patrick.net

The new SUVs have backup cameras that show what is behind you on the GPS screen.

This is a good feature. GPS should become standard.

Randy H & Peter P do NOT = typical American debtor

I'm the sort that gets more excited about a good arbitrage opportunity than the superbowl. That isn't typical?

I’m the sort that gets more excited about a good arbitrage opportunity than the superbowl. That isn’t typical?

Umm... suuuure. :roll:

Two points regarding debt:

1. Never use long-term debt to facilitate short-term consumption
2. Understand the risks involved in leveraged investments

1. Never use long-term debt to facilitate short-term consumption

It's just a real good idea to try to match durations wherever possible. Don't get a 5 year loan on a car you'll want to sell in 3 years, etc. If you need to to afford it, you can't.

This raises an interesting issue that has come up as I've been scenario-stress testing "the Bubblizer". I believe I've quantitatively (re)proven the credit-bubble cause for rising house prices. (I say that sarcastically...I should have known better).

I can demonstrate that, because of tax benefits (both interest deduction and no cap gains), you are better off as a home debtor paying off minimal principal, owning minimal equity, and staying in your house for the fewest number of years. What!?! That is crazy talk, you say.

Well, the problem is that there is no priced-in risk adjustment for "what about if/when the music stops?" I tried to do this in the last version, but it's tough to do without Fewlesh-style (Fewlesh is an uber-quant semi-regular poster here) full simulation. In my model, you still are always better using crappy financing because taxes favor you being irresponsible.

I'm going to uninstall Excel.

It’s just a real good idea to try to match durations wherever possible. Don’t get a 5 year loan on a car you’ll want to sell in 3 years, etc. If you need to to afford it, you can’t.

I agree.

I’m going to uninstall Excel.

Well, I am the kind of person who will optimize a model until it is useless.

"I’m the sort that gets more excited about a good arbitrage opportunity than the superbowl. That isn’t typical?"

Of course that's typical, most Americans find football boring, obscure and incomprehensible.

I'd say a person have to take on some debt (in the form of low fixed interest rates and good 0% balance transfer deals) to stay ahead in this so called low inflation economy. The borrowed amount gives me some liquidity to play with if things get ugly.

If you are externally motivated, you may just as well take on more financial obligations or you may get stuck in complacency.

Not financial advice

Consumer credit is still incredibly easy to get and very very cheap. From my fairly unsophisticated perspective, that is the big arbitrage opportunity.

Unfortunately for the economy, tons of specuvestors knows too, without ever learning the definition of arbitrage.

(not financial advice)

New thread: Coping with my Schadenfreude

coming out of Calistoga and going onto the Petrified Forest Road my GPS shows me driving through the trees for about 1/2 mile

GPS cannot obtain a good signal in the forest.

You will discover more glitch. Mine shows that I am on a frontage road when I am on the freeway from time to time.

Duration match is an old technique at banks before the popularization of derivatives, my first summer job was to sit at a Japanese bank's treasury dept of a local regional operation tallying all commercial loans and sorting them by duration, of course that was almost 20 years ago.

Nowadays, I heard no more commercial banks do that, you can always derivitatize or securitize the hell out of your loan portfolio.

@o.t.,

No way one oddball sale is going to make a difference and know way you'd ever talk anyone else into buying into this idea. The market will correct of its own accord, so there's no reason to worry about it.

Personally, if I lived in a bubble area, I'd sell it pronto before values come down any further. I'd sell it for market price and feel *no guilt whatsoever*. The specuvestor a$$holes who drove prices through the roof on me & millions of other working class people felt ZERO guilt about maximizing their return, so why should I?

I am a bit surprised that no one has ventured to securitize student loans. Ivy Leauge student loans bundled with AA rating, UC system A...Then of course 10 years down the road, we have enough statistics to tell if the Ivy graduates are living up to their reputation, at least in the loan-repayment aspect.

o.t.,

Nah, you're just risk adversed. However, be careful about holding bonds because while you're almost certainly assured of a nominal dollar yield, that amount may be less valuable due to inflation.

I wouldn't sell below market clearing price to pop the bubble. But if I was owning in this bubble, I would sell a little below current market clearing price just so I'd sell to realize a tidy sum from the sale that I can take to the bank. The security of knowing I won't be stuck in a down market makes me a little less greedy about asking price.

Given the big number of houses on the market and their ever lengthening DOM, I think a lot of current RE sellers are thinking just the same thing as I am in this hypothetical.

Owneroccupier,

I doubt it. UC students would have lower loan amounts. They're also more likely to have a low key life style. I think that would make UC students a better bet than the Ivies.

Student loans are not dischargeable in bankruptcy anyways, so the only way they wouldn't be paid is if someone becomes severely disabled or dead before the loan is up. That's a pretty good risk profile, unless a particular school is full of Sylvia Plaths.

astrid,

OK, I buy your arguement. See, one more revenue stream for the ibanking industry. I was half joking there.

However, I do have an idea for securitization, and I hope someone will do it. Lots of international students come to this country to do law school and business school, in the hope of getting into high paid jobs and staying here permanently. Now, some of them will succeed, some will not. In any case, they usually have a problem accessing the traditional student loan pool, for example, only international students admitted to top business schools can get financing from a commerical bank, those who are shunned from the top schools can get no financing here. I understand perfectly why the commercial banks deny them loan access, because those who graduate from mediocre professional schools with hefty student loans are more likely to default, if they cannot find a job in the US and have to go back to their native country where the pay is significantly lower.

However, if one can pass on that risk back to, say, international investors, there is money to be made in that bucket for international student school loan. As long as these student loans can be packaged up and sold to a third party, preferably overseas, who cares if they can pay back or not.

However, the MBS shit that may blow up any time seriously dampen the possibility that such a securitized loan can be launched into the market.

Owneroccupier,

That is an interesting idea. It would be a valuable service for highly able international students without deep family backing. As you pointed out, this is primarily a problem for professional schools. I can see some value on such contracts. Essentially, an investor is betting that a large enough proportion of them become successful and stay in America, to pay them the principle and a good return...there might be a moral hazard there to encourage more students to go home rather than tough it out in America, but it is an interesting idea.

I fear too MBS and MBS equivalents will soon be a ugly word on Wall St. This is quite unfortunate, since these securitized loans can be highly valuable tool in the right hands.

Funny, as I was writing the earlier reply to your first post, I was thinking about how colleges and universities essentially accept candidates as calculated gambles. Starving poets = $ 0, Bill Gates = $1 Billion. Pool them together and you have an endownment. That's actually not so different from what you're proposing, except the potential generosity of an appreciative and wealthy alumni is potentially limitless.

grrrr, I posted twice. Surfer X or anyone else with editing powers, please erase one of the duplicated and also this post.

o.t.,

Yeah, it feels like we're standing on quiksand, doesn't it?

Bill Gates = $1 Billion

except bill gates dropped out of college in 1st year in order to exploit the whole PC thing...

however, he single-handedly makes huge endowments to oxford/cambridge and where ever else, now has a knighthood from the queen, and several hundred honorary doctorates, probably...

not bad for an early college drop-out...

i did a computing/electronics degree, and i'd be struggling to start my own lawn-mowing business, let alone do a gatesy...