LA Fires

[Alan Grayson]

What isn't being discussed is the likely banking crisis as a result of these fires. With entire neighhoods burning out of existence, I wouldn't be surprised if there's a Trillion+ dollars of bad debt being created, as homeowners default on their mortgages. The banks will demand payments, but overwhelmingly they won't be coming. And, of course, private insurers will opt out of insuring for fire -- it started before the current fires -- and the government will have to be the insurer of last resort to keep the mortgage busines continuing to exist, since banks will refuse to write mortgages for uninsured homes. The saving grace is that we can depend on our brilliant new president to meet these challeges with wisdom (what he's known for) and plenty of gusto. AG

[John Clark]

On Sat, Jan 11, 2025 at 2:17 PM Alan Grayson <agrays...@gmail.com> wrote:

> What isn't being discussed is the likely banking crisis as a result of these fires. With entire neighhoods burning out of existence, I wouldn't be surprised if there's a Trillion+ dollars of bad debt being created, as homeowners default on their mortgages.

The figure I've heard is $135 billion in fire damage, it would take more than that to cause a banking crisis.  

John K Clark    See what's on my new list at  Extropolis

cbc

[Brent Meeker]

I think the fire insurance pays off the mortgage and gives you your equity.  My lawyer friend who was burned out three years ago took his equity, sold the lot, and bought a nicer house a half-mile away.

Brent

On 1/11/2025 11:17 AM, Alan Grayson wrote:

What isn't being discussed is the likely banking crisis as a result of these fires. With entire neighhoods burning out of existence, I wouldn't be surprised if there's a Trillion+ dollars of bad debt being created, as homeowners default on their mortgages. The banks will demand payments, but overwhelmingly they won't be coming. And, of course, private insurers will opt out of insuring for fire -- it started before the current fires -- and the government will have to be the insurer of last resort to keep the mortgage busines continuing to exist, since banks will refuse to write mortgages for uninsured homes. The saving grace is that we can depend on our brilliant new president to meet these challeges with wisdom (what he's known for) and plenty of gusto. AG --
You received this message because you are subscribed to the Google Groups "Everything List" group.
To unsubscribe from this group and stop receiving emails from it, send an email to everything-li...@googlegroups.com.
To view this discussion visit https://groups.google.com/d/msgid/everything-list/6e3e7a4d-4b51-44e9-a1e5-99ddb285b15cn%40googlegroups.com.

[Alan Grayson]

That's just a preliminary estimate for rebuilding houses and total infrastructure replacement. Three months ago, State Farm, a major insurance company, cancelled 70% of its fire insurance policies in the LA area, so I infer that most homeowners are uninsured, and those that are, likely won't collect anything since insurance is not structured for this type of near global disaster and many will declare bankruptcy to avoid paying and going under. Fire Insurance works when there are sporadic fires, not as in this case where entire towns are wiped out, like Altadena, north and east of Pasadena where I resided when I worked for JPL, and Pacific Palisades, and some others. Given the number of homes totally destroyed and the likely lack of insurance among a majority of residents, IMO the total damage, including mortgage defaults, could exceed one TRILLION dollars. AG

[Brent Meeker]

On 1/11/2025 11:17 AM, Alan Grayson wrote:

What isn't being discussed is the likely banking crisis as a result of these fires. With entire neighhoods burning out of existence, I wouldn't be surprised if there's a Trillion+ dollars of bad debt being created, as homeowners default on their mortgages. The banks will demand payments, but overwhelmingly they won't be coming.

Sure they will.  There's reason every mortgage requires fire insurance of the property.

Brent

And, of course, private insurers will opt out of insuring for fire -- it started before the current fires -- and the government will have to be the insurer of last resort to keep the mortgage busines continuing to exist, since banks will refuse to write mortgages for uninsured homes. The saving grace is that we can depend on our brilliant new president to meet these challeges with wisdom (what he's known for) and plenty of gusto. AG --

[Brent Meeker]

Remember, those properties were almost all insured.  The insurance companies also buy reinsurance so they spread the risk further.  A trillion dollars is probably high for rebuilding everything.  There were around a thousand homes and buildings burned, I'd estimate around 500K$ per house to rebuild.  The insurance companies will pay off.  They many not want to insure new homes, but the state may require them to or else not do any business in CA.

Brent

[Alan Grayson]

The number of buildings burned is around 10,000 and counting, and probably most were not insured for fire. I have a friend from JPL who lives in La Verne and he's not insured for fire because, he said, the annual rate is too high. He mentioned it as $15,000. Leaving CA could be the best option for insurance companies rather than going bankrupt. AG

[Alan Grayson]

Latest estimate of buildings burned is 12,300, and median cost of rebuilding a home, say in Altadena, is $1.3 million. Still a long way to one Trillion, but these estimates do not include mortgage defaults. I'll ask my friend if mortgages require fire insurance. I know he doesn't have such insurance. AG 

[smitra]

> --


I won't dismiss this becoming a problem, but as Brent and John have
said, due to insurance and the total amount of damage not being very
large, it won't be the sole course, more like the straw that broke the
camel's back. So, the banking sector is already dealing with a large
amount of unrealized losses. And recently the interest rate is going up,
with ten-year yield approaching 5%, which means that the value of the
bonds held by banks has been going down again. And corporate defaults
are going up rapidly.

If the fires cause problems like insurance companies going bust, the
banks are ultimately on the hook for that. This may then force the banks
to sell assets, and then the fact that they have very large unrealized
losses will matter. So, the banks are wrong-footed despite reasonable
well capitalized. And this is not just because of their huge unrealized
losses but also because the bank reserves are for a large part deployed
to pump fundamentally worthless financial assets like Bitcoin. Bitcoin's
fundamental worth is zero and yet the market cap of Bitcoin is now $1.9
trillion.

Bank reserves end up providing for the loans to financial institutions
for the leverage they use to trade the financial markets:

https://www.youtube.com/watch?v=cQFQg-9b9EQ&t=1911s

If the stock market were to have aq big correction, perhaps due to
investors dumping stocks of insurance companies and banks due to the
fires, that can trigger an avalanche of margin calls where banks demand
that investors with leveraged positions to increase their collateral.
But they then need to sell other assets to get to the required
collateral, or they could choose to close their position that's at a
loss. Either way, this leads to selling of assets causing the markets
descent to accelerate, leading to yet more margin calls.

And the market going down rapidly can then trigger other problems due to
certain financial assets not being well tested:

https://www.youtube.com/watch?v=Il_1w5Kvt_A&t=219s

Saibal

[Brent Meeker]

If he's not insured for fire that means he doesn't have a mortgage, which means he owns his home outright.  Median home price is just under 1M$ so insuring it for 1.5% is quite reasonable, especially if his home on the north side against the mountains.  Of course now there may not be any insurance available, except the State provided backup plans...is that what he thought was too expensive?

Leaving CA could be the best option for insurance companies rather than going bankrupt. AG

You sound like an insurance executive who thinks having to pay out is an unforeseen event.  Insurance companies payout of catastrophe's all the time.  Nobody buys insurance to protect against ordinary small risks.

Brent

[Alan Grayson]

My belief is that insurance companies generally contemplate sporadic fires, not those on such a massive scale. I will call my friend later this week to dermine if he owns his home. He's working strange hours because the fire is close to JPL. He does the commanding for one of the Mars rovers, and we were in the same group for many years when I worked at the Lab. AG 

[Brent Meeker]

Really?  That sounds more like the median price, which includes the land.  Most places around L.A. the land accounts for 1/3 to 1/2 of the price of a house.  Last I checked construction cost was around $250/sqft, but of course that's likely go up a lot with rising demand.

Brent

Still a long way to one Trillion, but these estimates do not include mortgage defaults. I'll ask my friend if mortgages require fire insurance. I know he doesn't have such insurance. AG 

--
You received this message because you are subscribed to the Google Groups "Everything List" group.
To unsubscribe from this group and stop receiving emails from it, send an email to everything-li...@googlegroups.com.

To view this discussion visit https://groups.google.com/d/msgid/everything-list/3178221e-59e9-47b5-b182-7c99c54bd809n%40googlegroups.com.

[Alan Grayson]

On Sunday, January 12, 2025 at 9:01:36 PM UTC-7 Brent Meeker wrote:

On 1/12/2025 10:35 AM, Alan Grayson wrote:

On Sunday, January 12, 2025 at 5:36:07 AM UTC-7 Alan Grayson wrote:

On Sunday, January 12, 2025 at 2:43:02 AM UTC-7 Brent Meeker wrote:

On 1/11/2025 2:16 PM, Alan Grayson wrote:

On Saturday, January 11, 2025 at 1:55:12 PM UTC-7 John Clark wrote:

On Sat, Jan 11, 2025 at 2:17 PM Alan Grayson <agrays...@gmail.com> wrote:

> What isn't being discussed is the likely banking crisis as a result of these fires. With entire neighhoods burning out of existence, I wouldn't be surprised if there's a Trillion+ dollars of bad debt being created, as homeowners default on their mortgages.

The figure I've heard is $135 billion in fire damage, it would take more than that to cause a banking crisis.  

John K Clark    See what's on my new list at  Extropolis

That's just a preliminary estimate for rebuilding houses and total infrastructure replacement. Three months ago, State Farm, a major insurance company, cancelled 70% of its fire insurance policies in the LA area, so I infer that most homeowners are uninsured, and those that are, likely won't collect anything since insurance is not structured for this type of near global disaster and many will declare bankruptcy to avoid paying and going under. Fire Insurance works when there are sporadic fires, not as in this case where entire towns are wiped out, like Altadena, north and east of Pasadena where I resided when I worked for JPL, and Pacific Palisades, and some others. Given the number of homes totally destroyed and the likely lack of insurance among a majority of residents, IMO the total damage, including mortgage defaults, could exceed one TRILLION dollars. AG

Remember, those properties were almost all insured.  The insurance companies also buy reinsurance so they spread the risk further.  A trillion dollars is probably high for rebuilding everything.  There were around a thousand homes and buildings burned, I'd estimate around 500K$ per house to rebuild.  The insurance companies will pay off.  They many not want to insure new homes, but the state may require them to or else not do any business in CA.

Brent

The number of buildings burned is around 10,000 and counting, and probably most were not insured for fire. I have a friend from JPL who lives in La Verne and he's not insured for fire because, he said, the annual rate is too high. He mentioned it as $15,000. Leaving CA could be the best option for insurance companies rather than going bankrupt. AG

Latest estimate of buildings burned is 12,300, and median cost of rebuilding a home, say in Altadena, is $1.3 million.

Really?  That sounds more like the median price, which includes the land.  Most places around L.A. the land accounts for 1/3 to 1/2 of the price of a house.  Last I checked construction cost was around $250/sqft, but of course that's likely go up a lot with rising demand.

Brent

The Altadena fire came very close to JPL, but I was relieved to see it's still intact. Altadena borders north and east of Pasadena and seems totally wiped out.  AG