patrick.net

E-man says

If our current era of extremely low rates were to be followed by a similar burst of inflation, a $200,000 house would turn into a $291,200 house in nominal terms

Yeah but was that $200000 house already inflated by 20% year from 1940 to 1946? I don't think so.

Either way we are screwed. Spend now and over pay. Spend later and your savings would have reduced. In 1998, people bought out of speculation that home prices will double, triple, then quaduple. Buying today would be out of speculation that the government will have printed our wealth away. Either way, it's still buying out of speculation. Bubble?

The homes in my area are reaching over 100 years old and I'm not so sure how much more it can last without any major restoration. I agree with housing prices rising previously when the homes were still fairly new. It just doesn't make sense to me anymore.

E-man says

but when those wage and price controls were removed, inflation surged.

Last I looked we don't have any wage or price controls holding down inflation.

1946 is when debt/GDP ratio started climbing again, after a 15 year fall. We are still at nosebleed levels of private debt/GDP.

OK - dose of reality.

If you read (and post) to this site regularly then (unless you have an inside deal) housing will almost always be more expensive than it "should" be. The question is 1) are the pries "bubbly" or simply "high" and 2) what is the ROR on your "investment"

For my own situation the sub 5% rates, plus the recent price declines, makes me ready take the plunge. I have been watching my target area closely.

Lately, many on this board let their fear of the future get the better of them. And much of what starts as good discussion devolves quickly into "Lib" vs. "Conservative". It's a darn shame.

Rather than hijack this thread, I'll post separately under "Misc." with a few thoughts.

PPete says

2) On the other hand, if the Republicans decide to repeal both bills completely and cut the Fed budget in 1/2 then the US economy will near immediately shoot into a parabolic upward direction.

Huh? How are they going to cut the budget in half?

We need to pull the plug on assistance programs... as we have read in Patrick's site the rate of recidivism on Obama's Hope for Homeowners and related programs is over 50% (I say recidivism as these are not simple one-time re-defaulters, they are folks who are serial defaulters... who went into Obama's program with the idea of making no payments [as they had no in previous mortgages] and staying for 12-18 months for free... no mortgage, no property taxes, no upkeep, often being able to avoid utility bills... deliberate fraud with the full protection of the law offered by Mr Obama and the various senate and house finance committee members [Dodd, Frank etc.]).

The programs do not work. Period.

http://housingstorm.com/2010/06/over-half-of-all-loan-modifications-fail-within-one-year/

cevansnh says

(I say recidivism as these are not simple one-time re-defaulters, they are folks who are serial defaulters… who went into Obama’s program with the idea of making no payments [as they had no in previous mortgages] and staying for 12-18 months for free… no mortgage, no property taxes, no upkeep, often being able to avoid utility bills… deliberate fraud with the full protection of the law offered by Mr Obama and the various senate and house finance committee members [Dodd, Frank etc.]).

That's a very thorough analysis of the motives of participants in the HAMP program. I'm assuming you have some data to back this up, right?

Just out of curiosity--what % of recidivism would you consider OK for the program to be called a success?

tatupu70 says

cevansnh says

(I say recidivism as these are not simple one-time re-defaulters, they are folks who are serial defaulters… who went into Obama’s program with the idea of making no payments [as they had no in previous mortgages] and staying for 12-18 months for free… no mortgage, no property taxes, no upkeep, often being able to avoid utility bills… deliberate fraud with the full protection of the law offered by Mr Obama and the various senate and house finance committee members [Dodd, Frank etc.]).

That’s a very thorough analysis of the motives of participants in the HAMP program. I’m assuming you have some data to back this up, right?
Just out of curiosity–what % of recidivism would you consider OK for the program to be called a success?

There are dozens of sites and studies that back up the 50% re-default rate.

Success, to me, would be a 10% or less rate of recidivism. Ideally in the 2-3% traditonal long term default rate, but times have changed.

Nomograph says

cevansnh says

here are dozens of sites and studies that back up the 50% re-default rate.

I would say that in this case, 50% success is pretty good. You have to measure success realistically and in context.
I can make the similar argument that certain cancer treatments are complete failures because 50% of the patients still die. However, if you talk to the 50% that lived, they will tell you the treatments were a screaming success.
You have to disregard the background noise and understand the facts: these programs are not meant to prop up housing prices. They are meant to slow the rate of decline to a level that can be absorbed by the market without widespread economic havoc. I don’t think you get that.

So let's lok at your comment... ok, what if 50% of all car loans defaulted and resulted in repossession... how many car loans would there be approved and what would the interest rate be? Can you say "none" or aproved at 75% APR?

With thinking and analogies like yours no wonder things are such a mess. Housing and cancer survival.. yes, they are good and reasonable to compare.

Un huh.

cevansnh says

There are dozens of sites and studies that back up the 50% re-default rate.

No kidding. My point was that you take the liberty to detail their motives. Paint them as lazy, lying, cheaters. Just wondering how you came to this conclusion.

cevansnh says

So let’s lok at your comment… ok, what if 50% of all car loans defaulted and resulted in repossession… how many car loans would there be approved and what would the interest rate be? Can you say “none” or aproved at 75% APR?

That is a horrible analogy. Nomos is much better. These people are already going to be foreclosed on. They have a death sentence, in effect. Saving half of them isn't bad.

Now--if you want to argue that the cost of the program is too high for the benefit to society, you might have a point. I don't know the exact figures...

they get their money for nothing and their chicks for free.

withdrawn: I read it, after you asked if I had... I thought, well you know what I thought you were saying, now I see not at all what was being meant... My Bad.

RayAmerica says

they will grow to expect it in the future. It would encourage a type of activity on the recipients part (disincentive to work, etc.) to act in a manner in which they would be able to receive another $25K in the future

Are you theorizing that peoples' disincentive to work is what caused the latest recession?

tatupu70 says

Are you theorizing that peoples’ disincentive to work is what caused the latest recession?

Whatever gave you that impression?

RayAmerica says

It would create what is known in economics as “moral hazard,” whereby, once people are bailed out with free money, they will grow to expect it in the future. It would encourage a type of activity on the recipients part (disincentive to work, etc.) to act in a manner in which they would be able to receive another $25K in the future

Well, it seems the logical interpretation of the above passage. Otherwise it wouldn't be a moral hazard.

Nomograph says

I can make the similar argument that certain cancer treatments are complete failures because 50% of the patients still die. However, if you talk to the 50% that lived, they will tell you the treatments were a screaming success.

In cancer treatment we often measure a drug or treatment "success" in 3 month, six month or even 1 year survival rates. Granted most of us would spend whatever it takes to live another 3 or six months if it were our life on the line and we had the resources to pay for it, and we truly believed that the side effects of the treatment were overshadowed by the potential benefits. But the significant questions are: 1. If the person needing treatment can't pay for the treatment, is it worth it to the rest of us to pay for the treatment for them? 2. If we don't give them the treatment is there a decent chance they would live another 3 or six months anyway (in many/most cases the answer is YES)

Testicular cancer if caught early before it spreads is easy to treat (surgical removal) with high success and survival rates measured in decades. In analogy: This is like the guy who is a hard worker, bought a house at a price does not put him underwater, and just had a temporary setback such as getting laid off that has caused him to miss a few payments. If his neighbors helped him out with his mortgage for a few months there is a good chance he will be back on his feet.

Acute Myelomonocytic Leukemia however is very difficult to treat (surgery is not an option). For example, people in the adverse prognostic category have 14% 5 year survival rates (http://www.clevelandclinicmeded.com/medicalpubs/diseasemanagement/hematology-oncology/acute-myelogenous-leukemia/). By analogy: These are the people who lied on their loan application and got NINJA loans or just plain paid way too much for a house they could not afford. No amount of loan modification is going to save the vast majority of these unfortunate souls. And we all know it. In fact AML patients have a better prognosis than those who bought a house they could not afford (especially now that they are underwater).

Nomograph says

They are meant to slow the rate of decline to a level that can be absorbed by the market without widespread economic havoc.

Also known as propping up prices to prevent even faster defaults. You need to understand that. It is still propping up prices even if your intentions are noble and not self interested. (which I find hard to believe in the case of the banksters and real estate industrial complex) These programs form barriers to restoring equilibrium. We are not talking about a patient in a hospital who needs to be stabilized before we can treat their underlying condition. We are talking about an economy that cannot be stabilized without allowing the write off of literally trillions of dollars of debt. Either we are going to pay for it now with banks and consumers acknowledging asset losses or later when these debts (which are growing) crush us and the entire fiat dollar monetary system.

PPete says

Lets see what happens this Fall.
1) If the Republicans decide that they like the new powers of financial and medical control over the people and don’t repeal those massive bills, then yes housing will continue to fall.
2) On the other hand, if the Republicans decide to repeal both bills completely and cut the Fed budget in 1/2 then the US economy will near immediately shoot into a parabolic upward direction.
The fiasco we are in is caused by the weight of government on our backs. (and in our necks)

Nice knee-jerk reaction there.

Who started TARP and what political party was he a member of? Hint: not a Democrat.

Do you even know how much money has been spent on "medical control"? Do you even know what the provisions of the health care reform law are?

Are you aware that Bush, a republican, presided over a bigger increase in government spending than any president before him?

Didn't we just have this same discussion 5 days ago in another thread,

http://patrick.net/?p=525292

PPete says

Gameisrigged, relax…

It’s not about Parties. It’s about enacting massive controlling legislation that obscures massive additional spending by and for self serving individuals (and their friends) who weasel themselves into office.

Classic. You posted a partisan rant about how the REPUBLICANS should repeal the "new powers of financial and medical control over the people", and then say it's not about parties. I think it's obvious who needs to relax here.

gameisrigged says

Nice knee-jerk reaction there.
Who started TARP and what political party was he a member of? Hint: not a Democrat.
Do you even know how much money has been spent on “medical control”? Do you even know what the provisions of the health care reform law are?
Are you aware that Bush, a republican, presided over a bigger increase in government spending than any president before him?

TARP, no matter how distastefully you may find it, was needed. Money that was lent out from depositors accounts was not being paid back by homebuyers. Not only were consumers deposit accounts in the bank dry, but every other entity that had an account open with the banks went dry. Your employer, all other businesses large and small, educational institutions, and nonprofit-governments, state and local.

What would have happened if the next day you or your employeer found a zero balance your bank accounts. Wouldnt you ask... "Where is my Money ?"

There was only one solution, and it didnt hinge on being Republican or Democrat.

thomas.wong1986 says

Not only were consumers deposit accounts in the bank dry, but every other entity that had an account open with the banks went dry

With fractional reserve banking, accounts are always virtually "dry" because the banksters have loaned that money out at a ratio of 20 to 1. The banks pay out a measily 1% on your money, and loan it out at that 20 to 1 ratio. Then they have the audacity to charge fees along with loan shark rates on credit cards. These are the nice folks TARP bailed out. Even a mild bank run on any given day would reveal what a "pay on demand" account is; nothing other than smoke and mirrors wrapped in fraud.

TARP was nothing other than a monumental theft from the taxpayers for the banksters and Wall Street crowd.

What would have happened if the next day you or your employeer found a zero balance your bank accounts.
Thomas, How do corporations manage their cash and even have a remote chance of staying within FDIC lmits. We're an extremely small office and regularly go over the (old) limits. I still say this is a good way to encourage new banks. Set the limits back to where they were and then have the FDIC advertise every day for a year that YOU WILL LOSE YOUR SHIRT if you try to get cute and put all your eggs in one basket. None of this, we're in a crisis so let's raise the limits...

RayAmerica says

The banks pay out a measily 1% on your money, and loan it out at that 20 to 1 ratio

No, this isn't quite right. You give the bank $1000 to keep in a checking account and they can lend out up to $900 of it.

Put it in a CD and they can lend out all $1000, but banks never actually "create" money directly.

The money multiplier comes from the fact that after you deposit that $1000 you think it's still yours, when in fact the bank left an IOU in your account and gave it to someone else to spend.

EBGuy says

What would have happened if the next day you or your employeer found a zero balance your bank accounts.
Thomas, How do corporations manage their cash and even have a remote chance of staying within FDIC lmits. We’re an extremely small office and regularly go over the (old) limits. I still say this is a good way to encourage new banks. Set the limits back to where they were and then have the FDIC advertise every day for a year that YOU WILL LOSE YOUR SHIRT if you try to get cute and put all your eggs in one basket. None of this, we’re in a crisis so let’s raise the limits…

I hear what your saying.

thomas.wong1986 says

What would have happened if the next day you ... found a zero balance your bank accounts. Wouldnt you ask… “Where is my Money ?”

My principal would've been guaranteed by the printing press that backstops the FDIC.

Troy says

RayAmerica says

The banks pay out a measily 1% on your money, and loan it out at that 20 to 1 ratio

No, this isn’t quite right. You give the bank $1000 to keep in a checking account and they can lend out up to $900 of it.

Put it in a CD and they can lend out all $1000, but banks never actually “create” money directly.

The money multiplier comes from the fact that after you deposit that $1000 you think it’s still yours, when in fact the bank left an IOU in your account and gave it to someone else to spend.

Well, not exactly. First you put $1000 in. Then the bank lends out 0.9*$1000=$900, which then gets paid to some other person for some good or service. Then the $900 comes back to the bank in another account. And then the bank lends out 0.9*900=$810 of this deposit, which is spent but then ends up in the bank again. And so on and so forth.

I'm sure Troy knows this, but perhaps not everyone does. In the end, the total amount lent out from the original $1000 grows asymptotically to $10,000. For the mathematical details, look up "geometric sum" in Wikipedia.

Use a=1000 and r=0.9 and you will see that the infinite series adds up to a/(1-r) = $1000/0.1 = 10* $1000 = $10,000.

The whole business about "velocity of money" has to do with how quickly each of the steps in the progression take place in real life situations.

sybrib says

My principal would’ve been guaranteed by the printing press that backstops the FDIC.

Perhaps up to your account limit. However many business who keep their millions, well above FDIC limit, in the bank to pay for your salary and vendor wont be so lucky.

justme says

Then the $900 comes back to the bank in another account.

Or another bank entirely, however the whole banking transfer system became frozen overnight and so did the velocity of money.

EBGuy says

Set the limits back to where they were and then have the FDIC advertise every day for a year that YOU WILL LOSE YOUR SHIRT if you try to get cute and put all your eggs in one basket.

Well, yeah, sort of. But the problem is that all the big banks were doing the same type speculative loans with your deposits, so putting the eggs in multiple baskets was just a way of getting around the 100k or 250k insurance limits, and NOT a way of actually reducing the risk of banks losing your deposits, nor a way of rewarding safe banks or directing banks to be less risky with your deposits.

As we saw, all the big banks and lots of the small ones pretty much cratered at the same time. This is what happens. Same thing with the stock market. All stocks drop (and rise) in unison. The correlation between stocks prices and the index is huge, it has been averaging about 0.7 -0.8 lately and goes almost to 1 in a crash. What this means is that there are no CONVENTIONAL safe havens.

thomas.wong1986 says

Perhaps up to your account limit. However many business who keep their millions, well above FDIC limit, in the bank to pay for your salary and vendor wont be so lucky.

Perhaps? Well if I did that kind of cash in my account limit, that's a lot of money. I don't think the bank freezing up is going to be a crisis.

My salary? I think you mean one pay cycle, plus perhaps one more if I am paid in arrears. One-two paychecks from disaster? Then if that creates a personal crisis, then I was already ripe for one anyway; missing one-two paychecks would've been not much different than emergency car repair, illness, or any number of other crises that come up for working class people.

In the personal accounts, this FDIC problem is a rich folks' problem.

thomas.wong1986 says

gameisrigged says

Nice knee-jerk reaction there.

Who started TARP and what political party was he a member of? Hint: not a Democrat.

Do you even know how much money has been spent on “medical control”? Do you even know what the provisions of the health care reform law are?

Are you aware that Bush, a republican, presided over a bigger increase in government spending than any president before him?

TARP, no matter how distastefully you may find it, was needed. Money that was lent out from depositors accounts was not being paid back by homebuyers. Not only were consumers deposit accounts in the bank dry, but every other entity that had an account open with the banks went dry. Your employer, all other businesses large and small, educational institutions, and nonprofit-governments, state and local.
What would have happened if the next day you or your employeer found a zero balance your bank accounts. Wouldnt you ask… “Where is my Money ?”
There was only one solution, and it didnt hinge on being Republican or Democrat.

Uh, hello? Miss the point much? If you actually had READ my post, you would realize that I said NOT to blame the Democrats, because it's not a partisan issue. See - Bush started TARP and Obama continued it. They are members of 2 different parties - hence, can't be blamed on either party. Yet you say so as though you are disagreeing with me. Read, don't skim.

As for your nonsense that TARP was needed, it's preposterous. Let's see....there's a possibility that you might lose some of your savings, so we're going to take your money and give it to wealthy bankers just to make sure that doesn't happen. That can't make sense even to you.

I don't even get what your doomesday scenario is supposed to be. Countrywide DID go out of business. So did WaMu. Both Wells Fargo and BofA bragged that they were never insolvent but were forced to take TARP funds anyway. Lots of smaller banks DID go out of business and NO account holders were EVER left high and dry during the whole process. So exactly what crisis did we avert? Gave a bunch of money to a couple of "too big to fail" banks that weren't even in danger of failing? Exactly what would have happened if the fatcats hadn't gotten their big bonuses?

gameisrigged says

So exactly what crisis did we avert?

We didn't avert anything. It was all hype in order to scare the American people into thinking Doomsday was right around the corner if we didn't take TAXPAYERS' money and give it to the fat cats of Wall Street and the big money Banksters.

gameisrigged says

I don’t even get what your doomesday scenario is supposed to be. Countrywide DID go out of business. So did WaMu. Both Wells Fargo and BofA bragged that they were never insolvent but were forced to take TARP funds anyway. Lots of smaller banks DID go out of business and NO account holders were EVER left high and dry during the whole process. So exactly what crisis did we avert? Gave a bunch of money to a couple of “too big to fail” banks that weren’t even in danger of failing? Exactly what would have happened if the fatcats hadn’t gotten their big bonuses?

Yes, you can argue that bonus payments due to cash shortage should have been frozen. That certainly makes sense. However if you had in your hire on contract that you were to be given a bonus X% of targets at year end and no provision to suspend such payment in case of financial trouble, then the company is obligated to make such payments.

I believe there were some who have lost their savings above the limit. Gone! IndyMac came to mind as I heard many accountholders never were covered by the FDIC limit. Small Businesses do oftern carry a greater than $100K balance for operations.

Federal authorities estimated that the takeover of IndyMac, which had $32 billion in assets, would cost the FDIC $4 billion to $8 billion. Regulators said deposits of up to $100,000 were safe and insured by the FDIC. The agency's insurance fund has assets of about $52 billion.

thomas.wong1986 says

Yes, you can argue that bonus payments due to cash shortage should have been frozen. That certainly makes sense. However if you had in your hire on contract that you were to be given a bonus X% of targets at year end and no provision to suspend such payment in case of financial trouble, then the company is obligated to make such payments.

Oh, I see - contracts must be enforced if it's convenient to YOUR argument. What about the contracts millions of people signed to pay back loans? I assume you would argue that any government "loan modification" programs or principal forgiveness shouldn't be done because it would violate the mortgage contract.

I'm sorry, but it's preposterous to argue that the government does have the power to use taxpayer money to funnel trillions of dollars to Wall Street, outright take over Fannie and Freddie, and fund 95% of all new mortgages, but somehow lacks the power to nullify bonus contracts, take over banks, or oust failed bank execs? C'mon....

I believe there were some who have lost their savings above the limit. Gone!

I'd like to see a cite on that.

thomas.wong1986 says

However if you had in your hire on contract that you were to be given a bonus X% of targets at year end and no provision to suspend such payment in case of financial trouble, then the company is obligated to make such payments.

Not true if they were operating under a bankruptcy court. Which is what should have happened instead of a bail out.

bob2356 says

Not true if they were operating under a bankruptcy court. Which is what should have happened instead of a bail out.

Yes if under bankruptcy laws this would be true. If say Banks went bankrupt, what would every corporation who had "bank account" to pay for their operations/salaries/vendors have to do --- Impairment of cash balances to earnings. The stock market crashed because this was the exposure to earnings process. Like a lossing assets have to be written down. Result would have been massive layoffs and much more because many employers would be/or near insolvent. This would have spread across many other sectors.

gameisrigged says

I assume you would argue that any government “loan modification” programs or principal forgiveness shouldn’t be done because it would violate the mortgage contract.

The Mortgage was secured by the home, right ? So the homes should have been foreclosed and resold for much lower price. I have no problem with that. I dont believe modification of mortgages was the right thing to do. They should have been foreclosed. But many behind the modification program, wrongfully believe home prices were legit to begin with. They were not.

gameisrigged says

I believe there were some who have lost their savings above the limit. Gone!
I’d like to see a cite on that.

What makes you feel you are obligated to be paid over the limit ?

FDIC slashes estimate of IndyMac's uninsured deposits
August 12, 2008 | 6:04 pm
From Times staff writer E. Scott Reckard:
http://latimesblogs.latimes.com/money_co/2008/08/indymac-uninsur.html