patrick.net

Can I have one of your creampuffs?

Jaguar was acquired by Ford, and started using the same parts. Jags even started looking like Fords, they both make large streamlined saloons...

They say that approximately 40% of the cost of everything we buy goes into advertising. It only costs about $5K or something to 'make' a car, the rest is showrooms, salespeoples' salaries, and massive amounts of advertising...

There are excellent things from Britain. For example, scones and devonshire cream. Yum.

Yorkshire pudding too!

The idea of $2M upper middle class home is just mind boggling. $2M will buy a great (non-working) life style almost anywhere in the world, why in Hades would otherwise intelligent people toil the best years of their life to own something that would cost $150,000-300,000 in most of the country?

TurboTax does pretty well for probably 70-80% of people's tax needs.

TBR,

Every time we have someone come on board in an effort to explain exactly what it is that HF's do (or did) we get an almost completely different telling of the story.

Are you trying to tell us that Vangard, Fidelity and other fund companies were buying "off ledger pink sheet stakes" in complete contrast to their printed prospectus? To my understanding in most cases "fund of funds" were created in-house within firms existing fund offerings. The trend if anything was for the wire-houses to do away with their proprietary funds as quickly as they could to distance themselves from conflict of interest.

If the idea was to "bring home the bacon" this strategy failed absolutely miserably. Have you ever worked in a registered capacity at all?

$2M will buy a great (non-working) life style almost anywhere in the world, why in Hades would otherwise intelligent people toil the best years of their life to own something that would cost $150,000-300,000 in most of the country?

It's special here. It's not special anywhere else.

It is just one data point, but I know someone who has 1.2M in cash (vested stock actually, but let’s say it’s cash). Family income is around 200K gross, with a working spouse. His realtwhore has convinced him he can ‘afford’ up to 1.8M. He thinks he can manage a 600K loan.

$600k shouldn't be hard for someone with a combined income of $200k. I know people who have $550k mortgages with ~$100k incomes.

No kids though.

$600k shouldn’t be hard for someone with a combined income of $200k. I know people who have $550k mortgages with ~$100k incomes.

Is it harder if he needs to pay the T (in PITI) for a 1.8M house, which is more than 20K/year.

In the Bay Area, at least 75 or 80% of loans would be considered “aggressive” by this definition.

Umm, no. Maybe you mean 75% of new loans, but very few loans made before 2002, which are the majority of outstanding loans in the Bay Area.

Astrid, people want to live here, as simple as that. Plenty of us could live anywhere in the world and we choose here. I don't consider myself "slaving away half my life" I consider myself living a decent, but modest, existence exactly where I want to be. I could have more "stuff" elsewhere, but it wouldn't make up for having to live there.

You could argue that Bay Area home prices will go down *more* than they will elsewhere, but if you are, I respectfully disagree. San Francisco home prices have always been 3X median US prices and they always will. It is a great place to live.

007, I think that people who own homes like that have just pulled them off the market. Most people who own a home that is worth that much can sell when they feel like it and right now they don't feel like it.

DinOR says,

Every time we have someone come on board in an effort to explain exactly what it is that HF’s do (or did) we get an almost completely different telling of the story.

That's because there are so damn many of them. Seems like every fund has some different angle on why they're smarter, stronger, fast than the rest of the world. I've heard of some pretty crazy ideas so I wouldn't doubt what TBR described happened somewhere at some point somehow.

-fast
+faster

MtViewRenter,

Well just when you think you've seen it all...... So agreed. I'm sure that may have occured in some or a few instances I just have a hard time accepting that particular explanation as being SOP (standard operating procedure)?

I agree with DinOR that some average Joes -- the few who actually do have a pension to look forward to after retirement -- have some indirect exposure, by virtue of pension fund investment in hedge funds, to high-risk tranches of MBS, but I continue to be confident that such exposure is limited.

Pension funds (as well as insurance companies, endowments and other institutional investors), on the whole, are highly sophisticated investors. They have qualified staffs as well as qualified outside consultants whose sole job is to invest billions of dollars wisely. On the whole, they show more discipline in their investing than probably most of us on this board -- and I would assume that this board is comprised of a pretty disciplined group of investors. Are pension funds immune from bad investment decisions? Of course not. Investment is not a risk-free proposition. But their portfolios, on the whole, are diversified in a manner that limits damage from a single industry.

Pension funds typically invest no more than 20% of their assets in "alternative investments," which includes hedge funds but are more often private equity funds and venture capital funds. Even if we assume that half of a pension fund's alternative investments are in hedge funds (which would be a high assumption), we are at 10% exposure. There are many types of hedge fund strategies -- most of which do not involve investing in high-risk tranches of MBS. Even if we assume that half of the pension fund's hedge fund investments are in hedge funds that focus on high-risk tranches of MBS (which again would be a high assumption), we are at 5% exposure. In other words, if all of those high-risk tranches of MBS were to become completely worthless, a pension fund is unlikely to lose more than 5% of its assets. It most likely would lose less because its exposure its unlikely to be 5% and those high-risk tranches are unlikely to be completely worthless. And this analysis does not factor in the benefit of past gains that the pension fund may have enjoyed from investing in those high-risk tranches.

If people are worried about the retired school teacher's pension, they should be worried about the systematic underfunding of pension funds by governments and employers rather than pension fund exposure to high-risk tranches of MBS.

If people are worried about the retired school teacher’s pension, they should be worried about the systematic underfunding of pension funds by governments and employers rather than pension fund exposure to high-risk tranches of MBS.

There is nothing wrong with the pension funds themselves. It is all about the aging Boomer population. No matter how you spin it, we are going to have many retirees and not so many people to support them.

DinOR,

Who knows whether it is/was SOP. While I doubt it, I'm just not surprised by any "new" financial products anymore. The human capacity for greed can't be taken lightly.

Just the other day, looking at some 2006 1099s, we noticed that the CA muni money market sweep fund we use had about 1/3 of its income from private activity bonds. They were probably so starved for yield they had to go buy private activity bonds. The interest from these things are AMT preference items!!! Kinda defeats the purpose of putting your money in a tax exempt fund.... I need to find the fund manager and rip him a new one.

Sandibe,

Aren't there a lot of smaller municipalities that don't have very sophisticated investment staffs to manage their pension funds? I swear I've read some stories about some pension funds in small towns that got taken for a ride either through outright fraud or through very high-risk investments.

Sandibe,

I'll have to agree by and large. The first question should be, will there be ANY pension funds at all! San Diego had some pretty high profile board defections and well publicized financial short falls. Now even though the management of account overall was sorely lacking, turning their remaining assets over to a manager with no known track record isn't helping matters.

My point in posting the link to FI360 was simply to exhibit that properly done there should be layers of over sight for any retirement plan with redundant fail safes in place.

For those of us that have been a party to these types of relationships sadly all too often the firm that "lands" the account has some sort of "in" 7 times out of 10. Locally, Craig Berkman lost the British Columbia Public Employees Union about 64 out of the 65 mil. they entrusted to him. The guy had a lot of "start-up" experience but had never actually managed an account. As evidenced here, there's a big difference. He's now moved to FL (presumably for their legacy of strong property rights).

Just the other day, looking at some 2006 1099s, we noticed that the CA muni money market sweep fund we use had about 1/3 of its income from private activity bonds. They were probably so starved for yield they had to go buy private activity bonds. The interest from these things are AMT preference items!!!
MtnViewRenter,
Thanks for explaining what the heck is up with my 1099 from E*Trade :-)
I kinda figured that last item had to do with AMT, but glancing at it is, like, wtf?!

PAR said:
She also gets a tiny little tax deduction.
How's that? Standard deduction should trump her mortgage interest deduction, right?

I guess I qualify as Gen X being 32, and I for one don't believe Soc Security will exit when I retire, or that any place I work will have a Pension. Right now I put money in an IRA, a 401(k) with no employer match, and try to set aside more to invest seperately.

I also don't trust pension fund managers, or Mut Fund managers. I go with straight index funds in my 401 and IRA, and invest in companies I like with my individual accounts.

If I could opt out of SS totally, I would. THAT'S what I want, not some reform that allows the government to Haliburton the SS funds.

Jimbo Says:

Umm, no. Maybe you mean 75% of new loans, but very few loans made before 2002, which are the majority of outstanding loans in the Bay Area.

So sorry, but YOU are wrong, Mr. Troll. According to a September, 2005 SF Chronicle poll, 48% of Bay Aryans had refinanced "within the last few years" --i.e., they got brand-new loans on their existing properties, most of them "liberating" equity no doubt. And this percentage has undoubtedly increased in the following 17 months. Add to this all the new loans, and it's not hard to see how the total tally could easily hit 75-80% of ALL outstanding mortgages.

Astrid, people want to live here, as simple as that. Plenty of us could live anywhere in the world and we choose here. I don’t consider myself “slaving away half my life” I consider myself living a decent, but modest, existence exactly where I want to be. I could have more “stuff” elsewhere, but it wouldn’t make up for having to live there.

You could argue that Bay Area home prices will go down *more* than they will elsewhere, but if you are, I respectfully disagree. San Francisco home prices have always been 3X median US prices and they always will. It is a great place to live.

Yes, it's different here. The sidewalks are paved with gold bricks, money grows on trees, and even the homeless wear Versace & Prada.

007, I think that people who own homes like that have just pulled them off the market. Most people who own a home that is worth that much can sell when they feel like it and right now they don’t feel like it.

That's right. No specuvestor carrying cost "alligators" burning up cash around here! Yessir, all Bay Aryans are independently wealthy and can afford to carry their $1.8 million stucco $hitboxes until the sun explodes, if necessary. Stupid greedy buyers! (whistles past graveyard...)

PAR,

I would not assume the majority of refis made during the last 5 years were of the "less risky" 30 FRM/no cash-out variety. Not even in that mighty bastion of Uber-wealthy Boomerdom, the Bay Area.

test

/test/

test

And here I thought BA rodents pooped chewing gum.

That's what my dogs seem to think my Guinnea Pigs poop.

Claire :

Like SP I also have a few anecdotal data points. People who could have made a killing by selling their home chose to become move-up buyers. They ended up with either same or more mortgage. Someone I know, who purchased 10+ years ago or so for about 250K is now looking to buy in Saratoga and was bidding for a 2M house. And I know a few serial refinancers too.

This is sheer madness. Stories like these made me write the wasted opportunity thread. The whole country is doing a collective screw up and everyone is trying to outdo everyone else.

MtViewRenter,

Most smaller pension funds will be fine, even with less sophisticated staffs, because they, like the bigger funds, diversify across assets as well as across asset managers. One bad investment (or even a few bad investments) should not destroy the fund.

The situations you describe usually involve situations where the guy in charge of the pension fund abandons diversification. He puts all (or much) of the pension fund's assets in a single investment or entrusts it to a single asset manager. That makes as much sense as putting all of your money in a single stock. The problem in those situations isn't hedge funds or MBS or risky investments; it's that you have a guy in charge who has no business running a pension fund.

I agree regarding McMansions. I like them. They are so freaking better than the "Ranch" style 50+ year homes found everywhere. I wouldn't buy them - where the kitchen is the first thing you see after entering the house , and the bathroom in the master bed is so small that it can only accommodate a shower stall. Even if they drop by 50%. Actually no matter what the price is, I wouldn't live in those old servant quarters.

The primary reason I chose not to buy was because most of the houses here suck. Big freaking time. Even at 2002 prices. When the prices started going out of hand, I started researching why. Then I found this and other sites.

I would rather move to Brentwood than buy a 50+ year old "charming" hut.

I hate the squished together developments, too. 3000 sq ft homes on 4000sq ft plots is not my definition of good city planning.

I hate the insides of McMansions. Generic, lacking privacy, bad traffic flow, full of pointless spaces, poorly constructed.

I have no problem with well planned high density housing, but the soulless subdivisions of the last ten or twenty years is dreadful.

Otherside, when I was a kid I spent as much time OUTSIDE my house as possible. Playing in the back yard, riding my bike around, heading to the playground. Nowadays I enjoy taking my dogs for a walk several times a day, I like biking to work (when possible) and I still like hanging out in the yard, barbequeing, reading, or playing with my dogs (and hopefully someday) kids.

Neighborhoods with cookiecutter houses and HOA mandated paintjobs look so... well... lame.

Jimbo Says:

> Astrid, people want to live here, as simple as that.
> Plenty of us could live anywhere in the world and we
> choose here. You could argue that Bay Area home
> prices will go down *more* than they will elsewhere,
> but if you are, I respectfully disagree. San Francisco
> home prices have always been 3X median US prices
> and they always will. It is a great place to live.

People may “want” to live here, but with rare exceptions (say “Gordon Getty”) the people that live here need a job so if employers decide to move jobs to other states or India the people that loose their jobs and can’t find new ones will have to move.

San Francisco has not “always” been 3X the US median. In 1980 the SF median was about 2X the National median, The SF median was exactly 3.0X the National median in the 1990 census and rose to over 4.5X the National median by the 2000 census.

I have no problem with well planned high density housing, but the soulless subdivisions of the last ten or twenty years is dreadful.

Soulless anything is dreadful.

Today I bumped into someone I hadn't met in a long time. The conversation started in a typical rat-race money minded BA way.

"Where do you work ?"
I told him the company name.
"What project do you work for ?" "When did you join ?" etc.
I told him the date, and I could see that he was trying to guess my stock option grant price.
Next, "Where do you live ?"
Cupertino, I said.
"That's awesome ! When did you move there ?"
Hmmm, trying to guess my gained equity. I told him the date.
"That's cool. You made a killing on your house."
There we go. I was tuned out and answering like a robot.
No, I rent there, I said and waited for the inevitable.
"Renting ?" He was taken aback.

Then came the shocker.
"You don't have a mortgage, then what do you do with so much money ?"

I was so completely taken by surprise, that I had no idea how to respond. I mumbled something and changed the topic.

I think the J from JBR is now gone to JFBs. Now only if I had remained poised and told him about the Vanguard Emerging Market Index fund ...

StuckInBA Says:

> Today I bumped into someone I hadn’t met in
> a long time. The conversation started in a typical
> rat-race money minded BA way.
> Then came the shocker.
> “You don’t have a mortgage, then what do you
> do with so much money ?”

I get the "what do you do with all your money" question at least once a week (since most of my friends have huge mortgages, property tax bills higher than my rent, big car payments, and kids that probably cost $30K per year each with private schools in SF over $20K a year)...

I used to live in Ambleside in West Vancouver, try telling people you rent there, you're not one of them immediately.

Of course, as the mortgages crush some of these paper millionaires in the years to come, I guess the beauty of paying too much will soon not be so cool.

HARM, before you call someone a troll, you should bother to try and figure out what the conversation is about.

In addition to subprime loans, this includes interest-only loans where the borrower makes no principal payments. It includes negative-amortization loans in which the borrower pays less than the full interest payment, with the shortfall added to the outstanding debt. And it includes loans that require little or no down payment, or no proof of income.

And I stand by my earlier statement, that there is no way that 75% of Bay Area loans qualify as "agressive," by this standard. Just because someone has re-fi'ed doesn't make them neg-am or no-doc loans.

FAB,

According to this NAR chart, the average US home is $219k,. while the avereage SF one is $733k:

http://www.realtor.org/Research.nsf/files/MSAPRICESF.pdf/$FILE/MSAPRICESF.pdf

This puts SF homes at a 3.3X to US median ratio. If you have other information, I would love to see it.

I wish I could remember the URL where I saw the long term graph of SF home prices vs. US median. I am pretty sure it is a US Fed Bank site, but I could be wrong there. In any case, if I am wrong, I am happy to be proven wrong, but I need more than an assertion to believe it. Show me where you get your numbers.