M&T Bank and Fulton Financial get to be the harbingers of the spread of the subprime disease in the Alt-A marketplace. Alt-A loans are made to borrowers with good credit scores but do not conform to FHA rules for various reasons. No or low documentation (”liar’s loans”), excessive LTV (100% and more), too big (jumbo) and so forth. The disease is the same – early defaults indicating that the loan was probably fraudulent in some respect, and a secondary market that has dried up.

Unfortunately people can’t see the forest for the trees – they see mortgage defaults and think that there’s a housing problem. It’s not a housing problem, it is a credit problem. There’s just too much of it. Defaults are rising on all kinds of consumer loans – cars, boats, and yes, even Harley-Davidson motorcycles – 20% of their “hogs” loans are subprime and the 30-day delinquency rate on such loans has increased from a 3.6% between Q1 of 2005 and Q2 of 2006 to 5.18% in Q4 of 2006, an almost doubling of delinquency rates in two quarters. Consumers are choking with debt.

This excellent video – Money As Debt – explains why the credit bubble has to grow or die. While it is a bit oversimplified and a touch polemical in places, it has all the essential facts right.

The Mortgage Implode-O-Meter blog now counts 45 failed lenders. I don’t know if ayone other than my wife reads this blog, but if you do – be warned, this credit implosion will have serious consequences on the prices of assets of all kinds. Protect yourself. Read Prechter’s book, or one of the others on the same subject.

Handling objections is critical to successful selling. Since there are so many novice real estate agents out there, I have assembled, for their benefit, a short collection of possible objections, together with a choice of responses, based on what I understand are the industry-standard axioms.

1. Buyer: That’s a lot of money.
   Agent: It’s not just a [house|condo] it’s [a home|an investment for your retirement].
2. Buyer: What if I have to sell?
   Agent: a. You can’t lose in real estate. b. Real estate never goes down. c. They’re not making any more of it. d. The price is less than the last appraisal, so you have instant equity.
3. Buyer: That’s more than I can afford. I wouldn’t have enough money to live on.
   Agent: a. You can get a low rate and then refinance before the payment increases. b. You can take some equity out when you need money.
4. Buyer: I think I should wait a bit and see what happens to prices.
   Agent: a. Buy now or you’ll be priced out forever. b. Never a better time to buy! c. You’re just kidding yourself if you’re waiting for prices to fall. d. Never try to time the market. e. If you’re waiting for the perfect time to buy, you’ll be waiting forever. f. Renting is just throwing your money away.
5. Buyer: These prices are so high, surely they’re unaffordable and will come down?
   Agent: [Where property is located] is a. so desirable, people will want to live here no matter how expensive it gets. b. home to [wealthy immigrants|CEOs|old-money rich people|government employees] who will keep prices permanently high. c. land-locked, there’s nowhere to build more homes. d. unaffected by the state of the economy. e. special because it is [view property|waterfront|walk-to|etc.] in limited supply and therefore unaffected by market considerations.
6. Buyer: It seems like prices have been falling recently.
   Agent: Real estate always comes back; a. after [Super Bowl|Labor Day|etc.] things will return to normal. b. the drop was caused by [9-11|collapse of Soviet Union|earthquake| hurricane| etc.]; a one-time event. c. David Lereah, chief economist of the NAR, says this is the bottom.
7. Buyer: This is the most I can afford to pay.
   Agent: a. Such a low offer is an insult to the seller. b. The seller couldn’t accept an offer like that because his neighbors would be angry. c. The seller can’t take that offer because his loan balance is more than that.

The received wisdom is that self-sacrificing bureaucrats who labor in the halls of government receive low salaries, which sacrifice is partially offset by their security of employment and comprehensive benefits, to say nothing of their sense of altruism and public service.

Well the facts are a little different. According to the federal Bureau of Economic Analysis (BEA), the compensation of the average federal civilian employee in 2005 was $106,579. Which, it turns out, is almost exactly twice the average compensation in the private sector ($53,289). And the gap is widening. Since 1990, average compensation for the unfortunate bureaucrats has risen by 129%, compared to 74% in the private sector.

For quite some time now, much of the commentary on this blog has been about the housing market. For good reason, because housing is the most recent manifestation of the credit bubble.

But it is important to remember that the housing mess is only one part of the bubble. Virtually all asset classes, with the possible exception of energy, are in bubble mode. Be careful out there, refuge is going to be hard to find. I’ve recently been re-reading Prechter’s “Conquer The Crash”. Still much good advice in it.

I’ve certainly been feeling that the in-your-face conspicuous consumption I see is reminiscent of the roaring 20s, before the Great Depression. Of course I wasn’t there, so I’ve just been going on impressions from anecdotal evidence. But now that feeling is supported by some quantitative data from the New York Times: “Income inequality grew significantly in 2005, with the top 1 percent of Americans — those with incomes that year of more than $348,000 — receiving their largest share of national income since 1928, analysis of newly released tax data shows.The top 10 percent, roughly those earning more than $100,000, also reached a level of income share not seen since before the Depression.

While total reported income in the United States increased almost 9 percent in 2005, the most recent year for which such data is available, average incomes for those in the bottom 90 percent dipped slightly compared with the year before, dropping $172, or 0.6 percent.

The gains went largely to the top 1 percent, whose incomes rose to an average of more than $1.1 million each, an increase of more than $139,000, or about 14 percent.

….

The analysis by the two professors showed that the top 10 percent of Americans collected 48.5 percent of all reported income in 2005.

That is an increase of more than 2 percentage points over the previous year and up from roughly 33 percent in the late 1970s. The peak for this group was 49.3 percent in 1928.

The top 1 percent received 21.8 percent of all reported income in 2005, up significantly from 19.8 percent the year before and more than double their share of income in 1980. The peak was in 1928, when the top 1 percent reported 23.9 percent of all income.”