patrick.net

I don’t have the stats to back it up, but I’ll bet that the majority of the “one percent club” are earning a salary of some sort.

I have an interest-paying bank account, but I am not a fixed-income earner.

BTW, Enron investors should take blame for buying the wrong investment.

The price of extraordinary return is the chance of ruin.

There are a lot of wealthy Americans that would love to start or expand a business, but it is not worth it if the taxes are high and a huge number of regulations cut profits even more.

From 2000-2006 it hasn't been worth starting a small business because you could make more money flipping real estate properties. You didn't even have to fix them up.

From 2006-present it doesn't make much sense to start a small business either, as we are heading into a massive recession and its easier to make money shorting the banks, builders and consumer services.

We have never had “unregulated” capitalism in America and with millions of regulations that have covered the real estate industry and publicly traded companies during the bubble and the Enron collapse you can hardly blame the problems on “pure uregulated capitalism”…

You should read a history book. Or look up Upton Sinclair.

And I can so blame the problems of unregulated capitalism on unregulated capitalism. The prime mover of the housing bubble was the private-sector securitized debt market that stamped junk bonds with a 'AAA' rating. The Fed was only partially responsible.

I'll add that as per usual, the private sector is crying for a handout from the tax payers while the invisible hand of the free market is choking them to death.

P.S. Ayn Rand was a fruitcake. Anyone out of high school that still reads her drivel is a fruitcake-by-proxy.

The prime mover of the housing bubble was the private-sector securitized debt market that stamped junk bonds with a ‘AAA’ rating.

Then we should blame regulations for creating that false sense of security. If people understood the concept of caveat emptor, history would have unfolded differently.

Enron is a fraud, not a bad investment. There's a distinct difference between fraudulent financial reporting and uncontrollable factors went bad in a business.

One really doesn't need to read Ayn Rand to pursue individualism or self-interest. I have never met any human being who is incapable of looking after his own interest, even at the cost of others, that is called survival instinct. The hard part of gluing a society together is to convince people to give up a bit of their own interest so that we don't live in a world of running over each other.

RE: Enron

True, this is why the fraudsters were prosecuted. However, it did not change the fact that investors had suffered a catastrophic loss. That sounds like a bad investment to me.

The hard part of gluing a society together is to convince people to give up a bit of their own interest so that we don’t live in a world of running over each other.

Or, we can have a society in which self-interests are regulated by market forces.

Then we should blame regulations for creating that false sense of security. If people understood the concept of caveat emptor, history would have unfolded differently.

The bond graders and insurers are a product of the free market, not government regulations.

They only place government regulations come into play is that some pension funds are limited to investing only in supposedly prime securities. So, in effect, fraud in the private sector is going to screw over the public sector.

I'm not sure what you mean by referring to the credit collapse as 'history', as its just getting started. And boy howdy, are global investors going to be beware of U.S. securitized debt product for at least the next hundred years or so.

If market forces are allowed to play out without interference (as I think they should) you can look forward to every large bank in America going under, real estate prices going back to '89 levels (not inflation adjusted) and unemployment hitting 20%.

Will there be an AIG bailout?

And boy howdy, are global investors going to be beware of U.S. securitized debt product for at least the next hundred years or so.

Can you elaborate on this? I'm curious why only big banks have shown losses so far. I remember during the run up "experts" saying that foreigners were buying the mortgages but I never understood who they were. I'm still looking for the mechanism by which banks aren't the big losers here. I thought the whole game was to transfer the risk but so far it seems to be sitting tight, so if you can explain how it has been dispersed to global investors I would appreciate it.

Bap, it is fine. Don't worry. It is healthy to have debates.

I thought the whole game was to transfer the risk but so far it seems to be sitting tight, so if you can explain how it has been dispersed to global investors I would appreciate it.
The Chicago public radio show "This American Life" usually does cool human interest pieces. Every so often, it seems like Ira Glass has a Bill Moyer's style meltdown and takes on a topic he feels the MSM has not addressed properly. He's done it with the Iraq war, Katrina, and Guantamo. His most recent masterpiece, a collaboration with NPR news, takes on the subprime crisis (mpeg audio alert). Although the content may be familiar to all of us, sit back and take a breath as we go through the looking glass and get transported into a world where an average Joe was making $75k (?) a month selling junk to Wall Street.

Off topic.

Anybody read this article?

Brentwood the poster child for housing bust.

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/05/11/MNGE1095FT.DTL

Prices are down 40-50% from peak. How much further decline is possible?

I have friends who are first time buyers ready to pull the trigger. I am advising them to wait, and not buy in Brentwood.

Thoughts?

Can you elaborate on this? I’m curious why only big banks have shown losses so far. I remember during the run up “experts” saying that foreigners were buying the mortgages but I never understood who they were. I’m still looking for the mechanism by which banks aren’t the big losers here.

Because they were basically playing a game of global 'hot potato'.

The idea was to only hold the loan for a short while, before securitizing it and selling to investors. These were not just foreigners, domestic hedge and pension funds were also big customers. As well as investment banks.

You may have heard of one of these in fact, Bear Stearns ring a bell?

Anyways, check out this presentation, I think it describes the situation very well:

http://activerain.com/blogsview/382150/Subprime-Explained

Prices are down 40-50% from peak. How much further decline is possible?

100% decline is possible. It's already happening in Cleveland, Florida and Detroit, where abandoned properties are being bulldozed.

I would definitely wait. As long as possible.

Even if you can buy a house for 10k in Brentwood, think of who your neighbors would be!

Nobody is *entitled* to have wealth.

Wow, so you are supporting 100% taxation of inherited wealth? Don't you think that is a little extreme? 90% I can see, but 100% is going too far.

Those who inherit wealth are not intrinsically entitled to it - but perhaps those who wish to give it are entitled to determine where or to whom it should go.

I have friends who are first time buyers ready to pull the trigger. I am advising them to wait, and not buy in Brentwood.

Thoughts?

I think what I have always thought, which is if you can find a home you like, in a neighborhood you can afford and you expect that you will be able to live there for a while, you might as well buy. A while in this case means at least five years, preferably ten. You should probably rent first, just to make sure the weather and commute are what you imagined them to be.

If you are trying to wring every last dollar out of your investment, you should probably wait until prices start to go back up to buy. If this downturn follows others, it will be more of an "L-shaped" recovery than a V shaped one. I actually think that we are close to the bottom, but my opinion is in the minority here.

Wow, so you are supporting 100% taxation of inherited wealth?

Huh?

I think what I have always thought, which is if you can find a home you like, in a neighborhood you can afford and you expect that you will be able to live there for a while, you might as well buy.

I agree.

The most important benefit of a buyer's market is the availability of choices.

Kewp,

right on.

Kewp,

this whole new vocal meme of being against "regulation" as being the cause of bank and wall street malfeasance is very clever. Karl Rove would be proud (maybe he *is* proud). Same goes for the whole thing of equating regulationsand bailouts. Very clever. Will confuse the heck out of many simple-minded voters.

(I just re-read what I wrote and It didn't quite say what I meant. Try again)

Kewp,

this whole new and very vocal meme of being against “regulation”, with "regulation" being the cause of bank and wall street malfeasance, is very clever. Karl Rove would be proud (maybe he *is* proud).

Same goes for the whole thing of equating regulation and bailouts. Very clever. Will confuse the heck out of many simple-minded voters in certain blue states.

This is one of those topic lines that is a dis-service to this board.

Paranoid, anti-government drivel about control and hidden agenda? Patrick, you need to laugh off the person(s) to whom you have been speaking.

Still, the article links are good. The one that piqued me is the prospect of service taxes and a temporary tax on high earners in CA.

I think that this site is quite relevent. http://www.sfgate.com/data/

We have 2,300 city of San Jose workers making 6 figures. We have over 200 firefighters making that. We have roughly 1,000 police making that.

Don't get me wrong. These people work bad hours, in risky jobs where they see tragedy every day. I like my firefighters and police.

But I am pretty sure we can get all the police we need from the labor market for something less than 6 figures.

Balancing a 20 billion short fall is not about cuttng services and/or raising taxes. Its about reigning in labor costs. Someon please inform Sacramento to look into what kind of pay cuts can help bring the budget into alignment.

Duke Says:

> We have 2,300 city of San Jose workers making
> 6 figures. We have over 200 firefighters making
> that. We have roughly 1,000 police making that…
> But I am pretty sure we can get all the police we
> need from the labor market for something less
> than 6 figures…

I can’t wait until some more of the East Bay Fire districts have to show their salary data since many are close to 100% over $100K with about 50% of the guys making over $200K.

What other job that pays $200K will pay you time and a half for working one hour overtime (double time if it is a Sunday).

When you have more than 3,000 people applying for every job opening that might be a tip that the pay is higher than necessary.

Perhaps it is time to privatize the fire departments.

Can someone tell me how unions are even legal under anti-trust laws? Why is organized labor not a form of monopoly?

These people work bad hours, in risky jobs where they see tragedy every day. I like my firefighters and police.

I agree. You cannot pay me 200K to do what they do. However, we should let the market decide.

Paranoid, anti-government drivel about control and hidden agenda? Patrick, you need to laugh off the person(s) to whom you have been speaking.

The guy did have a good point. Money in the bank has a downside. It can be used to control or penalize you.

And it does seem to be true that inflation is encouraged to some degree to get people to put money in the bank rather than in the mattress.

But I'll admit that the step from inflation to control is a bit paranoid.

EBGuy says

His most recent masterpiece, a collaboration with NPR news, takes on the subprime crisis (mpeg audio alert). Although the content may be familiar to all of us, sit back and take a breath as we go through the looking glass and get transported into a world where an average Joe was making $75k (?) a month selling junk to Wall Street.

I listened to it and it really is the poster child for why we need public radio. Absolutely fantastic, particularly if you compare to how national media and newspapers have covered the issue. However, I still couldn't get two things:

1. how could they be so blind (the banks I mean, because it seems quite a few investors got out in time). The only excuse offered is that they believed in the wrong models. Couldn't they have spoken to Peter P? He would've set the straight :-)

2. The second (and biggest for me) question is who else (other than the banks) is stuck with these "investments", particularly abroad. I just can't understand how they managed to leave all the losses sitting on them (the banks I mean) when there are investors who so don't know what to do with their petrodollars, they're buidling empty skyscrapers and ski resorts in the desert. Unless of course all these "private" losses are just not disclosed so we'll never know

By the way, if I understood correctly, the guy making 75-100k/month putting people into crappy mortgages is now left with nothing. He somehow managed to piss it all away......

But I’ll admit that the step from inflation to control is a bit paranoid.

You know, this tutorial will liberate us!

http://www.ehow.com/how_2049858_make-tinfoil-hat.html

Can someone tell me how unions are even legal under anti-trust laws?

II see nothing wrong with employees of private companies organizing. It's no different than Safeway banging each supplier against another for a better deal.

What I do see as an abomination and can't fathom why it's legal, is public employees (civil "servants" if you will) organizing. They're double dipping because they get to vote in their nominal bosses too. I say ban their unions and we'll all be far better off.

But I’ll admit that the step from inflation to control is a bit paranoid.

Indeed.

Occam's razor guys. Why bother going through the trouble of raiding your bank account when the Fed can just print money and devalue your dollars wherever you stash them. In your bank account, wallet or under your mattress, it doesn't matter.

Police and firefighters are insanely overpaid. Teachers are underpaid.
Free market solution: Equip the teachers with guns, and they will soon earn respect and much higher pay :-) :-) :-).

Wit alert: That last part was a joke, but it contains a grain of truth. Not policy advice.

With violent and dangerous teenagers nowadays, perhaps having armed teachers is not quite a joke.

Teachers are . . .an intersting mix of under and over pay.

To begin, it is aweful.

With their union, they get increases every year until they retire. Their merrit is based on years alone. Eventually they will be at max scale - which I believe is something like $100k after 35? years.

Then, they get benefits and FULL PAY with Cost of Living adjustments. Forever.

They have the kind of retirment plans that bankrupted the auto idustry, was bankrupting the Fed civil servant system until they fixed it, is bankrupting cities with firefighters and police, and will soon be bakrupting the state. Especially since Calpers (the state retirnement system) bought a bunch of the mortgage backed securities. . .

Teachers are certainly wayy behind the salary curve for many, many years, but WOW do they have great retirements.

Any teachers out there feel free to correct me since I have not looked at this in at least a coule of decades. Sionce then I have only hearsay stories.

looks like there is no stopping of oil prices until they see a real big drop off in demand.

The second (and biggest for me) question is who else (other than the banks) is stuck with these “investments”, particularly abroad.
Off the top of my head... there were a couple of small towns that did (or almost) went bankrupt in Norway. Early on Italy claimed some pain and several German banks were hit hard. BoC also had some limited exposure. And those are just the institutions who had to admit it as they were hit hard enough....

The only criticism I have seen of the This American Life piece is that it seemed to go with the "subprime, its contained" meme. Then again, the underbelly of this beast was so ugly, I suppose, they didn't want people panicing in the streets.

I imagine San Jose has a similar problem.

The beauty of inflation is that it allows the GOVT to steal your purchasing power no matter what. It doesn't matter if you save or spend, earn or leech, bury your money in the back yard or put it in a bank, the govt can always steal your purchasing power!

At this point in time I have 2 words for teachers:

hazard pay!

"Perhaps it is time to privatize the fire departments."

Not a new idea. I know that in Chicago we still have buildings with a sign attached at the front regarding the private fire insurance coverage for the 19th century. That's how they did it "back in the day"

The problem is that safety is a public good. For example, Mrs. Oleary or Peg leg Sullivan causes a fire of a barn,etc.. that spreads to a neighbor without insurance. No one is contracted to put that fire out and so it spreads to the next property and so forth until it is out of control even for properties covered by private fire protection (insurance).