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alstry (35.69)

Stick HomeBuilder CEO's in Jail??????

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July 09, 2008 – Comments (8)

The have been selling houses for the past seven years to people they knew or should have known couldn't afford their product.  In many cases, the owned the mortgage companies that provided the financing.

How do you sell a $400K home to someone making $40K per year?  You know what the outcome is going to be.....but nothing was going to get in these guys way for profits so they could dump their shares in 2005!!!!!!

Now we have millions and millions of homes being foreclosed.  Many in the same communities that these jokers sold out of.  The forclosures are destroying the values of homes around the country.  Family savings are being wiped out.  Homeowners are becoming prisoners in their own homes because they can't afford to sell.

The stress is mounting in neighborhoods all over the place.  Neighbor's homes not being kept up.  Transients infesting the residents and wild parties interferring with tranquility otherwise enjoyed by owning a home in a otherwise stable neighborhood.

You don't think these guys saw it coming....you bet they did.....just look at 2005 insider selling.  Everyone knows when you leverage a mortgage up 5 and 10 times a person's income......the outcome is pretty clear.

We are now living with the consequences of this reckless behavior.  We probably have 3-4 years of excess new home inventory that will need to be absorbed if builders stopped building completely for 3-4 years. 

In the mean time these guys are flying in their jets, living on their yachts, and basking in the sun as homeowners and shareholders get the 2x4 up the backside.

If the homeowners were the crack addicts for leveraging up too high, the builders were the dealers peddling the overleveraged junk.  They knew what was going to happen.  Since when does America punish the users and reward the dealers??????????????????

 

Maybe we should force the HB executives to disgorge all the profits made from selling their shares of stock and put it in a foreclosure fund to help those that they sold homes.  Sorta like reverse forclosure on the executives helping the forclosure problem they helped create....sounds like a win win for all.

8 Comments – Post Your Own

#1) On July 09, 2008 at 5:13 PM, alstry (35.69) wrote:

With the decline in housing wealth...fewer can afford to eat out:

LOS ANGELES, July 9 (Reuters) - Restaurant chain Ruby Tuesday Inc (RT.N: Quote, Profile, Research, Stock Buzz) on Wednesday posted a sharply lower quarterly profit and said it will close about 15 company-owned restaurants as their leases expire.

Looks like 15 more commercial vacancies coming up.

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#2) On July 09, 2008 at 6:14 PM, DemonDoug (98.86) wrote:

If the homeowners were the crack addicts for leveraging up too high, the builders were the dealers peddling the overleveraged junk. 

And the Federal Reserve was the CIA supplying the dealers with massive amounts of crack to get the populace hooked.

In china, large-scale bank fraud is a capital offense.  I don't personally believe in the death penalty but I wouldn't mind if we brought back the gallows.  I want to see all of those CEO's thrown in jail.  All of them.

BTW with that ruby tuesdays, I'm betting their other restaurants are raising prices.  Can we say stagflation? ;-D

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#3) On July 09, 2008 at 6:23 PM, alstry (35.69) wrote:

Demon,

You need a little faith.  You keep correlating price increases with inflation.  Were you screaming inflation when the dot.coms were booming in 2000?

We had inflation from 1980 until 2000 but the price of gold dropped. 

Be careful about confusing price increases or decreases with inflation.  We had excess money sloshing around due to excess borrowing.  Now money is evaporating according the the broad definition of money...cash plus credit.

Soon prices will start to fall.....it is just that I am generally early....just ask my wife.

 

PS:  another thought, instead of jail let's stick HB executives in one of their foreclosed homes and force them to clean the algae infested pool with a toothbrush....after they have given back all the profits and performance bonuses.

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#4) On July 09, 2008 at 6:32 PM, cabuilderboy (86.18) wrote:

You just had to know, I wouldn't let you get away with this one. First, I will concede many of the big homebuilders do and did own their own mortgage companies, but you make the wrong assumption on who approved those loans. If you know anything about the homebuilding and lending market, which apparently I am going to teach you, the builder never approved one loan. Every loan was being underwritten to a certian underwriting standard (i.e. FNMA, FHLMC) which could then be securtized and sold by some financial genius in the secondary market. When the markets decided to relax underwriting criteria, in an attempt to acheive greater yields, approvals became easier and the lines to buy homes increased. With 300 people in line for 10 homes at a phase release, all with underwritten loan approvals, was the builder supposed to refuse to build because of an impending moral hazard???

Second, you assume the big builders of this world sold every home. Big Builders only sold about 50% of all home sold during 2002-2006. The rest of the sales were from guys like me without a mortgage company. I can't remember ever underwriting or approving a loan file?? I do remember people had no problem jumping on the price appreciation bandwagon thinking they were going to be the next Donald Trump Jr. If the person had a choice between a 30yr fixed with 20% down or a 3 year fixed interest only with a low teaser rate with no documentation or down payment, guess which one they would choose? Oh, maybe you are going to say builders developed the loan programs as well.

There is plenty of blame to go around, but focusing on the homebuilder is naive and unjustified. Since when should the homebuilder be your concience. If that were the case, the manager at McDonalds should be put in Jail!!!!

I don't mind your PSA's when they show your incessant bearishness, but save me from your ignorance as well.

 

 

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#5) On July 09, 2008 at 7:15 PM, alstry (35.69) wrote:

CA,

When you accuse someone of being ignorant, make sure you understand the law.  The fact that one has an accomplice to the crime does not absolve his behavior.

It's good to see you still have a pulse.  You have to understand that my sympathy rests with the independent HB who must run his business in a economically viable manner as he doesn't have access to wall street or private equity cash who gets paid upfront when the investment is made.  The irony is that it incentivizes the fund to pay up and make bad investments.

As a result, with free flowing cash to create the impression of growth, public HBs were engaging in practices that were detrimental to the entire industry and homeowners as well. 

Public HBs became like Steve and Berry's, growing for the sake of growth and not profits as the money had to be spent and the illusion maintained.  It was guys like you hurt who had to try to keep up on an uneven playing field.  At the beginning things worked in your favor...but post 2005, when standards began to tighen, guys like you got hosed as these guys played for show and not dough.

The problem rests that executives knew exactly what they were doing and making representations to the contrary.  Last time I checked, it was illegal to lie to shareholders.  It is the lying that is the problem.  If they had just been honest and told shareholders they were screwing them, no harm no foul.

Unlike a BJ where one can potentially argue it isn't sexual relations, giving it to someone up the backside is sodemy and f*^king someone no matter how you define it. 

The entire HB industry was screwed by the behavior of the large HBs.....they built without regard for the customers ability to pay and they knew it.....that is bad enough..the fact that the mortgage companies were accomplices does not absolve them of their behavior...further, lying to shareholders about their view for the future in 2005 is improper and should not go unpunished.

We almost impeached a president for a BJ, the least we can do is give these guys a little time for violating Sarbanes Oxley and contributing to one of the biggest financial catastrophes in Amercian history.

Seriously, I know you face a difficult economic environment....but at least you must play by the rules with the cards you are delt.  I do know you will see it my way in the end, after all, few have been screwed as much as you.

 

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#6) On July 09, 2008 at 7:30 PM, cabuilderboy (86.18) wrote:

Oh, you should have just said that in the first place. I totally misunderstood "Stick HomeBuilder CEO's in Jail??????"

Just have to keep you honest.

My self imposed lack of CAPS contribution simply comes from a need to keep a positive mental frame of mind. After participating for months, it appears to me (just my opinion), CAPS functions like a critic, accentuating the negative and lamenting the positive. I am a realist, and understand we don't live in Nirvana, but I have never been one to hang around with groups or people with a negative bias. Again, just my opinion. I still hang around, just with a different sense of appreciation.

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#7) On July 09, 2008 at 9:36 PM, alstry (35.69) wrote:

Don't worry.....I will be positive one day.....as soon as I think that is the way to gain points.  This is not a religion.....its about winning and losing.

Business is the same way.....I have never liked businesses with negative returns on equity.

Right now, as a business....America faces some serious headwinds......our leaders are doing little to prevent what I see as potentially the worst  business environment for America in over 100 years.

When business starts being profitable again....I will be first in line to go all in..... my current view is that we are at least a few years away....but if it happens sooner, you will be one of the first to know.

 

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#8) On July 09, 2008 at 10:32 PM, russiangambit (29.96) wrote:

I agree with CA builder. The guilty party here is mortgage companies, not the builders. All builders care about is whethere you have a mortgage to pay for the house. How you are going to pay for the mortgage, is your problem. I have no problem with charging mortgage compnies CEOs.

To fault the builders for the mess, is the same as blaming credit card companies for letting you buy things you cannot afford and then charging them on a credit card. Should credit card companies run a credit check every time you are buying a Coach handbag or dining at Mortons? Just to make sure you don't overextend yourself?

At the end , the only person truly responsible is the person who bought a house they couldn't afford. It would be helpful for people take responsibility for their actions once in a while instead of looking for a big bad corporation to blame. (Not that I am a fan of corporations myself, but we haven't come up with anything better yet ). 

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