patrick.net

What Feldstein is applying here (and I'm surprised at some of you!) is some of the basic prinicples of mortgage acceleration. By using (what is basically a 2nd here) he's automatically reducing the 1st. In doing so MORE of each subsequent payment reduces the principal owed!

True, you still owe on the 2nd but at a loan rate that is... more or less a gift. I'm sure the FHA/HUD pamphlet will describe how opting for this program will allow participants to "build equity more quickly reducing your debt" etc.

BAI,

Had "the number" been 19% or 21% we might not have caught it! (Funny how the mind works isn't it?) Since the Gov. has taken on the role of PMI that's one less @ssclown we'll have to bail out. Feldstein is a genius I tell you!

FAB,

just fyi, the police shut down a crack house in Hillsborough last year. The house went into foreclosure.

This economic downturn will hit a lot of upscale neighborhoods, armed robbery in Atherton, Los Altos Hills, bank robbery in Saratoga, all these supposedly very rare instances have been taking places in the last couple of years.

Btw, I am quite stunned at the location of Harker in San Jose. I thought Harker is some sort of prestigious private school, but it is located right next to a freeway on a very commercial strip of San Jose. Do parents feel safe picking up their kids at the $30K-after-tax-per-head school?

OO, criminals definitely took advantage of our "liberal"-minded gun laws.

I wonder if they dare rob an upscale neighborhood in Texas.

OO,

For some odd reason FBI stats show that the PNW has the highest rates of bank robberies in the country. For some time actually. More often than not our perps are; white, in their mid-30's w/ drug and or gambling problems. Downtown branches are seldom hit (too much traffic, too tricky a get-away)

So scumbags start to hit more trendy areas after they've exhausted low hanging fruit in working class neighborhoods. And it's always a shock. "We NEVER have bank robberies in_____?" So they get the surprise factor working for them too. I'll bet you a lot of your perps have NW ties. No con wants to get caught after robbing a branch successfully and then get popped on a 2nd attempt. Just superstitious I guess.

DinOR

I know it seems silly but you're right about the 20% thingy. I mean if this is such a great idea and not a bailout, why not give them a 50% low interest government loan? Why not 100%? (delong's idea).

I mean there is no internal logic to what he's saying and he is one of our greatest minds (or so I hear).

He claims, that 20% will be backed by the house as collateral so it's not a bailout. But since he also admits his plan is necessary because prices are in free-fall, then so is the collateral no?

It's silly time!

I like Summers idea better.

# FuzzyMath Says:
Beyond pointing out logical fallacies you’re not giving me a reason why it won’t happen.

My stance has been that the real-estate crash will not be a net-negative for me or other people (a) who have not been foolish and (b) whose livelihood does not depend on peddling housing/mortgages to fools.

It is not the end of the world if Bay Area housing prices crash back to 1999 levels. It was not that long ago, for chrissakes.

BAI,

I'm not ready to dismiss Feldstein yet? There's a chance it could work, AND without "principal reductions". Headset was flirting with it.

If you owed 100K and got a 2nd for 20K then turned right around and paid your 1st down to 80K your payments would naturally be smaller, right? But rather than using the new loan amount you maintain the old PITI and a larger percentage of your payment is applied to principal! For our purposes right now (the 2nd doesn't matter all that much) Besides it's at "kiss me" rates.

As the market (hopefully recovers, their theory not mine) you have some paid in equity, and... some market appreciation. Normally in a mortgage acceleration scenario you would aggressively attack the second (cars, toys, junk) and then re-apply it towards the 1st. But that's not the design here. It's simply to get homedebtors out of the red zone. Should work.

Actually there is really no point in arguing whether there *should* be bailout or not, because we know there will be. We also know regardless of the size and duration of bailout, crash will still happen. The difference is:

1) The bigger the bailout and the longer the bailout, the more likely we will have a inflationary depression (stagflation first then depression)
2) The smaller the bailout and the shorter the duration, the more likely we will have a deflationary depression (no stagflation, straight into depression).

It will be our first depression of this century, the ending of the script is already written, it's just a debate of how we get there. I believe 1) is a more likely scenario (which is gaining momentum as we speak) so I invest accordingly. It may very well turn out that BB will be kicked out of office in a few months so we head straight into 2).

"It is not the end of the world if Bay Area housing prices crash back to 1999 levels. It was not that long ago, for chrissakes."

I tend to agree. That really isn't the same scenario that northvirginiarenter is speaking of though. Just like there was irrationality on the rise of pricing, there could also be the reverse during the crash. An overcorrection seems pretty likely especially amidst the other economic problems that are going on at the same time.

I feel like we should still be in the recession we hit in 2001. The facade of housing temporarily got us out of it, but for all the wrong reasons. If we really want to face this one, it will be through returning to reality, and learning again what a hard day of work really means.

In other words, I'm beginning to see your side.

DinOR
under the plan if you owe 100K @ 8%, you will now owe 80K @ 8% and 20K at 1-2% (he says this part will be a 15 year loan). If you maintain the same payment then you can pay off the loan faster. If - as I said - it is like a refinancing, you can lower your payment so you can now afford your loan but you don't pay it down any faster. But at least you can stay in your home if you don't mind being underwater.

Either way I don't see how it can work. Your scenario presumes one's pathetic little monthly payments can build equity faster than the market takes it away.

The only way the market doesn't take it away is if new buyers can come in and get the same deals previous buyers received. Not likely.

Therefore that 20% (there's that number again) is toast. Sooner or later the gov. would have to come back and forgive it in order to convince you to not walk away (today's problem). Ergo, bailout. F**k that!

I have a better idea: let them all go under. FBs and banks and Chinese and all of them. Then anyone who can prove they were renters (or paying properly sized mortgages during the runup) gets a monthly stipend from the gov. for the duration of the resulting depression. Say 5K per month. More if you lose your job. What wrong with my plan. It's a bailout alright, but at least it bails out the innocents.

Didn’t crime go down during the Great Depression?

This is a false coincidence. Crime went down after the repeal of Prohibition (21st Amendment, 1933).

The so-called Progressive Era Amendments were the 16th (income tax), 17th (direct election of Senators), 18th (prohibition), and 19th (women voting). It is arguable that these created great mischief in the USA.

Although certain former posters went to extremes, it is arguable that a well-armed citizenry is a boon to troubled times. I'm a very level-headed sort with enough arms to equip my entire neighborhood in times of trouble, and my neighbors whom I trust know this. My neighborhood is full of policemen, firemen, retired military, and other such worthy types so we could turn out a militia of 30-40 trained men in a few minutes time should an insurrection get close.

Peter P, you should get a type 03 FFL. They are easy to get and cost $30 for 3 years. You can then buy older Mausers and Mosin-Nagants for wholesale on-line and have them delivered to your door.

I keep seeing posts and articles referring to a survivable downturn if there is an orderly decline in home prices. Again, I have to caution the intellectuals that the premise is flawed because of the psychology of a buyer. You can't have an orderly decline in prices because someone will not knowingly buy something if they know it will decline in value. With each wave of realized losses comes even more as more and more owners realize they are upside down in their houses and other properties. Once the speculative value is destroyed it is someone like me who sets the price point based on capitalization. The only way to have continuing layers of price declines is for the government and the industry to keep trying to call the bottom, but most people intuitively know what the house is worth by what a similar rent is. It is hard to sell someone a speculative investment once the trend has reversed.

On my street, if a woman yelled "rape", all the doors would fly open and from each a heavily-armed man would emerge looking for the perp. :)

@DennisN, regarding response to emergency situations in your neighborhood and others: People tend to hold back on taking action a lot of the time--diffusion of responsibility, herd mentality. Kitty Genovese's murder is the classic example. In an emergency, if you are the one to step forward, don't you find that it is necessary to explicitly tell individual people what needs to be done next? If you ask the group, no one moves. Most people don't want to step away from the herd and take action. I have seen this many times.

Would be interested in hearing your thoughts on how to get a group of people past that place of inaction.

Or, more to the point, how do you get individuals to a place where they will step away from the herd in order to do the right thing? Eg. the whistleblower at Abu Ghraib, most firefighters and medics, and a variety of foolish hero types

It's good to be able to do that. I think. And most people can't or don't.

"It's good to be able to do that, I think. And most people can't or don't."

I think that most people CAN in some fasion or another. They just won't. Sometimes, the most noble of actions carries too great a cost. You have to be selfless and willing to stand alone. Very rare in a society of sheeple.

Selfless. Interesting. Have to consider that.

I had perceived the problem as one of being so out of the self, so much a part of the herd, so expecting that someone else would handle the problem, that the self is...not online.

it is arguable that a well-armed citizenry is a boon to troubled times.

When I was in Thedford, England, I had my house ransacked when I was away unexpectedly for just one night. In fact, all my English relatives were victims of burglery, along with so many other English and Americans living in England that I knew. These were not low end areas. Most were above average suburban or country homes.

I have never had a my home burgled in America, nor know anyone in America who has. I own no guns, but I suspect that home invasions are rare because of fellows like DennisN. A crook does not know who has a gun, and will not take a chance on meeting a DennisN. In that way, a law abiding gun owner benefits all households. This does not apply in places like DC, where an armed crook knows any homeowner he meets will be unarmed.

Without going too far down the Doom and Gloom path, lets take a small swipe at why you care:

1. A well diversified portfolio does not mean much, if anything. How many Carlyles do we/ did we have? If a big part of sock buying came from higly leveredged buyers that are being forced to unwnd their positions you are talking, not about a contraction here coupled to a buldge there, you are talking about a total net loss in the market. I seem to recall a Chicago ecnomist getting a nobel prize for showing how we are all wealthier when we find a way to 'expand the pie' - which is why we moved away from the notion of econmics as a zero sum game. However, the converse is cerainly true. We ALL lose money when the pie shirnks. Care? You better. You may be able to recover, but how about the large and growing segment of the population that cannot make up its losses. Its funny to think of social upheaval from the gray-haired crowd. But believe it.

2. When the Fed not only acts as the lender of last resort, but does so now routinely with 75 banks you are not spooked? Even the Fed and the US cannot handle the losses that are quite possible (in excess of 4 trillion)

Remember, we only have to go back to the Nixon years to see our last attempt at imposing federaly mandated price. We 'may' try something like that again, who knows? Wasn;t Rumsfield on that team of figuringout what everything ought to cost?

My more probable scenario isfunding massive Federal jobs programs through massive tax increases across the upper strata of the country.

Social upheaval certainly could be in the cards. And with it, radical legislation. Don't feel like just because you understad todays rules (laws) that those cannot change. I am old enough to have parents whose families were wiped out in the Great Depresson - and they "knew" it would not affect them since they were not speculators. As small business owers the Federal governement did this: 1. Froze their access to their bank accounts. 2. Called all loans due (so those net 30 inventories killed businesses) 3. Liquidated their assets when the loans failed. 4. Effectively put they and thir employees out on the street. The govt did this to 'raise cash' to cover losses not at all incurred by this group. It was just his group that had hard assets (inventory).

Look, I have absolutely no idea how far down this road we can go. But the financials look really, really bad. Like many, I STILL have no idea how extensive the shadow banking system is. But failed margin calls, the TAF, the dollar crises, the magnitude ot the dollars already known, are giving even the sunniest of economists heart-burn. And what we have not seen yet are the massive pay-outs from the mono-line insurers we *know* are coming. Municpal bankruptcies. State lay-offs from lack of funding. Larger Federal deficits from shrinking tax revenue (and expensive rates to fund those deficits).

What can halt all of this? Dunno. All CBs following the Fed for starters. Relaxing the capital reserve requirements at banks for now. Austerity legislation? I am guessing we will see this and more in the months/years ahead. But you are right. Who knows?

In a food scarcity high unemployment environment, a different class of criminal will be stalking the unwary. Not too difficult to defeat any and all home security alarms, dogs, armed owners. Smart scoundrels will be about, with cell phone jammers, target reconnaissance, and common sense. Home security and safety is an illusion.

Go after the money right? Nice neighborhoods is where I’d concentrate, blend in, learn occupants habits, defeat countermeasures, know the entry process and contingencies, multiple exits, prepared to use deadly force. Trickery and smarts. Best would be to wait for FAB or Dennis to leave for the local Walmart. If not, first order of business would be to incapacitate the occupants, preferably with a small trained team to overwhelm. Look like a delivery guy and suprise with a weapon. No chance to arm oneself. Owning firearms might* allow one to sleep better, but are probably useless in a real confrontation. You will either not have one handy, or be relived of it in short order. All fairly straightforward stuff. Drive a cable repair or plumbing truck. Check the back of the freezer and all the usual creative hiding places.

Now this said, the gated compounds with a private full time security team is probably not a fight worth picking, nor the large estate of the uber rich which employ full time armed thugs. Believe it or not, there are several of those around this neck of the woods of which I am aware.

It would probably be an easy living to make, if not risky. Not endorsing same nor would I under any circumstance consider, just to be clear.

I know its hard for you to imagine, but we will see widespread hunger in the US before this is over. I don't see how its avoidable. Its way beyond a real estate deal at this point. Sorry for all the gloom.

NVR,

Too much idle farm land for hunger here. Would the food be expensive? You betcha. You could give me two sections tomorrow and within two weeks I could have it planted.

There are too many of us one generation out from the farm. We just won't have nectarines in January.

@ OO,

Regarding bank heists, we are setting records in Chicago-

"...in 2006. Chicago had 284 heists, up from 2005's previous record of 240. One Chicago bank was robbed twice on the same day. "

I believe 2007 beat the above record too!

http://www.guardian.co.uk/world/2007/feb/11/usa.paulharris

I know of two working low income families that are now today walking the edge. Both consist of duel wage earners, 2 and 3 children. Both families are employed in jobs unrelated to REIC. They are having difficulties putting FOOD on the table due both to cost rise and a doubling of their monthly gas and commute expense. Their kids are complaining about the diet change, they've transitioned to low cost foodstuffs. Standard of living decline there I'd say. What happens to this demographic class next? I'd say job loss leading to further debt default and household contraction.

Our social welfare system is not prepared for the masses of fish soon to be in their broken nets.

For those on this list that are lucky enough not to be in this position and who do not take that hardline capitalistic every man for himself approach, find yourself a few of these families to help. Disdain for welfare? What, let these people go homeless and starve? This is the vulnerable class. This is what is scary. They are everywhere outside of the fortress and BA. Foodbanks are on empty due to food inflation. Wake up folks. The ranks of this group are set to explode.

NVR,

What you say is absolutely true and it will become a very large issue, but there are things that people can do. First and foremost, don't buy crap. Put down the friggin' Cheetos and buy a sack of potatos. You need something to drink? How about water?

I've been poor. Dirt flippin' poor. And those of us that have been there, we have the skills to deal with it. It's all about education and schools just about ready to start.

I'm not looking for a fight. It's just that I have seen worse.

Duke Says:

> Without going too far down the Doom and Gloom
> path, lets take a small swipe at why you care:
> 1. A well diversified portfolio does not mean much,
> if anything.

Can you tell me the last time real estate values, apartment rents, the value of stocks, the value of oil, the value of cash and the value of bonds all went down at the same time?

> We ALL lose money when the pie shrinks. Care?

This is not true, some of the wealthiest people I know got that way in the early 90’s buying California Real Estate when the “pie was shrinking”. The man with half a little pie has more pie than the man with one spoonful of a big pie…

Then northernvirginiarenter Says:

> In a food scarcity high unemployment environment,
> a different class of criminal will be stalking the unwary.
> Not too difficult to defeat any and all home security
> alarms, dogs, armed owners. Smart scoundrels will be
> about, with cell phone jammers, target reconnaissance,
> and common sense. Home security and safety is an illusion.

Smart criminals don’t target the rich who have dogs, alarms and private security with guns. Microsoft Billionaire Paul Allen travels around the world with a team of Navy Seals who have more firepower than the military of many small countries.

> Go after the money right? Nice neighborhoods is
> where I’d concentrate, blend in, learn occupants habits,
> defeat countermeasures, know the entry process and
> contingencies, multiple exits, prepared to use deadly
> force. Trickery and smarts. Best would be to wait for
> FAB or Dennis to leave for the local Walmart.

Other that some Asian families the rich don’t have a lot of money at home. Most things the rich have are not easily converted in to cash (who wants to buy a stolen John Singer Sargent painting and it is not easy to sell a Range Rover without a pink slip). Since liberals hate Wal Mart we don’t have any around here to shop at (not a single Wal Mart in San Mateo, San Francisco or Marin counties)…

> If not, first order of business would be to incapacitate
> the occupants, preferably with a small trained team
> to overwhelm. Look like a delivery guy and surprise
> with a weapon. No chance to arm oneself. Owning
> firearms might* allow one to sleep better, but are
> probably useless in a real confrontation.

Other than the Asian gangs that do home invasions (when they know about a lot of cash) not many others want to risk getting shot robbing an occupied home. Even in his 70’s my Dad can consistently empty clip after clip in to 2” groups (we were both competitive slow fire pistol shooters in the 80’s)...

northernvirginiarenter Says:

> I know of two working low income families
> that are now today walking the edge. Both
> consist of duel wage earners, 2 and 3 children.
> For those on this list that are lucky enough
> not to be in this position and who do not take
> that hardline capitalistic every man for himself
> approach, find yourself a few of these
> families to help.

Just last week I was speaking to a group of low income High School students (I’m very involved with Bay Area charities that help poor kids get an education) and explaining to them that most successful people are not “lucky” they are “smart” and/or “hard working”. A little luck never hurts, but it is not “bad luck” when a person is so stupid that they have 2 or 3 kids “before” they get an education and/or get to a stable place in their life (or at least have enough to pay for food and shelter)…

We ALL lose money when the pie shrinks. Care?

Huh? LOL!

Not if one can get more and more of the pie fast enough.

RE: diversified portfolio

Diversification is important, but I think it is counterproductive to over-do it. Your commissions-dependent broker may think otherwise though. :)

Not investment advice

Microsoft Billionaire Paul Allen travels around the world with a team of Navy Seals who have more firepower than the military of many small countries.

I thought there are always issue yachting with firearms internationally, especially in gun-hating countries like Mexico. How does he get around that? This is a serious question.

http://www.yachtforums.coms/general-yachting-discussion/8396-firearms-onboard-yacht.html

Even hardline capitalists support charities.

High-taxation is a freedom issue, not a bottomline issue.

Welfare is an incentivization issue, not a cost issue.

I think the growth of human population has reached the tipping point of instability. There is no solution to this problem.

Other than those people who put gold bars in their toilet tanks....most people don't leave lying around stuff of any great value. Burglars could steal my stereo stuff but that's only a couple of $K. I have nice cooking gear, fishing rods, a huge set of classical music CDs, and such like. What would a "fence" really pay for this stuff?

One of the nice things about being "the millionaire next door" is that I don't attract attention with my moderate home and Ford/Mazda vehicles. I don't plaster those stupid "protected by Smith & Wesson" stickers on my windows. If I have a security system, I'm not going to draw attention to the fact by putting one of those stupid lawn signs out that says "protected by ADT".

I have a few firearms on the premises, but these are in safe room built into the foundations. And my FFL gives added protection. Normal home burglary is sadly a minor state crime to local law inforcement. But burglary to an "FFL premesis" is a serious Federal felony and WILL BE aggressively investigated by the FBI/BATF. Whatever poor dope fiend breaks a window at my place to steal a stereo will probably be caught and sent up the river to a Federal Prison for most of the rest of his life even if he never realizes what kind of place he broke into. Tough stuff for him.

Peter P Says:

> I thought there are always issue yachting with
> firearms internationally, especially in gun-hating
> countries like Mexico.

Maybe Paul keeps the guns in his yacht's choppers (or in the submarine) when he is in Mexican waters...

http://www.yachtcrew-cv.com/paulallen.htm

Thank you for exposing Jim Cramer for the fraud that he is. He should be fired by CNBC and NBC and absolutely should not have a national forum. He is lies, he is manipulative, he doesn't give a hoot about the average investor (who foolishly give him his ratings and platform) - I think he is a total evil and destructive force.

CNBC should fire Kudlow too - just because he is full of s***.

I don't see starvation being a problem around here in Idaho. We produce huge amounts of food and export most of it. There are lots of places for people down on their luck to get help, notably Second Harvest for which I'm getting more involved as time goes by.

A real problem is that "social planners" over the last 50 years have pushed the mantra "urban-density-urban-density" ad nauseum. When people are crammed together so much they no longer have any ability to help themselves when times get tough.

My grandparents did OK during the Depression. They had an acre on Bayshore Road in San Jose (currently the rent-a-car place at SJC) and they could grow vegitables there. They also raised chickens. They bought the land for $500 and built their own home and workshop with their own hands and with the help of some of their friends. This low-density rural lifestyle meant that most people in Santa Clara county got through the Depression with minimal suffering.

Another advantage we have in ID is the large percentage of Mormons. I don't think much of their theological beliefs, but they do have a strong community support system for those Mormons down on their luck. Places on the East Coast without many Mormons have other sects such as the Amish who may prove very helpful in a new set of hard times. They are a pool of "low tech" knowledge who could train others how to use horses to plow fields if oil really gets scarce.

I know a local breeder of Belgian work horses who has no shortage of demand, there is already a movement afoot to reduce oil consumption in the eco hobby farm set. Its very cool to sit behind a couple of these mammoth beasties while they drag you around.

Apparently, its like $4-6 a day to feed one these guys in these drought induced high hay price times, but often over $150 daily to feed the Deere tractor monster diesel.

Could someone explain to me exactly why BofA is so hot to purchase Countrywide?
http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article3511120.ece

DennisN,

Some really good observations on your part, and a lot of the reason "I" have struggled with the outrageous run up in RE prices. A house in and of itself... produces NOTHING. Other than shelter which isn't going to do you much good after you've starved to death.

As for personal security? There's nothing like good neighbors. How do you get good neighbors? Be one yourself!

I can't speak for HARM but "I" will say... I'm a little disappointed by some of the responses. I guess I got the wrong impression when we said "let's suspend disbelief" for a second and imagine a post-crash world where not all get sucked down the same shit tube?