justifies $275 to $325K pricing.
We suspect Goldman Sachs factored in lower interest rates in their calculations. Something we have said all along...
This time it is different, the price spike was NOT wage inflation driven.
Prevailing fair market wages and rents never justified the unsupportable price increases, leveraged low interest rates did and those are long gone.
Wages have gone negative and interest rates higher. The two main engines of the "new economy" finance & housing have collapsed.
Our non durable service based economy is just beginning to feel the effects of severely constrained consumer and business spending.
Despite the Fed lowering rates 2.25%; mortgage rates are now HIGHER than in January.
Despite the bank owned legislature drafting higher loan limits into the Economic Stimulus Bill, jumbo rates for mortgages soared last week by 200 basis points.
Subprime, low and no down, interest only, NINJA (No Income, No Job or Assets) and stated income programs have all been eliminated.
There are few with qualifying income, and with cash (10 - 20% down plus reserves) at these price levels.
End conclusion, instead of treating real estate like a collectible on Ebay, buyers must treat real estate like a seasoned investor.
Prices must fall to the point where properties actually pencil out.
I.e. The house can be rented out for PITI plus maintenance and ROI on the down. Until then, anyone paying more, is an absolute fool.
"The rate on $98 million insured by Ambac climbed to 6% on Jan. 30 from 3.06% on Jan. 2.
We'll have to reduce our capital expenditure program, which means less equipment, less modernization of facilities.
The hospital paid Ambac to count on that AAA insurance for 30 years. Now it's going away on us."
The hospital may pay an extra $5 million to $6 million this year, about a quarter of its operating profit,
because interest on $375 million in floating rate debt doubled in the last six weeks as investors are shunning insured bonds.
Universities and Municipal Governments are also suffering... In Jefferson County, Alabama,
the rate on $221.3 million of auction-rate sewer bonds issued in 2002 and insured by downgraded XL Capital Assurance soared to 10% from 3.06% on Jan. 9.
Worcester Polytechnic Institute's XL Capital Assurance-insured auction-rate securities rose to as much as 6.25% from 3.9% at the beginning of the year.
Whats it really worth? II At American International Group, Q3 net income declined 27%.
Today, auditors found a "material weakness" in how the company values its credit default swap CDO portfolio.
AIG, the world's largest insurer by assets, said it has
"yet to determine the decline in value of its portfolio, and is still accumulating market data to update its valuation."
The CDO contracts declined by about $4.88 billion in October and November, according to data in a regulatory filing today.
The stock fell 11%, the most in 20 years. AIG has lost about a third of its market value in the past year.
Whats it Really Worth? III... from Flecks latest Housing Mess Too Big For A Quick Fix...
The problem in this country is that too many people have houses they can't afford and debts they can't service.
Many financial institutions are owed those debts, which are impaired.
For those folks who think still-lower interest rates would reinvigorate demand,
Bob Campbell of the San Diego Real Estate Timing newsletter counters with this undeniable fact:
"When an asset like real estate becomes overvalued, even if you drop interest rates to zero,
you can't force consumers to borrow more, because they've already borrowed too much.
Nor can you force lenders to lend, because they're already puking on 'bad paper.' It's called a liquidity trap."
Whats it Really Worth? IV...according to analysts at Goldman Sachs:
"Californian homes are overvalued by as much as 40 percent and stricter lending standards will probably contribute to "material" price declines.
In August, the median price for houses in California was $589,000, though economic conditions only support prices of $350,000 to $380,000."
The Nattering One muses... something we have nattered about previously, reversion to the mean.
Average wage $17 per hour, California median household income = $54K, do the math, that justifies $275 to $325K pricing.
We suspect Goldman Sachs factored in lower interest rates in their calculations. Something we have said all along...
This time it is different, the price spike was NOT wage inflation driven.
Prevailing fair market wages and rents never justified the unsupportable price increases, leveraged low interest rates did and those are long gone.
Wages have gone negative and interest rates higher. The two main engines of the "new economy" finance & housing have collapsed.
Our non durable service based economy is just beginning to feel the effects of severely constrained consumer and business spending.
Despite the Fed lowering rates 2.25%; mortgage rates are now HIGHER than in January.
Despite the bank owned legislature drafting higher loan limits into the Economic Stimulus Bill, jumbo rates for mortgages soared last week by 200 basis points.
Subprime, low and no down, interest only, NINJA (No Income, No Job or Assets) and stated income programs have all been eliminated.
There are few with qualifying income, and with cash (10 - 20% down plus reserves) at these price levels.
End conclusion, instead of treating real estate like a collectible on Ebay, buyers must treat real estate like a seasoned investor.
Prices must fall to the point where properties actually pencil out.
I.e. The house can be rented out for PITI plus maintenance and ROI on the down. Until then, anyone paying more, is an absolute fool.
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