April 15, 2010

San Francisco Recorded Sales Activity In March: Up 50.6% YOY

San Francisco Recorded Sales Median and Volume: March 2010 (www.SocketSite.com)

According to DataQuick, recorded home sales volume in San Francisco was up 50.6% on a year-over-year basis last month (500 recorded sales in March ’10 versus 332 sales in March ‘09) and up 52.9% as compared to the month prior.

For context, March sales figures for San Francisco from 2004 to 2008 were 749 (2004), 731 (2005), 631 (2006), 640 (2007), and 508 (2008). And from 2004 to 2009 the average February to March sales volume gain was 39.3%.

San Francisco's median sales price in March was $675,000, up 11.0% compared to March ’09 ($608,000) and up 7.6% compared to the month prior.

For the greater Bay Area, recorded sales volume in March was up 10.5% on a year-over-year basis and up 40.2% from the month prior (6,992 recorded sales in March '10 versus 6,325 in March ’09 and 4,987 in February '10), while the recorded median sales price rose 31.0% on a year-over-year basis, up 7.3% compared to the month prior. Continue to think mix (and seasonality).

Foreclosure resales – homes that had been foreclosed on in the prior 12 months – made up 31.7 percent of the resale market last month. That was down from 36.3 percent in February and down from 50.2 percent in March 2009. Foreclosure resales peaked at 52 percent in February 2009.
As sales of lower-cost foreclosures have tapered off over the past year, sales in many mid-to high-priced neighborhoods have picked up, helping to explain why the median sale price has posted double-digit annual gains of late. Last month 34.6 percent of the homes sold in the Bay Area were priced $500,000 or above, up from 32.6 percent in February and 24.1 percent a year ago. However, $500,000-plus sales still lag their five-year monthly average of 53.3 percent of all sales and their 10-year average of 46.0 percent.

Within the Bay Area, San Francisco recorded the greatest year-over-year increase in March sales volume while Contra Costa recorded a 13.8% decline (a loss of 281 transactions) on a 25.0% increase in median sales price. Only Napa county recorded a year-over-year decrease in median sales price (-3.4%).

As always, keep in mind that DataQuick reports recorded sales which not only includes activity in new developments, but contracts that were signed ("sold") many months or even years prior and are just now closing escrow (or being recorded).

Bay Area March home sales and median price rise [DQNews]
San Francisco Recorded Sales Activity In February: Up 20.2% YOY [SocketSite]

First Published: April 15, 2010 2:45 PM

Comments from "Plugged In" Readers

Looking more and more like 2009 was a bottom, now if it will turn out to be "the bottom" or not remains to be seen.

Posted by: Rillion at April 15, 2010 3:06 PM

Volume Up 51%? But who would want to buy in SF given the pricing? - Inconceivable!

Median Pricing up 11%? Prices should be going down year/year to get back to rental parity. - Inconceivable...

All kidding aside, either this is a good indicator of things stabilizing, or there are a lot of silly people who were not informed and bought in a rapidly deteriorating market.

Now lets get the list of comments about the expiring tax credits, anticipation of higher interest rates, etc...

[Editor's Note: Medians Are Up, But Don’t Confuse That With Increasing "Prices".]

Posted by: SFRE at April 15, 2010 3:07 PM

"...or there are a lot of silly people who were not informed..."

Nonsense. Buyers have a trusted and informed source of advice from their agent. Why just today I learned not to worry about buying in a liquefaction zone because we all live near fault lines anyways.

Posted by: The Milkshake of Despair at April 15, 2010 3:18 PM

@Editor: I understand the difference between mean, median, and average. That is why I specified "Median Pricing", but maybe others didn't so I understand the rote link

@MOD: Uninformed can also include realtors. I think that thread of living near a fault line vs living near a fault line on liquefaction was an example of that. I thought that was ridiculous, all else being equal I would prefer to live on bedrock vs liquefaction, and I would need to assign a discounted price for living on liquefaction. As an aside, is there a map that shows where the liquefaction is in SF?

Posted by: SFRE at April 15, 2010 3:27 PM

Well if mix is contributing this much, here endeth all talk of the higher end of SF being on life support, surviving on fumes etc etc.
Please!

Posted by: REpornaddict at April 15, 2010 3:28 PM

To be fair MOD he did say to "keep some perspective" and not to "not worry". Putting words in someone's mouth isn't usually a good way to discredit them.

Posted by: Rillion at April 15, 2010 3:30 PM

@ SFRE

You should really read that "rote link." It's not about the difference between mean, median, and average. It's about all three kinds of averages being a bad proxy for the health of the real estate market.

Posted by: a at April 15, 2010 3:32 PM

SFRE, you can use this historic creek map as one rough guide:

http://museumca.org/creeks/SFTopoCreeks.html

Anything that used to be a waterway is likely to be fill, although Alemany/280 ended up over Islais Creek.

It's one of the reasons I laugh at the term Barbary Coast. That was when the coastline in that area was at Montgomery Street! Look at this map and think about where the Transamerica Pyramid is: http://www.zpub.com/sf/history/sfh-2.jpg

Posted by: corntrollio at April 15, 2010 3:34 PM

You can see why the Beacon has earthquake insurance!

Posted by: J at April 15, 2010 3:38 PM

@a: I agree with the rote link, I always did.

@corntrollio: Does the pink shading come up to 1st street? Am I reading that correctly? I tried approximating based on the fact that Mission Creek ends at 3rd, and it looks like two blocks past that.

Posted by: SFRE at April 15, 2010 3:45 PM

given the ongoing drum beat of good economic news on all fronts and further evidence that the local housing market is healing (i.e. this data which shows an inflection point in long term sales trends) I suspect that an increasing number of buyers will feel confident that the market has bottomed and they will buy. That certainly seems to be the reality on the ground right now with good houses selling as soon as they hit the market.

remember with this chart: recorded sales lag a month or two behind the moment houses enter contract. so the "april" data represents contracts entered from feb/march, which is when the mood really started to pick up.

I would expect to see strong further gains in sales volume over the next few months. This will feed the cycle of giving more buyers confidence.

So, it seems increasingly likely that houses will cost more in a year.

Posted by: Big V at April 15, 2010 4:19 PM

Whether or not a property is within a liquifaction zone is going to be within the environmental hazhards report that is by law required in a disclosure package. Some of you confuse marketing with disclosures on a daily basis. It's odd.

Posted by: anonn at April 15, 2010 4:25 PM

I understand the difference between mean, median, and average. That is why I specified "Median Pricing"...

That being the case, you should understand perfectly well why linking changes in median with changes in values ("Median Pricing up 11%? Prices should be going down year/year to get back to rental parity.") isn’t so sound.

Posted by: SocketSite at April 15, 2010 4:51 PM

Check out the ABAG hazard map for liquefaction and shaking zones linked to my name.

Posted by: Lurker at April 15, 2010 4:54 PM

"I suspect that an increasing number of buyers will feel confident that the market has bottomed and they will buy."

Excellent! We can't transfer loan liabilities off the balance sheets of private entities and onto the government's without buyers.

Posted by: diemos at April 15, 2010 5:08 PM

@SFRE
is there a map that shows where the liquefaction is in SF?

http://tinyurl.com/y7wdjat

Posted by: joh at April 15, 2010 5:47 PM

^ dude, that tiny URL trick is cute! Should work well on 'the ladies.'

Posted by: 45yo hipster at April 15, 2010 5:58 PM

i'll go right out and say it.

prices in san francisco will continue to drop.

these are the two numbers i'm watching more closely.

case shiller:
http://www.socketsite.com/S%26P%20Case-Shiller%20SF%20SFH%20Tiers%2001-10.jpg

price/sf:
http://www.redfin.com/city/17151/CA/San-Francisco

Posted by: mike at April 15, 2010 6:10 PM

anonn - Disclosure packets are large and loaded with esoteric jargon. Look at it from the perspective of an average buyer who may be unfamiliar with the issues (especially first time buyers). Who do they often turn to for interpretation of the disclosure contents (if at all ?) Here's a (positive) example : I know of an area that is officially in a FEMA 100yr flood zone and this must be disclosed. But the Army Corps of Engineers is partway through a flood abatement project that has already resolved the 100yr flood issue for a large swath of properties. But how does a buyer know this ? The proper way is to hire an engineer to re-evaluate the flood risk for a single property, costing at least $1000. Most buyers however will just ask someone whom they trust knows the situation. That someone is probably their agent.

Proper due diligence takes a great deal of time and money. Most buyers are inclined to take shortcuts, but I guess this means that they receive "marketing" information when they do that, right ?

diemos - I'd think that a new round of buyers provides a new tier of cushion on the way down so that the government doesn't need to absorb the as much valuation loss. Bring on the next level of knife catchers ! They are heroes.

Posted by: The Milkshake of Despair at April 15, 2010 6:24 PM

That's not true. The 3-R, the TDS, the supplement to the TDS, the title report, the environmental hazards report, the contractor's and the pest are all really easy to follow. And they're the gist of what's necessary. As for this, it's very simple. This property "Is" in a liquifaction zone. It's a box with an X next to it, and not esoteric whatsoever. If you see something in it that gives you pause, you look into it, and you ask your realtor to look into it.

Easy backing up, man. You tried to flaunt someone's opinion like you knew something. And here we find that you doth protest yourself right out the realm of believability. This reads like you've never even gone over a disclosure packet. "Esoteric" ??? Hardly. Remember, the guy used to live there too , so he literally put his money where his mouth is when he shared his opinion about sleeping on a fault line or whatever was said.

As for all the knife catching snark, this site has become a bunch of people talking about this year like it is last year, while pointing to three years ago. Not very useful.

Posted by: anonn at April 15, 2010 6:38 PM

@mike
That's funny -- the very $/sq.ft graph you link to support your argument of dropping prices shows a different story. It shows prices going up. Paid $/sqft has recently turned up, predictably changing direction 2-3 months after listed price started increasing. Based on that data there, we can expect paid $/sq ft to keep increasing over the next few months.

Posted by: Big V at April 15, 2010 6:59 PM

"They are heroes."

Especially if, as anonn tells us, people are putting family money down in a first loss position to qualify for FHA.

You wouldn't tease me about that, would you anonn?

Posted by: diemos at April 15, 2010 7:39 PM

Seen it many times. No tease here. But I find your whole schtick incongruous, diemos. You're the posterposter for scorched earth, SF is on its way to oblivion, just wait and see. Yet you think you can adopt some sort of arch tone, talking about buyers are heroes building money ramparts to keep the forces at bay and whatnot. It's all pretty incongruous and unearned. Y'all just missed what happened in SF, yet on you talk, and now you're trying to be arch about it. No thanks.

Posted by: anonn at April 15, 2010 8:02 PM

Scorched earth? Oblivion?

I said prices would fall by 50%. I also said that if you stood on Mt. Sutro and looked at the city you'd never be able to tell the difference between a city with condos selling for 1000/sqft and one where condos sell for 500/sqft. A change in prices would have no effect on the reality of the city, just in the finances of people long real estate with their own money.

"Y'all just missed what happened in SF"

Oh I noticed it all right. And I know you'd like to believe that there was a little hiccup in the SF market and that it's over now and we're well on our way to recovery.

Myself, I will wait. The play's not over yet.

Courage! Just 625 more days until I plague thee no more.

Posted by: diemos at April 15, 2010 8:56 PM

From today's Wall Street Journal:

The hiring ramp-up began late last year, with demand for tech goods and services stabilizing after months of declines. At the time, Google Chief Executive Eric Schmidt said the Mountain View, Calif., company was ready to spend again, including on new recruits. On Thursday, Google said it hired 786 new employees in the first quarter and was just getting started.

"We expect to continue hiring aggressively through the year," said Google Chief Financial Officer Patrick Pichette on a call with analysts. "We have a strong pipeline of candidates primarily focused on engineering and sales, and we are on-boarding them to fuel our growth agenda as fast as possible."

Earlier this week Intel disclosed plans for what it called its first substantial hiring in five years. The company expects to hire 1,000 to 2,000 people in 2010, an Intel spokeswoman said. The Santa Clara, Calif., chip maker, which has trimmed about 20,000 workers from its payrolls since 2006, ended 2009 with 79,800 employees.

Cisco Systems Inc. in February said it plans to hire between 2,000 and 3,000 workers, after adding 2,100 employees in the three months ended Jan. 23, mostly through acquisitions. In total, the networking-gear maker employs about 66,000 workers.

The hiring isn't limited to tech behemoths, with smaller Silicon Valley companies also diving headlong into the race for people. Twitter Inc. has added about 125 employees since last May for a total of 170, and will continue ramping up, said Chief Executive Evan Williams this week. The San Francisco company, which relocated to a new headquarters last year, will have to move again in the next year or so, he added.

Social-networking company LinkedIn Corp. said it recruited 184 people last year to bring its work force to around 500 people, with most of that hiring done in the fourth quarter. The company has hired an additional 154 people so far this year.

"It's a very competitive job market," said Steve Cadigan, LinkedIn's vice president of people operations, who added that the company is targeting an additional 300 hires this year.

In an indicator of the growing demand, tech-jobs Web site Dice.com said it now lists more than 62,000 tech positions nationwide, up nearly 22% from 51,000 a year earlier. Year-over-year growth in tech-job listings picked up in March, the first time job listings rose on an annual basis since December 2007, according to Dice.

The demand has turned some hires into all-out bidding wars again, reminiscent of last decade's tech boom. Sam Shah, 30 years old, a San Francisco resident and computer science Ph.D., began job-hunting in February after the Silicon Valley start-up he was working hit some bumps. Within a week, he says he had job offers from five Internet companies including LinkedIn.

"I interviewed on a Friday and had an offer by Tuesday," Mr. Shah says. When he accepted LinkedIn's offer to become a senior software engineer, he says the other companies "called me again and offered more money." "They all tried to compete with one another." Mr. Shah, who says he makes more than $120,000 a year, started with LinkedIn in late March.

----

I know I experienced this first hand when I was laid off in February. I had Facebook, Google, LinkedIn and Yahoo all wanting to interview me and got an offer in less than ten days. I didn't even have time to draw my first unemployment check! The downside is that I now ride the shuttle bus to work, instead of bicycling. But I am making more money. I would rather be bicycling, truth be told.

Posted by: NoeValleyJim at April 15, 2010 10:16 PM

NVJ, exactly. as I wrote 2 months ago:

it is undeniable, that there are many companies fighting to hang on... but, the companies that are doing well (apple, google, oracle, cisco, facebook, twitter, ...) are doing very well and can't grow fast enough.

Posted by: steve at April 15, 2010 10:54 PM

Thank you NoeValleyJim - that is exactly the dynamic that is fueling all this. Booming economy locally. Everyone I know who is skilled is getting heavily recruited. Those who just keep hoping for housing to get cheaper are living in last years recession, but that has been over for a year.

Also, all those south bay techjobs -- that is why the mission is undergoing such a deep transformation. Like in any market -- as you come out of the bottom, its the growth areas that will see the fastest appreciation, while the blue chips lag longer. So we will see transforming neighborhoods sprint ahead in value while "prime"areas will probably continue to lag for a while. normal market dynamics.

Posted by: Big V at April 15, 2010 10:57 PM

Glad to hear that you have desirable skills and are making more money NVJ. But we need to look at some sobering statistics. Santa Clara county and San Mateo county lost 90,000 jobs in 2009 alone. The few thousands being hired now hardly make a dent. Umeployment rates (from EDD website) are 11.7% and 9.4% in Feb 2010. Just for comparison, before the big bubble in real estate around 1998, unemployment was less than 3% in Santa Clara. This is the most unemployed Silicon Valley has ever been in the more than 30 years I've lived here. Also from EDD, take a look at annual job growth predicted for different occupations. A few hundred jobs being added annually in the San Jose, Sunnyvale and Santa Clara MSA for high paid occupations. There is no reason for us the United States to be in such a pathetic state except for massive mismanagement.

Posted by: briefremarks at April 15, 2010 11:39 PM

big v

there are always mini rally in bear markets. we're in the middle of a mini rally (at least until june i suspect).

watch the graphs for the next 12 months and let's see where the numbers are.

i've been right for the last several years that prices were going to fall. i'm betting they will fall in san francisco for a couple more years - at least.

Posted by: mike at April 15, 2010 11:43 PM

Here's a news item from SiliconValley.com from a few days ago. Another opinion to consider along with the anecdotes from NVJ and Big V.

"Battered by the Great Recession, the Bay Area won't fully recover the jobs it has lost until 2015, according to a forecast prepared for the Mercury News and its sister papers, leaving tens of thousands of workers struggling to find permanent employment.

Such a prolonged slump will take a heavy toll on the region, keeping home sales depressed, squeezing Bay Area retailers and leaving the overall economy jittery for years.

"It does have the potential to be the most durable period of unemployment since World War II," said Jon Haveman, a founding principal of Beacon Economics, the San Rafael-based firm that prepared the forecast."

Posted by: briefremarks at April 15, 2010 11:53 PM

Well I guess after 10 years of stagnant or falling wages in the bay are while inflation ate away at purchasing power and home prices spiralled to new heights of unafforablility based on historical norms for the bay area, the fact that some tech workers are now making 10% more then they were last year must mean that verything is Ok.

Posted by: badlydrawnbear at April 16, 2010 1:11 AM

my usual disclaimer:
These winter/early spring numbers are typically too volatile and have too few sales to be overly useful for understanding the health of the market. Thus, I'll wait until summer to decide if something's really up or not.

all that said
-it is clearly good news for RE bulls that the numbers are turning around. These numbers, although not that great, are certainly solid.

-the numbers look awesome as opposed to just ok because we are comparing to the Armageddon from last year.

-there have been many positive economic reports the last few months, signaling possible end of the recession. This of course is good for housing.

-however end of recession does not equal recovery. By all accounts thus far we are entering the third consecutive "jobless recovery" and we may even have a "job-loss recovery".

-much of the recovery has been due to the transfer of massive private liabilities to the government (anywhere from $12T to $23 Trillion dollars). This support will need to be withdrawn, and it is yet to be seen if the private market can take over from the government.

-The housing market is mostly nationalized now (Fannie, Freddie, FHA, Fed purchase of MBS, etc). this cannot go on forever. thus, again we must see what happens as govt tries to pull out. The Fed/Govt still have not given an indication of how they intend to do this.

-if you recall from Ivy Zellman's chart I used to post all the time, the Recast/Reset catastrophe had a lull recently, but will now start ramping up again. this will cause more pressure/foreclosures. Combined with the fact that the banks are starting to unload some of their foreclosures (But still not fast enough), it appears that there will be more short sales/foreclosures coming to the national market.


overall, we seem to be in a cyclical bull trend in a secular bear market. the so called "bear market rally". All supported by massive governmental intervention. But headwinds are still very strong.

The govt is blowing bubbles all over the place and will continue until the credit card is pried from its dead fingers. I certainly don't fight the government, at least short term. The problem that govt has though is that it can't control where the bubbles pop up. thus far most money is flowing into stocks (through proprietary trading of the banks) which they want, and commodities which they don't want.

Some bulls are running their victory lap. I believe this to be premature.

2 things I've been watching are
-Treasuries. the market is crazy right now. I've discussed the negative swap spread, and it shows that all is not well.

-oil. Oil is around 85 a barrel and the economy sucks. If the economy really "improves" we'll see another runup in oil. Can we sustain a recovery with $135 oil again? at the same time we continue to support our zombie banks that are literally sucking the wealth from our nation?

hmmm...

I still say: housing pressure until Dec 2011.

I still say: double dip is probable. (and on that note I disagree with some people I find VERY knowledgeable and who I think are way smarter than me economically, like CalculatedRisk)

Posted by: ex SF-er at April 16, 2010 2:00 AM

BigV says: "Thank you NoeValleyJim - that is exactly the dynamic that is fueling all this. Booming economy locally."

I'm not entirely bearish on the economy, but BigV's pronouncement is, I think, unwittingly revealing. There are a few telling assumptions that need to be questioned:

- How did we arrive at the presumption that these numbers reflect new hires in the BAy Area. The announced hires are not all in the Bay Area, or even in the US. Intel, Google and Cisco are global companies and these numbers should be seen in that light.

- Why do we think that this bit of good news outweighs the news on hiring elsewhere in the Bay Area? Clearly, these announcements are positive, but do they reflect a trend in the Bay Area, or do they suggest a ray of sunshine in an otherwise gloomy picture? I'm not sure, but I think there's a more complex mix of news here.

BigV's conclusion that we have a "booming economy locally" sounds like so much RE cheerleading. Even as I become more bullish about certain sectors of the economy -including some segments of RE - I take such statements as hot air that remind me of RE circa 2005.

Posted by: Embarcadero at April 16, 2010 3:48 AM

And now for some facts -- new record high unemployment for CA (since these records began in 1976):

http://www.calculatedriskblog.com/2010/04/march-state-unemployment-rates-new.html

I know, I know, I've heard it before. SF is nothing like the Bay Area. And the Bay Area is nothing like California. And California is nothing like the U.S. Because, well, just because.

Posted by: A.T. at April 16, 2010 7:25 AM

Surely we teeter on the brink of economic apocalypse: NoeValleyJim has become a peninsula commuter!

Can car ownership be far behind? :-) :-)

Posted by: dub dub at April 16, 2010 7:46 AM

When NoeValleyJim buys a car, I am going to start riding MUNI! :) All I know is that as far as the construction world is concerned, this is a true depression. I don't have much faith that GOOGLE can help kick start the what WAS a very large part of the regional economy. Does anyone know what the tourism numbers are like for the city?

Posted by: anon2 at April 16, 2010 7:59 AM

You can ride a bike from SF to Google. I know people that do, and they even have a group called SF2G. So save the train for rainy days! Or at least the afternoon.

Posted by: J at April 16, 2010 8:07 AM

Google disappointed today. Will dub dub's lazy indicator follow?

Posted by: lol at April 16, 2010 8:17 AM

A layoff? Funny, I don't remember you mentioning that at the time.

It's good to hear you landed well, but not everyone is.

Your experience reflects my businesses': small companies are still struggling and laying off. Big companies are doing ok and are trying to rebuild, but keeping a tight lid on expenses.

That hits their suppliers like me hard. My AGI was off 35% on my taxes and I lost two more larger customers to out-of-area (and therefore cheaper) competitors last month.

We picked up zero new ones, and two smaller existing customers are teetering and about to go under. We started billing them in advance for their orders and both have been unable to pay. I've been avoiding their calls.

The smaller suppliers continue to get squeezed. I'm expecting my income to drop another 15% this year. I won't be laying off, but it won't be an easy year.

Posted by: tipster at April 16, 2010 8:53 AM

Note that the WSJ article that NoeValleyJim quotes doesn't specify which job markets those new hires are drawn from. Most of the companies mentioned in those articles have offices in low CoL regions like India and China. When you're struggling with profits one straightforward way to improve the bottom line is to hire from low cost labor markets. (Congrats on the new job NVJ !)

anonn - yes, I've read through many disclosure packets. They are large and yes, the checkbox example you gave is easy to understand. But as you know some of the disclosures get into arcane information. To understand the termite report alone you need a basic understanding of the parts of a house and the relevance of various damage and infestation sites noted. You also need to understand the potential impact of the unknown damage that the inspector could not access. However it is pretty cool that the termite report summarizes the estimated cost of the most critical damage, though that is hardly the whole story.

Posted by: The Milkshake of Despair at April 16, 2010 9:11 AM

Oh I noticed it all right. And I know you'd like to believe that there was a little hiccup in the SF market and that it's over now and we're well on our way to recovery

But you didn't. You and others like you were constantly on the "SF is just a little behind Phoenix/Central Valley/Las Vegas/Miami" thing. It wasn't. The buyer behavior was different. The sea change was different. The recovery has been different.

Posted by: anonn at April 16, 2010 9:17 AM

To understand the termite report alone you need a basic understanding of the parts of a house and the relevance of various damage and infestation sites noted

Baloney. You can skip to the back of the report, look at the numbered/lettered areas and the monetary amount attached, and correlate to the diagram of the house. It probably requires 4th grade level understanding.

Posted by: anonn at April 16, 2010 9:24 AM

If this is a housing market recovery, then the last bust recovered at least three times between 1992 and 1995 before recovering for real in 1996. This is the established pattern. For a genuine recovery increases need to consistently exceed inflation for at least three quarters.

Posted by: Mole Man at April 16, 2010 9:38 AM

"The sea change was different."

Indeed. When you say your prayers tonight remember to give thanks to St. Bernanke of the printing press. He's the only thing standing between SF values and reality.

Posted by: diemos at April 16, 2010 9:52 AM

Yeah, that special "SF only" clause he enacted has worked wonders.

Posted by: anonn at April 16, 2010 9:55 AM

NoeValleyJim, I'm also curious how a layoff fits with your Panglossian view of the world? You seem to have rationalized it given you found a job that pays more, so I suppose all is for the best again.

Anyway, no one seems to pay much attention to the reality that any recovery has been artificially engineered by our government - it's not driven by macroeconomic or even regional fundamentals. To augment ex SF-er's post above, real estate may be local, but the financing markets are global. The machinations of this recovery are largely unsustainable over the long term.

I've said this before, but the drunk has had his breakfast beers and stopped shaking. He can function again. For now. But what happens tomorrow? And the next day? We can't borrow our way out of debt, people.

Mortgage defaults are still rising. Fannie and Freddie are a disaster wrapped in question markes. FHA is a ticking time bomb. And there are a plethora of other potential exogenous events that could either raise the government's borrowing costs or reduce demand for Treasuries, either of which would curtail their ability to support the nationalized housing markets.

Posted by: Legacy Dude at April 16, 2010 9:57 AM

Here's a little graphic for your entertainment.

Posted by: diemos at April 16, 2010 10:01 AM

"Baloney. You can skip to the back of the report..."

Braunschweiger. Though that section A summary lets you know how much it will cost to fix the stuff that was damaged, it tells you little about the costs to resolve the cause of the problems. It also tells nothing about the scope of the hidden problems in the areas that the inspector did not inspect. To really figure out the true potential of deferred maintenance you need a little more than a 4th grade education.

Posted by: The Milkshake of Despair at April 16, 2010 10:04 AM

No. They offer diagnosis + cure. And which areas typically aren't inspected, then? Those guys will get dirty, MOD. Crawl spaces and flashlights are de rigeur. What sort of reports have you seen? They also err on the side of caution with those estimates? Why? Because it's a bid that they can be held to. You keep displaying a lack of understanding coupled with a wish to keep talking with someone who sees these things at least twice a month. Odd argument choice.

Posted by: anonn at April 16, 2010 10:09 AM

Anyone notice the amount of property that's come on the market in the last 10 days? At least in my price range / nieghborhoods of interest, listings are up about 10%. Will be interested to see if we can absorb the jump.

Posted by: LeeinSF at April 16, 2010 10:12 AM

Anecdotes from the East Bay. I know of someone laid off last year; it looks like they may be getting a job out of the area (SoCal). Ran into an acquaintance who is in escrow on a foreclosure. They are putting the screws to the bank in regards to unpermitted work (forcing bank to have it inspected and bring it up to code). Will be interesting to see if they close. LeeinSF, I noticed the ~10% inventory jump over here, too. NVJ, glad to hear you were able to get a new gig so quickly. Anybody want to make some comments with regards to tech and H1-B visa holders? It looks we won't hit the cap this year at the current rate. My guess (which is probably wrong?) is that there will be less emphasis on importing workers as the economy recovers; the focus will be on overseas operations as many "American trained" workers were forced back there due to the downturn.

Posted by: EBGuy at April 16, 2010 10:47 AM

OK anonn you win. Anyone can understand a disclosure packet without external advice and I need to repeat the fourth grade.

EBGuy - Those former H1-B holders who have returned home are a big part of what drives moving entire projects overseas. They bring the skills back home of how to get the job done right and satisfy picky customers. The talent pool is there and still growing. The trend will continue until the China and India standards of living catch up with ours and there is a long way to go there.

Posted by: The Milkshake of Despair at April 16, 2010 11:02 AM

"The trend will continue until the China and India standards of living catch up with ours and there is a long way to go there."

The world doesn't have enough physical resources for that to happen. Instead our standard of living will catch up with theirs.

Posted by: diemos at April 16, 2010 11:06 AM

OK anonn you win. Anyone can understand a disclosure packet without external advice and I need to repeat the fourth grade

Cop out sarcasm is OK for you. As long as I can leave you with this thought. "Esoteric" is not equivalent to a box with a big X indicating yes or no. Because that's where we started before you began getting noisome.

Posted by: anonn at April 16, 2010 11:08 AM

>The world doesn't have enough physical resources for that to happen. Instead our standard of living will catch up with theirs.

i think this is quite a good point.

i expect huge amounts of denial before we realize this reality.

Posted by: mike at April 16, 2010 11:20 AM

A large jump in inventory this time of year is typical seasonal behaviour. Just had a quick glance at the inventory chart.
In fact, it appeared the jump was biggest when the market was the strongest (2006). Fell in 2009,but that was hardly a typical year.

Posted by: REpornaddict at April 16, 2010 11:54 AM

[x] exhibits ergodic behavior

I fully understand that there is an X in that box.

Posted by: The Milkshake of Despair at April 16, 2010 12:17 PM

^^ Sparing others the neccessity of dictonary.com to get a pretty good joke:

er·god·ic   /ɜrˈgɒdɪk/ Show Spelled[ur-god-ik] Show IPA
–adjectiveMathematics, Statistics.
of or pertaining to the condition that, in an interval of sufficient duration, a system will return to states that are closely similar to previous ones: the assumption of such a condition underlies statistical methods used in modern dynamics and atomic theory.

Posted by: OneEyedMan at April 16, 2010 12:36 PM

http://www.marketwatch.com/story/home-buyer-tax-credit-likely-wont-be-extended-2010-04-16

Good news! The NAR and NAHB apparently have no intention of trying to renew the home buyer's tax credit. My assumption is that they tried, but realized they didn't have the votes. This makes sense because the tax credit is incredibly inefficient, since it mostly just pushes up purchases that would have been made anyway.

Coupled with the Feds decision to stop its MBS purchases, we have two moves in the right direction. Unfortunately, there are plenty of things in the wrong direction, e.g. foreclosure moratoria and things that effectively serve as foreclosure moratoria, in addition to prior things done.

Posted by: sfrenegade at April 16, 2010 1:38 PM

Thanks for all the kind words. Sorry I did not update you on everything happening in my life tipster, I was actually too busy interviewing to read Socketsite, much less post. This isn't the NoeValleyJim blog anyway.

As I have said before, I am not particularly panglossian, at least I don't think so. I was warning everyone I knew that housing was wildly overpriced and that they needed to be careful as far back as 2005. My father and father-in-law both ignored my advice, wiping out my father and doing severe harm to my father-in-law's balance sheet. I was also severely pessimistic in 1999, unduly so, it turned out. I really thought we were staring down another Great Depression when the stock market bubble burst. It was a huge deal for those of us working in technology.

But I am more sanguine this time around, I think that the government has taken mostly the right actions, though we could have used more stimulus spending. Unemployment would be lower and we would be further on in our recovery if we had spent as much as indications warranted. I know the Administration did as much as it could, given the political realities.

I am not really that worried about the second wave of defaults or anything like that. And I hope no one thinks that my posting of that WSJ excerpt means that I think the economy is doing
great or that San Francisco real estate prices are ready to boom. It is just not all gloom out there, that is all. ECRI indicates that we should expect a sustained recovery. Construction won't come back for a long time though.

What I really fear is that the country will learn the wrong lessons from the close escape we just had. The financial system came very close to collapse and it was only through some real heroics on the part of central bankers worldwide that we are doing as well as we are now. There was also a coordinated effort by governments worldwide to stimulate demand. It was really kind of an amazing act of cooperation if you think about it, I am not sure if there has been any other time in history where you would have seen this kind of mutual action.

But we need some serious financial reform with real teeth in it and we need it pretty soon. If we let the banksters blow another bubble with leveraged money, I fear that even the coordinated actions of worldwide governments will not be able to halt an unraveling of global capitalism. If you look at the history of how great empires fall, it is always through a series of repeated blows. America is weak right now, I don't think she can take another punch.

Posted by: NoeValleyJim at April 16, 2010 5:44 PM

@NVJ: Speaking of Financial Reform. Today the US Government was bringing charges against Goldman Sachs for fraud. I say this is the same fraud as "too big to fail". The same fraud as the bailout. The same fraud as TARP. The same fraud as the US Government buying GM.

Its funny, I was following a little of the testimony given the other day, and felt like the current and past administrations are a bunch of tools, and they are out only to steal from the taxpayers to support their friends on Wall Street, and their friends in office.

Robert Rubin: Treasury Secretary for both terms under Bill Clinton - After serving 26 years at Citigroup, when a lot of this was happening. Then he worked at Citigroup for 8 years, where he received more than $126MM. Companies he represented that received funds/bailouts, and yet he worked for the government. Stupid Bush and Stupid Obama and even more Stupid Taxpayers.

Timothy Geithner: Protege of Robert Rubin (in fact he worked under Robert Rubin). He arranged the sale of Bear Sterns (there are many sub-stories here). Orchestrated bailout of AIG - a complete disaster. After receiving $172 billion from the government, they paid themselves bonuses. He also forgot to pay his taxes, but oh well.

Henry Paulson: Appointed to Treasury Secretary by extremely intelligent president Bush2. Prior to then he was Chairman and CEO of Goldman Sachs. Quoted as saying in 2008 “it's a safe banking system, a sound banking system. Our regulators are on top of it. This is a very manageable situation.” also said that "he had no plans to inject any capital into Fannie Mae or Freddie Mac. On September 7, 2008, both Fannie Mae and Freddie Mac went into conservatorship."

Etc., Etc.

My point being that the financial game is all fixed, and will never be "fixed" (as in corrected). Everyone serves on everyone's board. The people who are in charge all went to the same schools, all have the same school of thought, and are 'buddies'. Its all manipulated through shitty presidents - both past and present, who don't care about the majority of people who live in the US, unless you have power or money.

Oh, and Goldman Sachs was a main beneficiary of the AIG bailout...but no conflict of interest there, right?

Just my thoughts to a continually corrupt government that only gets worse with every presidency.

Posted by: SFRE at April 16, 2010 6:27 PM

Financial reform = Kabuki play

You don't even have to show up to know that in Act 4 Lord Yoshi's retainers will turn on and murder him and in Act 5 Lady Mariko will have a beautiful but tragic seppuku ceremony.

Posted by: diemos at April 16, 2010 6:44 PM

Great. I just bought $10k of GS stock 2 days ago.
Now the gov't FINALLY gets around to suing them for fraud. Now??

Horse
Barn
Door

At least the M3 is still good to me ...

Posted by: Jimmy (No Longer Bitter) at April 16, 2010 7:11 PM

From 1932 until the Reagan Era, we did not have any big banking crises. We also had a well regulated financial sector. The New Dealers understood what they were doing and their regulations kept leverage from getting too high.

Almost immediately after deregulating the Savings and Loan system we had the S&L crises. You might think that regulators would have learned something from this, but they did not.

It remains to be seen if the current crowd can do what needs to be done, which is first, eliminate the Over The Counter derivative market, and second, set up a resolution authority to solve the "Too Big To Fail" problem.

If you don't think The Administration is serious about trying to address these, then you must not have noticed the news today. Going after Goldman Sachs is a big political gamble, but definitely increases the change of finance reform passing.

Will it be enough? Hard to say, but it will certainly be better than nothing, which is what the GOP is trying to make happen.

Posted by: NoeValleyJim at April 16, 2010 11:06 PM

"From 1932 until the Reagan Era, we did not have any big banking crises. We also had a well regulated financial sector."

Yup.

"The New Dealers understood what they were doing and their regulations kept leverage from getting too high."

Yup. Which is why I don't take the current kabuki play seriously. The red herring of "Too Big to Fail" keeps getting big play in the media while the real problem of excessive leverage remains unmentioned.

"Almost immediately after deregulating the Savings and Loan system we had the S&L crises. You might think that regulators would have learned something from this, but they did not."

The regulators were doing exactly what their masters wanted. Everyone is up in arms over the idea that government is going to expand and take over business when the reality is that business has already taken over the government.

"It remains to be seen if the current crowd can do what needs to be done"

While their election continues to depend on massive campaign contributions they won't.

", which is first, eliminate the Over The Counter derivative market, and second, set up a resolution authority to solve the "Too Big To Fail" problem.".

Again, leverage. Require every OTC contract sold to put 20% of the largest possible loss in a cash escrow account. Banks required to have capital equal to 20% of deposits in order to make loans.

This creates a self-insurance where a capital cushion exists to absorb losses. The larger the capital cushion the less stupid decisions will get made with other people's money and the more likely that any shock to the system will peter out as losses are absorbed by the capital cushion instead of turning into cascading cross linked defaults.

"If you don't think The Administration is serious about trying to address these, then you must not have noticed the news today."

News = kabuki play, red herring, distraction.

"Going after Goldman Sachs is a big political gamble, but definitely increases the change of finance reform passing."

Kabuki play, civil suit. In the end there will be a fine of maybe 10-20 million dollars. One month of Paulson's beer money budget.

"Will it be enough? Hard to say, but it will certainly be better than nothing, which is what the GOP is trying to make happen."

My best wishes go with them to slay the squid but I am not optimistic. 99% of the population has no idea what's happening or who is doing it to them. When their anger boils over it will get directed at the usual scapegoats and nothing fundamental will change.

Posted by: diemos at April 17, 2010 7:12 AM

Posted by: diemos at April 17, 2010 7:33 AM

NVJ, somehow I find it insulting when one experience and set of skills is used to portray the entire regional economy. As an architect I am doing very well right now, but I am not confused enough to believe my experience is what is happening in the Bay Area or the nation for that matter. The fact is most of my Bay Area friends in the business are still working, but there are not many new projects "in the pipeline" and they know layoffs are coming. I also lost my job but moved to another city and am now working at a salary level almost double what I was getting in San Francisco. (In a city with a much lower cost of living by the way, Chicago) Does this mean that Chicago is doing well as an economy? Certainly not!

When talking about San Francisco, one must remember that Google and Twitter are a SMALL portion of the "City" economy. Tourism, education, healthcare, and government services are much larger employers in the city. Though I may have 20 years experience as a licensed professional with experience managing hotel and resort projects does NOT guarantee me the same income I now enjoy in the future. If new construction is any type of indicator for the future, the worst may be yet to come, even for "special" San Francisco, and construction and associated industries related to housing, is a much larger share of the San Francisco CITY economy.

The fact that NVJ has joined the many who ride a bus south to work reminds me of what I feel San Francisco refuses to admit, and that is that it is a bedroom community to many, and no longer a "city" at all. One can choose to try to live a "car free" lifestyle in a historical neighborhood a high density, but if you are riding a bus 20 miles south past freeways, strip malls and billboards to an airconditioned office park, are you REALLY living a "city" lifestyle, or really experiencing what many do in urban ares San Francisan's love to put down such as Los Angeles or Atlanta? Chicago may not have the neighborhood "density" of NorthBeach, but the jobs are downtown along with the shops and restaurants and housing, so I can be "car free" and enjoy a lifestyle that many pretend to enjoy in "the city. (BTW, for the record, I still own my home in 94123, but have it rented to friends, and someday plan to return/retire in San Francisco. The question is when?)

Posted by: ArchinChicago at April 17, 2010 8:19 AM

"one must remember that Google and Twitter are a SMALL portion of the "City" economy..."

it is a bedroom community to many, and no longer a "city" at all.

"construction and associated industries related to housing, is a much larger share of the San Francisco CITY economy."


"Which one is it, is he gonna shit or kill us?"


Posted by: sparky-b at April 17, 2010 8:30 AM

@NVJ: "If you don't think The Administration is serious about trying to address these, then you must not have noticed the news today. Going after Goldman Sachs is a big political gamble, but definitely increases the change of finance reform passing."

The one company that stands to benefit the most from all this 'reform' is Goldman Sachs! Don't you see that all of this is just a game of card monty!

Take a look at this article: "The nation's largest investment bank, famously cozy with top government officials in both parties, has tipped its hand to its shareholders, indicating that major financial "reform" proposals will help Goldman's bottom line."

http://www.washingtonexaminer.com/opinion/columns/Goldman-rallies-for-Obama-in-Wall-Street-_reform_-90957879.html

Posted by: SFRE at April 17, 2010 8:52 AM

This study says that high tech jobs are about 10% of the workforce:

http://www.bizjournals.com/specials/pages/251.html

"The study focused on so-called Level I high-tech industries, a group defined by the U.S. Bureau of Labor Statistics as businesses where at least a quarter of all employees are directly involved in technology-oriented work. That includes the aerospace, computer, control-instruments, pharmaceutical and semiconductor industries and scientific research-and-development services."

I would be surprised if Real Estate related jobs are more than 10% of all employment, but if you have solid numbers, please share them.

We binged on construction for almost a decade, many of those jobs are never coming back. Finance is another sector that was far too bloated building worse than useless products like Synthetic CDOs and should be permanently smaller. It is good that there are some high paying fields that are growing that workers can be retrained into.

You have to have an exceedingly thin skin to be insulted by an excerpt from the Business section of the Wall Street Journal.

I also disagree with Big V though: just because Tech is doing well does not mean that the regional economy is booming. No doubt it is helping prop up housing prices, but probably much more in South Bay than here. I expect home prices to continue a long gradual descent, especially as stimulus is slowly removed.

Posted by: NoeValleyJim at April 17, 2010 2:51 PM

But we need some serious financial reform with real teeth in it and we need it pretty soon. If we let the banksters blow another bubble with leveraged money, I fear that even the coordinated actions of worldwide governments will not be able to halt an unraveling of global capitalism.

Let?
The government is helping the bankers blow more bubbles in the stock and commodity markets, and is trying to get one re-blown in housing! Why do you think they crow about 70% stock returns over the last 1 year?
What else, except a bubble, could they possibly expect/want with negative real interest rates, government support of risky trading endeavors, and no to little meaningful reform (among many other things)?

Unfortunately, bubbles increase GDP, at least temporarily. And our govt desperately wants to increase GDP and get things back to "normal" (which I guess is 2006).

I'm still not sure what to make about the CIVIL (not criminal) case against Goldman and their low-level employee. I'm pretty ambivalent... half of me thinks it's simply more kabuki theater and Potemkin Villages, and half of me thinks that maybe Obama et al finally understand that their constant PR isn't working and that we all realize that they are fully captured by the financial industry fat cats.

My guess: if this gets too scary for Goldman then Goldman will simply torpedo the markets, and then the Govt will back off... don't want to spook the markets in this nascent recovery you know.

Just like when TARP I didn't pass... 10-20% drop in the Dow and presto! TARP II passes despite 90%+ constituents who called to protest it.

Posted by: ex SF-er at April 17, 2010 9:13 PM

Who in the government has been crowing about stock market returns? You must read a different set of press releases than I do. There is nothing that is particularly bubble-like about current stock, housing or commodity prices, they are all within historical norms, at least on a national basis.

Negative real interest rates are there to keep the economy from collapsing into a real Great Depression, which was admirably avoided. This kind of stimulus has to be withdrawn gradually, which is being done.

You don't think that the current financial reform bill in front of the Senate represents a real change from the current regulatory schema? The financial sector sure does, which is why they are pulling out all the stops and have their puppets in the GOP 100% united against it.

The Democrats have done things in exactly the correct order:

1) Keep the financial sector from collapsing
2) Stimulate the economy
3) Pass health care reform
4) Pass financial reform

Number 5 is climate change regulation, btw, in case you are wondering what the Democrats are up to next. I am not sure they are willing to tackle it in an election year, but this is what the Democratic Party base wants, so it will probably at least be attempted.

Health care reform was before Financial reform because this is what Democratic Party voters wanted. This might not be the priority of what you wanted, but the party is going to press what its own activists want, correctly I think. There is only one chance a generation to get something like health care reform passed and they took advantage of the opportunity. It was not enough, but something is better than nothing in this case.

I think that pretty soon now, one GOP Senator will defect and then there will be a mass stampede of them who will vote for whatever bill is finally passed. The public is just still too rightly annoyed about the need to bailout the banks and it is an election year, after all.

Posted by: NoeValleyJim at April 17, 2010 10:42 PM

Yes, you are correct. The Democrats have done things in exactly the correct order:

1. Maintain a "war" in Afghanistan for no reason, other than to pay back their military supporters.

2. Continued the absurdly expensive and FAILED policies of the previous Bush administration as it relates to financial "reform". The result is an economy that is similar that 'hyped' up on government cash, similar to the way a child is hyped up on sugar, or a crackhead is hyped up on crack. The result can only be a prolonged negative impact on the economy.

3. Passed healthcare legislation in a manner that was too quick to lead to anything other than a cluster-f*ck, and in the process managed to pimp out government funding to those who were on the fence.

4. Bringing private business and other entities under the direct control of the government - GM, AIG, etc. plus Healthcare. Instead of cutting the size of government, they increased it - tremendously. The government is not only in my pocket on a regular basis for programs that help few. They are now is so many more facets of my life.


What they could have done, but didn't and wont would be:

1. Cut the government by 20% across the board - with the exception of law enforcement.
2. Put people behind bars who in charge and manipulating the financial sector. And let the companies fail.
3. Impose equal tariffs on countries who impose taxes on US products.
4. Develop a better, less hurried. plan for healthcare
5. Cutoff assistance to any healthy males/females, or forcing them to contribute their time in other ways while looking for a job (i.e. clean up parks, paint over graffiti, etc.)
6. Legalize gay marriage across the country.
7. Reduce the tax rate by 5% across the board.
8. Have an "X" prize style event for highly efficient vehicles. Provide funding to have the winners concept be developed.
9. More solar/wind/natural gas power.
10. Have a plan for real education. There are far too many stupid kids in the world, who can't even speak properly, count change, or formulate a thought.
11. Bring home foreign troops in the middle east and Afghanistan.
12. For those who actually need assistance increase assistance by 15%.

What a wasted opportunity he had to be something 'great'. Now this administration is just more of the same...

Posted by: SFRE at April 17, 2010 11:49 PM

1 is a letdownd so far, no doubt. 2 is you talking falsely. 3. Yeah? Too quick, ya say? No.

And then I stopped reading. Weird one.

Posted by: anonn at April 18, 2010 12:09 AM

Number 1 alone would have collapsed the entire economy and we would be looking at 20%+ unemployment rates. They spent over a year fiddling with health care reform and you wanted them to spend even longer? Sorry, your ideas are just a recipe for disaster.

Posted by: NoeValleyJim at April 18, 2010 12:10 AM

NVJ:
we're going to have to agree to disagree here.

There were other ways that we could have stopped the financial markets from imploding that would have worked better IMO.

For instance, we could have nationalized the banking sector. It would have been extremely expensive, but we would then have had more say in how taxpayer money was spent.

Instead, we gave the banking sector Trillions of dollars of cash and guarantees, and they used it to give themselves bonuses and to gear-up into leveraged proprietary trading again, while lending continues to stagnate/fall.
(this is why we continue to see ever-higher returns with lower and lower trading volumes... the retail sector for the most part has not been part of the equities recovery... it is trading firm trading with trading firm etc)

we gave them money but no more oversight.

As for regulation- what regulation? There are a lot of proposals out there, but most have glaring holes in them and are being fiercely gutted as we speak. For instance, I haven't seen ANY regulation that does much for the Too-Big-To-Fail problem, nor the naked-Credit Default Swaps problem. (two of the biggest issues)

I DID see that they relaxed FASB (accounting) standards so that the banks can continue to value their "assets" (which are all toxic... oops I mean "legacy") at marks that are wildly optimistic if I'm in a charitable mood, fraudulent if I'm not. I hardly call relaxing standards to be "financial regulation"
Or did you mean giving the Fed more power that it won't use?
or giving the Fed control of Consumer Protection? HAHahHAAHAHAHAHA

in fact, our too big to fail banks are BIGGER now than they were at the start of the crisis.

I'm sorry: we have funneled tons of money into the banking sector, and they are using that money to buy up commodities and Equities, and of course pay bonuses.

even market bulls have little explanation for the 70% runup in stocks in the last year or $85 oil during near 10% unemployment etc.

as for healthcare: if the Dems were listening they would have passed a public option. But of course they didn't. The way I read the bill (which I'm pretty sure is accurate) is the following:
Before: some people bought insurance, some people chose not to or couldn't afford it.

Now: some people will buy insurance. Others who can't afford it or don't want to are MANDATED BY LAW to buy it from private companies. if they can't/won't then they will have to pay a fine.

looks like a boon to the insurance companies to me. their products are now mandated by law.

I will retract one statement I made:
it may not be Dems themselves that have crowed about the 70% equities returns... it may have only been Dem Strategists/commentators etc that I've been reading. Upon reflection I do not know if our President or chief Dem leaders themselves pointed to stock market returns as signs of recovery.

Posted by: ex SF-er at April 18, 2010 6:16 AM

NoeValleyJim, your 10% Tech workforce is true, but this is for the entire Bay Area. Since the majority of Bay Area population is currently based in the sprawling suburbs in the SouthBay, what percentage of "Tech" jobs does the city of San Francisco actually have? I think for some of the southern neighborhoods of the city, the "Tech" influence on housing prices is observable, but not for the entire city as a whole. In the Marina, none of my immediate neighbors work in a "tech" related industry, but instead are doctors, legal, engineers, architects, and many are small business owners (shops & restaurants). I still think the "Tech" influence is greatly over-estimated for being the primary cause for housing price increases in San Francisco. (It would be down to #6 on my list of causes)

Posted by: anon94123 at April 18, 2010 8:18 AM

If you follow the link anon94123, you will see that in the South Bay, high tech jobs are 18% of "private sector jobs." It is in the SF-Oakland area that they are 9%. I don't know what percentage of jobs are public sector jobs, so I can't calculate percentage of total employment.

It is true that no regulation has been passed yet which significantly impacts the financial sector. Those bills are in front of Congress today. I am not sure what you mean by the naked Credit Default Swaps problem, but the number one priority of the Administration is to regulate derivatives, which presumably includes CDSs. I think anything that eliminates the ability of these firms to make such highly leveraged bets will do the trick of reducing systemic risk. Derivatives are mostly the source of this risk.

Rather than focus on the 70% stock market run up from the panic bottom, I think you should remember that the we are still over 20% down from its peak in 2006. The market should broadly reflect that ability of American firms to make profits over the long term. Which is still down, but recovering: this has been a great earnings season so far. Remember that most large American companies are effectively multi-nationals at this point.

It would have been a terrible, worse than 1934, earnings season if we had followed the prescription of letting all the banks fail and cut government to match revenues, which is more or less what we did in 1933.

Oil is at $85 due to simple supply and demand. Demand in China in particular is growing faster than it has been falling off in the United States. IEA predicts an all-time record for petroleum use in 2010.

It is easy to Monday morning quarterback, but I think the fact that the banking system did not collapse is a good enough result to say what the Bush and Obama Administration did was the "right thing." I was also in favor of following the Krugman plan, which was outright nationalization of failing banks, but I am not sure that was politically possible. Even if we had followed it, I doubt that we would be in a substantially stronger situation economically right now, though it is probably true that the obscene bonuses would have been eliminated.

Financial reform is taking so long because the Democrats tried hard to bring in some Republicans on health care reform. The GOP was only interested in creating "Obama's Waterloo" though so the Dems eventually had to go it alone. The most important thing that came out of the health care bill is the fact that it is going to be funded by cutting Medicare expenses. We absolutely have to cut the runaway costs of Medicare, it is good to get that enshrined into law. Some cynics claim that this will not happen, but I am quite sure that it will, if for no other reason than the laws of economics: at current rates of growth, Medicare will crowd out the rest of our economy. We need to have more cost controls in health care, but this will have to wait until the next round of health care reform, whenever that finally is. It will be interesting to see if the GOP actually comes up with anything after 2010. They were spectacularly uninterested in the topic during the six years they ruled all three branches of government. Cutting the size of government is something the GOP always talks about, though they never do it when they have the chance. Maybe they will next time around.

Posted by: NoeValleyJim at April 18, 2010 9:33 AM

"Cutting the size of government is something the GOP always talks about, though they never do it when they have the chance."

If they did, then what election issue would they have to run on in the next election cycle?

Posted by: diemos at April 18, 2010 9:39 AM

NVJ:
again, as I said, we'll just have to agree to disagree.

as you know, I'm a big dork about these things financial. I will just say that in my opinion (which is not infallible) none of the current bills does much to substantively resolve the Too Big To Fail or the Credit Default Swap problem. In press releases they CLAIM to do so, but the details are weak, and sometimes the bills do the exact opposite of what they claim.

i'm not alone in my views... this is one reason why smaller banks dislike some of these bills, because they enshrine and help the TBTF banks at the expense of smaller banks.

the rest of your post is more about religion/ideology than anything else. we have different viewpoints, that is all.

You believe that we would have been worse and I believe we would have been better had we chosen a different path. there is no way to prove either point, since we can't go back and choose that other path.

I will only state that today we have a zombified banking system with EVEN LARGER too big to fail institutions that are using taxpayer money to gamble in the financial markets, all backed by the government. they are still using synthetic CDOs and naked CDS as well as accounting gimmicks in order to try to "earn their way" out of this mess. accounting rules have been RELAXED (not strengthened), and the TBTF banks have negative real interest rates and tons of government subsidies behind them.

we still have heard no concrete plans on how to exit this unholy situation. we only hear speeches about how it 'needs' to happen.

During this time period, the economy looks better. But that is what happens when private liabilities are shunted onto the public's balance sheet... at least initially.

it has been a huge gamble, and as I've said on here for years our leaders are risking a currency crisis with this bet. I have no idea if it will work or not.

but what I do know is that one idea is cemented in every major banking CEO's mind: gamble gamble gamble. if you fail you'll be bailed out. if you don't gamble you'll lose market share.

also: if you read my posts from WAY back I did say that there is no easy way out of the mess we're in. all "solutions" suck. if we bail out the TBTFers, we get massive moral hazard on a scale never seen before and they'll just gamble twice as hard going forward. If we don't bail them out we get instant depression. the problem was letting us get here in the first place. there is no solution. this is why you don't let a financial system get so out of control in the first place.

Just like lung cancer... doing nothing sucks. Getting chemo and radiation sucks too. the solution was not to smoke in the first place.

to extend the cancer analogy: Steroids often can reduce the lung cancer symptoms, however it doesn't help the prognosis at all. The patients then feel much better until their untimely demise.

Have the actions of our government to date been chemo/radiation- which has been painful but in the end may help (which I think you believe)... or has it been steroids which mask symptoms allowing the patient to feel better until their demise (as I think).

Posted by: ex SF-er at April 18, 2010 11:06 AM

Yeah, we pretty much agree, but I think that things are getting better and you think it is a false dawn. Overall leverage in our economy is down, way down even including government borrowing, the trade deficit is declining and Americans are saving more. We need more of this, but at least we are heading in the right direction.

We *have* opened a huge can of worms of moral hazard, but I knew that it was always there, there is no way we could have just stepped aside and let all the big banks fail. I agree that we need to put rules in place to muzzle these guys and they are not there yet. Whether the new regulations will be enough is not something we will know for a while, I think. Though I guess you can look at hedge fund manager salaries in 2012 and have a pretty good idea.

Posted by: NoeValleyJim at April 18, 2010 5:34 PM

You believe that we would have been worse and I believe we would have been better had we chosen a different path. there is no way to prove either point, since we can't go back and choose that other path.

I want to touch on this directly. What different path are you talking about? We both though that nationalizing the banks (the Swedish solution) was the right thing to do at the time. You don't seriously think that doing nothing and just watching Citibank and BofA (at the very least) just close up shop would have better than what we did, do you? What do you think the unemployment rate would look like today if we had done nothing?

Posted by: NoeValleyJim at April 18, 2010 6:10 PM

There are many ways to provide the real economy with liquidity that don't involve handing trillions in "no strings attached" taxpayer money to the banksters.

The simplest is to let the banks fail, throw out the current management and shareholders, then recapitalize it and sell it to private interests.

Posted by: diemos at April 18, 2010 7:10 PM

"The simplest is to let the banks fail, throw out the current management and shareholders, then recapitalize it and sell it to private interests."

has this ever happened in recorded human history?

Posted by: anonee at April 18, 2010 7:17 PM

Pre-Fed banks failed all the time. The world did not end.

Posted by: diemos at April 18, 2010 7:45 PM

Yeah, we just had 10-15 year long depressions. We spent over half of the period from 1873 to 1901 in a recession. The Panic of 1873 was precipitated by a big bank failure, that of Jay Cooke & Company, and led to a 6 year long recession, which was called the Great Depression all the way until 1933.

In many countries, when the big banks failed, there would be a revolution. It was the collapse of the banking system that led most directly to the French Revolution.

Posted by: NoeValleyJim at April 18, 2010 8:49 PM

so to heck with fdic then?

Posted by: anonee at April 18, 2010 8:51 PM

Ai-yi-yi. Recapitalize means making the depositors whole with printed up money while punishing owners and management for their mistakes. The FDIC is supposed to protect depositors not banks.

Yes, NVJ. Allowing bank credit to shrink will cause depressions and perhaps great civil unrest. That is why providing liquidity to the real economy is critical. One does not need to rescue and reward bank owners and managers for their failures in order to accomplish this.

Posted by: diemos at April 18, 2010 9:22 PM

I do suppose that it was a squandered opportunity to make bolder changes.

Posted by: NoeValleyJim at April 18, 2010 10:33 PM

NVJ:
I would have FULLY nationalized the banks.
a la the Scandinavian model from years past.

This means the Federal Govt would have taken over the banks including full management of the banks.

instead, our Federal govt did this partial ownership nightmare, but did not take control.

on a side note: yes, it would have likely resulted in instant depression. I do understand that. it was that pain/fear of pain that led the government to try it's BenB "liquidity" experiment.

I'm not exactly sure how much leverage there is or isn't right now. The bank balance sheets are indecipherable right now, moreso because of the accounting shenanigans that they are using. (mark to fantasy accounting etc).

Posted by: ex SF-er at April 19, 2010 10:21 AM

Typically when government bails a party out, it also provides regulation to prevent the situation in the first place. In this case, we haven't coupled the two yet, and it seems like we've waited very long to do so. TARP should have been coupled with enforcement mechanisms instead of separating the two issues.

diemos said:
"The simplest is to let the banks fail, throw out the current management and shareholders, then recapitalize it and sell it to private interests."

And that's exactly what we should have done. Instead, we re-trenched current management who screwed everything up in the first place, giving them a reward instead and rewarded shareholders who voted in these clowns. It would have been far better to take a bankrupt Citibank, break it up, and sell it for parts -- an expedited bankruptcy process. All of us would have been better off.

Posted by: sfrenegade at April 19, 2010 3:13 PM

I wish I were as smart as diemos:

"The world doesn't have enough physical resources for that to happen. Instead our standard of living will catch up with theirs."

April 20 (Bloomberg) -- Purchases using Citigroup Inc. credit cards are accelerating outside the U.S. and still contracting in North America, adding to evidence that foreign consumers are leading the recovery from the global recession.

http://www.bloomberg.com/apps/news?pid=20601109&sid=aKsqV26bileU&pos=15

Check out the graphic tab just above the start of the story. It's quite amazing.

Posted by: tipster at April 20, 2010 1:47 PM

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