into solid gold requests the gold and silver investors guy. call today eight hundred two five seven gold. good afternoon and welcome to capital account i'm lauren lister here in washington d.c. these are your headlines for thursday august sixteenth two thousand and twelve new home construction in the u.s. fell in july that's according to the commerce department data this is unexpectedly a media reports another reminder of weakness in the housing market despite recent finds a recovery it's not unexpected if you talk to barry ritholtz though who has been out there saying the housing market still has a long way to go we'll hear from him why plus from ghost inventory to zombies we'll talk about the often overlooked underbelly of u.s. housing which is haunting it's we're covering and we're going to forecast for when the foreclosure machinery will be kraken back to life and we all remember this.

or simply do not know where the money is or why the accounts of not been reconciled today. it seems like john pours line by just get away with it the new york times deal book is reporting the criminal investigation into the collapse of m.f. global is heading into its final stage with that customer money that still went missing and went out charges expected against any top executives. or in other words. one of these sort of a. deal the moving of money from cloying accounts to buy spanish did not so they go into us to go to jill. we'll hear hear more let's get to today's capital account.

now you can probably find recent headlines or data points inspiring talk of the u.s. housing stabilization but when you look at the foundation of an actual recovery is there one because you can't forget about the zombies i mean it's going back and if you were you were going to say are you sure the problem there is going to. start going. well are you going to have no idea that he went into is not your. just like that you may think they're coming out selling and rebuying what purportedly drives primary demand in the u.s. but with underwater homeowners stuck and households with impaired credit stuck because of an inability to qualify for a mortgage again it appears we've got a lot of zombies and that's just the beginning but do not take my word for it the

one and only barry ritholtz came on our show to tell us about it all he is c.e.o. of fusion i.q. and author of this book bailout nation how great an easy money corrupted wall street and shook the world economy take a listen and you know we had to send our producer up to vancouver to get our hands on you finally get you in that the so thank you there was no. there was no escaping got to where we want you because i am dying to ask you about housing this is something that you write a lot about you've written in recent months a lot about the housing woes that the u.s. market still faces and you are way ahead of the curve ahead of the housing bust to to go back a few years now there is some news today some data that housing starts unexpectedly fell in july groundbreaking on u.s. holmes new ones unexpectedly fell in july that's according to the wall street journal they say unexpectedly and say this is a reminder of the housing market's weakness despite some recent signs of recovery i

doubt this would be unexpected for you as you've been talking about problems of the housing market for a while what is before we get to the details we'll get into those what are other people missing that you're not that you're seeing. i think it's a combination there's a lot of wishful thinking from a lot of people out there there's another group of people who've been calling the housing bottom every year since two thousand and five and i guess if they call it every year for the next ten years eventually they'll be right that we posted something on the big picture a few weeks ago that basically went back over the past six years and just reproduced every housing bottom call from everybody from mark zandi who's been horrifically wrong about this may be the single worst economist when it comes to housing to the national association of realtors to the wall street journal a lot of people with vested interest in housing who are not objective had been just clamoring calling begging wishing praying for

a bottom and they've just been wrong for the whole housing collapse look when we went through a period of time when we abdicated lending standards where if you can fog a mirror you got a half a million dollar loan my favorite example was the two people in california who were pickers making fourteen thousand dollars a year got approved for a seven hundred fifty thousand dollars mortgage if they took one hundred percent of their pretax income and gave it to the bank they still would have defaulted that was what allowed us to develop this drying in bubble this credit bubble this housing boom and bust and now it's the other side of it now you're working out all of those housing bust you have a lot of marginal homeowners who are underwater who are behind in their payments we probably have somewhere between three and six million more foreclosures to go until you clear that out you just can't even talk about any sort of recovery by the way

if you've been paying attention to the usual suspects first we had a housing turnaround things are getting better looks great and then that became i was ing bottom in. what we're hearing about is the housing stabilization right if you look at the drivers of housing none of the building blocks are in place for a full fledged recovery ok perfect so let's set aside all that wishful thinking and talk about the nuts and bolts that you see the foundation that you're talking about right here let's start with supply i thought it was interesting i know there was street journal was talking about the recent case sheller data at the last round that we got saying that there were broad housing gains across the nation versus prior month and still down a little bit year over year but much better then from the prior year before that and they said hey if this continues it should go on through summer because supply is low now i would imagine from what you've written about the shadow inventory that you would disagree with this is something so fill us in on how shadow inventory or

ghost image tori is haunting the housing market stabilization sure so you have a couple of factors in place first part of the reason inventory is low is if you're underwater on a house two hundred thousand dollars you can't sell that house without the bank's permission and good luck getting the banks to give you permission to do anything there just completely mess the left hand doesn't know the right hands doing so getting any cooperation from the major loan services from the major money center banks they're just internal disasters they can't really figure out what's going on so there are lots of people there are lots of supply that would be on the market except for the fact that the last number i saw was about twenty four percent of the homes that have mortgages and that's about seventy percent of the total supply of owner occupied homes i think the most recent data is about ninety million homes are

owned by people figure about a third of those homes don't have a mortgage so you back that out but you still end up with somewhere between twelve and sixteen million homes. that are significantly on. the water so that's a potential supply that as soon as they're capable of selling the home they would but they can't because they're buried in it they can't write a check for one hundred or two hundred thousand dollars to the bank to allow them to sell there are all sorts of problems with this it reduces social mobility if there's a job over there you can't take it because you're stuck over here that leads to walk away that leads to other issues so that's the first group of home home owners to homeowners the people who are underwater five ten fifteen twenty percent the data by the way shows that when you're underwater twenty five percent the people who walk away then spike up because you just can't imagine ever getting out look if you own a home your home is worth five or ten percent less than your mortgage hey event you

had to live somewhere eventually home prices will come back and you'll be able to get out of the house if you want to trade up if you want to move if you want to take a job that's where that's a little bit of an issue because you literally have to write a check to get to get out of the house the next group of go supply that's out there you know during the boom the national association of realtors reported the number of homes that were second homes vacation properties investment properties and the reality was you know just get a surge of people buying vacation property it was a lot of people who just want to jump on board the housing express and flip it you know the greater fool behind them the reality is that even the people who are underwater or can't afford to service the mortgages they would love to see higher prices in order to put that burden back on the market get out from under it so that

that's the next level of housing that supply that's out there that's before we even talk about all the r.e.o.'s the bank owned real estate real estate own to oreos that the banks have kind of been kicking the can. down the road they've been reluctant to to foreclose because they know what happens with the house with the other properties in the neighborhood typically distressed sales are twenty to thirty percent below identical non distressed so not only are you taking the write down but if you have mortgages in the immediate vicinity now you have a comparable when they go to do appraisals it's bad it's going to be problematic the last group of let's call them ghost supply according to lori goodman over at amherst securities there are two point eight million homeowners who have made a payment in twelve months or more you have to figure they're so upside down they'll never be able to modify those the odds are that the vast majority of these

and i would guess ninety plus percent of those two point eight million are either going to be short sales or foreclosures or distressed sales of some type and that's out there and it's waiting to come on market you know we've been hearing through various individuals and this is admitted li anecdotal evidence that banks have been saying look just mow the lawn shovel the snow don't destroy the house pay the taxes and we'll let you live there another year and so that's yet more supply that's out there where these let's call it strategic non foreclosures by the banks i am assuming that that's coming to the end of its natural life and finally the last piece is we had this big robo signing scandal the banks got off with a slap on the wrist they got lucky during the negotiations they said voluntarily agreed to stop foreclosures until the they cut a deal and for thirteen or fourteen months they agreed to this foreclosure ban men

they signed the deal back in january february it takes a few months to crank up the foreclosure machinery and those foreclosures are going to start coming online in the fall that's going to pressure prices that's going to pressure units it's going to be. back to where we were a year or two ago just by the last of the set rises as put in to driving mortgage rates down i think rates are now one hundred fifty basis points below where they were two years ago that's roughly the equivalent of seventeen percent more buying power rates down the low so here that he predicts foreclosures to ramp up that badly want to get start getting cleared out this fall and impacting prices this fall taking another three to four years to get all worked out still ahead very reynolds does not mince his words as he reacts to news that and that global executives may not face criminal charges at all but first your closing market numbers.

what drives the world the fear mongering used by politicians who makes decisions to break through it's already been made who can you trust no one who is human being who with the global machinery to see where we had a state controlled capitalism is called sessions when nobody dares to ask we do our t.v.

question more. welcome back before the break we were talking about how u.s. housing is still. so let's talk about some of the so-called solutions we've seen more with barry ritholtz c.e.o. of fusion i.q. and author of bailout nation hegan. as far as

a government effort that stimulus with modification then tax credits and you mention how things have been propped up by the fed has this been helping to stabilize the housing market or has this been prolonging the much needed bottom so that we can see a real recovery in housing. not my thesis for a long time has been you're better off to just tear the bending the bad data off quickly it's more painful but it's a short sharp drop and you get it over with instead of this death by a thousand cuts it's not so much that they've been propping the housing market up as they've been. making the slope of housing a little more gentle we still haven't gotten to the point where home prices are really really cheap look at this if the fed and the government are successful in what they're trying to do this will be the first time an asset bubble has been wildly overvalued and then merely reverted back to fair value historically when you

get a boom think about the dot coms think about the homebuilders the banks the investment firms when they bust they tend to careen wildly below fair value until they get really cheap homes are back to where they were in over three zero four based on a number of factors they're probably at fair value but i would imagine given how stupid things got to the upside the symmetry that the markets usually exact is stupid to the downside and we have a this hasn't happened and we haven't seen that i know you wrote in april that you could still see home prices coming down ten per cent is that still what you think ten percent down from here ten ten percent is if we don't have a major recession just allowing all these reset all these foreclosures that have been a baited temporarily put on hold now that that hold is lifted another five to ten percent you could do standing on your head if we get a significant recession and there's always a recession so more off in the future but if the recession. come sooner rather than

later alternately you could see an uptick in unemployment an uptick in the number of people who have mortgages that rely on their income to pay those mortgages ultimately it's more for more defaults more foreclosures lower prices if that happens but but five to ten percent that's easy anything beyond that requires a deeper recession. to drive mortgage payers out of the area because they lack the right mix of payments right and then on the on the demand side although mortgage rates are incredibly low there are a great. lows compared to recent years and decades event who can qualify for those on the demand side you mentioned how many people are underwater on their homes this isn't factoring in people you households that are credit impaired and can't even qualify not to mention any period when people are deal abridging and consumers have been up to their eyeballs in debt who can afford tens of thousands of dollars for

a down payment and with flat wages and a high unemployment rate who can pay for the monthly payment. it's someone who has a good income a good credit history not a lot of debt has a good loan to value ratio of the home someone who hasn't missed too many payments over the past three years somebody who didn't fall behind on their previous mortgage it's an increasingly narrow pool and then add to that you just look at the m.b.a. the mortgage brokers associate mortgage bankers association the number of applications has been in a steady move down despite the record low rates because at this point you know about two months ago i my comment in public was if you have a home with a mortgage you should be refinancing because there's a lot more upside to rates and there is downside and i stand by that if you haven't refinance now do it soon because if you don't you're going to ultimately see rates

go up of then surely but right now there is there are such there are record low levels you could do a fifteen year mortgage up to seventy five you could do a thirty year of it three eight seven five under four percent is a ridiculous number for a thirty year fixed and i suspect we'll be talking about this five in ten years hence remember when mortgage rates were four percent ridiculous was right yeah i yell and it's just crazy how many people still can't qualify for that given the situation that we're in and i'm just curious despite the fact that housing prices are at lows we haven't seen since what two thousand and three given that along with the low rate still though our housing is really affordable to most people given the fact of the other thing is that that's right that's what people forget the national association of realtors puts out this index called the home affordability index to give you an idea of the value of this from two thousand to two thousand and six there was one month when they said homes one affordable i mean it's completely worthless sort of index but it's also thinking about it backwards homes don't get

sold randomly people buy a home. so the question is do you have the credit rating do you have the mortgage approval do you have the down payment twenty percent down payment is a big chunk for a lot of people especially people who got killed in the stock market in two thousand who may extend themselves for a second home who got killed in the stock market in zero eight zero nine a lot of people just don't have that twenty percent down payment or the history or the wage gains or the psycho's score so the amount of people who can actually go out and buy these affordable homes i just think it's a really really misleading thing to say homes are affordable and you know it's true a lot of chinese people are buying homes on the west coast san francisco vancouver miami also a lot of europeans are buying homes in new york and florida so yes these houses

these units or affordable to people unfortunately they're not americans who live here and that's the bulk of the buyers of home right which i post on your blog today talks about how investors and first time buyers are not the drivers housing the housing market or primary demand it's repeat buyers so it's interesting it sounds like we have a really long way to go before we go barry ritholtz i want to ask you because from what i hear you are a pretty no nonsense guy and so i want to get your no nonsense response to this and i know my dad didn't just say whatever maybe it's right maybe it's wrong but but given that i want to know your response on this report that's come out that that the new york times deal book says that m.f. global executives aren't likely to face criminal charges that that's what they're hearing from their sources despite everything we've seen that they take the money that still missing that some would say has been stolen and no charges for exactly what's your reaction. and that is the two issues the two issues people keep talking about is this john corps seen as politically connected and how can there be nobody

found any sort of guilty and they're two different things first by definition if a billion eight of customers money disappears a crime has been committed to the technical legal term of taking customer cash and hypothecated it through london and leveraging it up fifty don't want fifteen to one and then buying sovereign debt you know it may or may not be within the technical legalities of the law but when you read the rules that govern borrowing client cash it's to be put into safe. investments and you know buying greek and spanish debt that's not it that's not like buying u.s. treasuries that's not a safe investment and the fact by definition it's not a safe investment because it lost a billion plus dollars i think someone has to be found accountable just like the robo sonner someone has to be found accountable now whether or not the guy at the

head of the company knew about it or should have known about it was only been there a year and how long it's been on you know it that's a much tougher thing to prove you have to say this executive knew that this was going on and here's the comments and here's the emails and here's the his signature on it that's that's from a prosecutor's standpoint that's a little more difficult to prosecute but look one of these son of a okayed moving of money from client accounts to buy spanish debt natch the guy who has to go to jail look i don't think jamie diamond said i have an idea in order to prosecute all these mortgages much all these foreclosures go hire a bunch of burger flippers from make donald's offer them a dollar more an hour and have them do one hundred of these an hour even though it takes two hours to do a foreclosure john pretty. that wasn't jamie done but i'm also pretty confident it was in the burger flippers somewhere in the middle some jackass said let's just

ignore three centuries of property law and just crank this through yeah that guy should go to jail just like the guy from m.f. global the problem is we're governed by a white house and a congress that's in bed with the banisters that the prosecutors lack the spine to say let's do what we did after the s. and l. crisis let's grab a thousand of these son of a bitches and put them in jail and maybe that will send a warning that will last thirty years because that's what happened after the s. and l. crisis it took a full generation to pass through banking and forget that people go to jail for stealing yeah i know it's a crazy concept that's what's supposed to happen it's a deterrent effect that will last the decade or two and that's what we should be doing now. at the mid-level guy in class and then hey maybe we get someone to rat out their boss and we see how far this does go to the top and get them part that is barry ritholtz there.

let's wrap up with loose change i have dimitri here to talk about how the recession is affecting a population me you may not think about much but clowns in fact there's so much competition in the industry that some are even fighting over gigs for kid's birthday parties look at this. but. two more things getting that we found a great story about how they're having a clown camp to help camps repair clowns reinvigorate their careers because parents don't want jokes anymore they want face painters magicians comics balloon animals the whole nine yards one clown said she's seen her for profit gigs go down fifteen to twenty percent. i say this is capitalism creative destruction the

clown. well i mean there's obviously the huge demand for women being a bull market requires we have clowns obviously these banks who are you know. davis is a giant mess but now we're all depressed you know because we're in like a pretty deep bear market so i think this is the time if you're going to ever have clowns you know this is the time to do it i think this is good these guys are responding to our demand in the marketplace just that maybe they're on the clock drug dealing trying to find a way to make dimitri what i don't know. what was not time you saw a clown last time gave them a good press conference ok besides the clowns on ball street at one of these clowns . the last time i saw a clown i mean oh no what are circling around besides the metaphorical closet we see almost every day this is why you think the clowns are uplifting clowns are terrifying the clintons are going by the wayside because they're terrifying and no one really liked them in the first place that just shows the bubble mentality the clowns ever even how did job a kid's birthday party who actually don't like clowns stuff i think you've seen the

thing and that's why i mean stephen king's the thing the clown. clowns people think that clowns are pretty i think they're funny i don't know that terrifying at all in the funny and i've you seen that movie the problem child where like there was a big there was a cloud the part i mean the look cool i want to like that when i was a kid i couldn't get it because we didn't really have clowns where i was growing up but you know i was one was going to get one you know we wound up before i was going to say that you know there is a. government subsidy for clowns turns out remember that whole g.s.a. scandal and right women resign one of the improper expenses that they expense the taxpayer was a clown and that's absurd and that's of course we're going to close in congress are hiring clowns still in the minds of plazas from clowns that's about as healing itself right itself as are you to your own vomit and they are going to get it well no time for us up planning around because that's all we have time for is so thank you so much for watching and please be sure to come back tomorrow and in the meantime you can follow me on twitter give us feedback on the show any you misstate

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