patrick.net

I’ve done volunteer work in poor schools for over 20 years and the bar keeps getting lower and lower (and the kids keep getting dumber and dumber)…

Since it is politically incorrect to distinguish performing kids from non-performing kids we can only keep them equally dumb.

Brand, FAB

Good news if you fellows are correct, because solving the problem long term would be merely education and not having to change an ingrained nature. Either way, tight credit will be needed in the short term until the financially innumerate learn.

My viewpoint - that short term greed and not ignorance - is the cause comes from personal observation. I have seen people who are paid on Monday use a check cashing service on the Mondays that banks are closed. When I ask why they can't wait until the next morning and thus save the 10% fee, I get a slack jawed answer like "I needed to buy toilet paper." Even in the example I gave, with the $100 for 18 mo vs the $1,000 for cash, surely one does not need to calculate an APR to know that if one saves for ten months and pays cash, one will save $800. Even more since the price of the flat screen will fall. My perspective may also be influenced because I took an econ elective class in (public) high school that included a textbook called "The Time Value of Money." For that course, we had to calculate loans, present values, and had exercises like comparing a bank loan vs store credit on purchases. I also notice that stores like Target, Kmart, and WalMart all sell several brands of financial calculators. Plus, virtually all spreadsheets have built in financial functions. For anyone who uses the web for any real estate info, you can't help but notice all the "rent vs buy" and mortgage comparison calculators. Who were all the electronic calculators, spreadsheets functions, and web tools made for if no one is using them? Especially since those calculators are sold at stores aimed at the masses, and the web tools ask simple questions requiring no financial expertise (ala TurboTax).

But, since you two may be correct, I would be in favor of high schools having a mandatory "personal finance" course. Teach about checkbook management, time value of money, insurance, savings and investments. This may lead to less victims of "loaded funds," "whole life insurance," "car leases" and "creative financing."

I'd even propose a standard college course in "citizen law". There are standard requirements in the humanities, social sciences, and natural sciences for graduates of schools such as the Univ. of Calif. campuses. Why not have a standard requirement for learning about the US legal system? It would be much more meaningful than the typical Mickey-Mouse breadth-requirements courses in French poetry or sociology.

A law degree is little more than a degree in applied library science - I should know, I'm a lawyer. It would be possible in a 2 quarter class to cover a skimpy outline in contracts, torts, real and intellectual property, and constitutional law, with projects in legal research. This at least would alert the so-called "educated classes" to issues in their day to day life. I was completely puzzled about the legal system until at age 40 I dove in and spent 3 years and a lot of money going to law school.

Call up the Merriam-Webster people. They need to replace their definition of shameless unmitigated gall with this

http://www.ft.com/cms/s/0/81c05200-03f2-11dd-b28b-000077b07658.html

For anyone needing a little cheering up this evening.

*Schadenfreude warning*

Mortgage Bankers Assoc feel good story

A year ago, the Mortgage Bankers Association was thrilled to sign a contract to buy a fancy new headquarters building in downtown Washington. Interest rates were low, the group's revenues were steady and the prospects for quickly renting out part of the structure were strong.

*snip*

The lobbying group is about to sign the final papers to buy the 12-story building on L Street NW for about $100 million. Like many of the companies it represents, the organization is facing a triple whammy of woes: Its financing costs are up, its income is down, and the leasing market is slow, leaving it, so far, without a single tenant.

Unethical mortgage brokers may have been the spark that ignited an inferno, but the dearth of education on exotic mortgage products was the pile of dry tinder.

This is a brilliant analogy and I agree with all the calls to make basic financial education a requirement for a high school diploma. The sad truth is though, if you are not willing to at least do some basic arithmatic on your own, you are going to get ripped off again and again. I bet 1/3 of the population is functionally math illiterate. No amount of high school classes can substitute for that.

I don’t understand why a gold digger can marry a guy for a few years and after to agreeing to stay with him “until death do us part” break the contract (to move in with her personal trainer) and take half the guys assets…

This is just not how it works FAB and you know it. She does not get half the guys assets, just half his increase in net worth during the time they were married, which seems perfectly reasonable to me.

BAI-
Wow, that really takes it...what a smug, paternalistic bastard.

I am puzzled why the remarkably similar housing bubbles that emerged in more than two dozen countries between 2001 and 2006 are not seen to have a common cause.

I'm puzzled too how some first-rate economies such as Germany, effectively avoided running up their housing? Wiser fiscal policy and regulation, perhaps?

Stupidity can be local, and the effects global.

You know, I read that entire article without noticing the name at the top. For the most part it sounded rational but a little light on the evidence. For example, the author challenged a lack of statistical correlation between the bubbles/busts and Fed actions, but provided no specific analysis to demonstrate such.

Then I read that the author is a former Fed chairman and immediately thought, "Man, that guy really has no taste at all, does he?". So much for going gracefully into that good night. Greenspan is just blaming it all on Wall Street. How convinient.

Jimbo says: I bet 1/3 of the population is functionally math illiterate.

Sadly, I think that 1/3 is awfully optimistic. My circle of friends is mostly college educated, and I would consider probably 25% or more of them to be financial innumerate. I don't know any people in the inner city, the boonies or the "other" parts of town.

To Headset's point on greed, even some of my mathematically inclined friends talk smugly about using "OPM" (Other People's Money) to increase their net worth. For example, an engineer friend of mine used the tried-and-true example of 10% down, with 10% price appreciation is doubling your money. I pointed out that the leverage had a cost of approximately $1000 a month in that case (we were talking about a particular house in his subdivision), and he proudly went on about how the interest was tax deductible. I pointed out that in the best scenario you only get about 30% of that money back, and generally it's much less because you had other deductions anyway. I offered to let him give me $650/month for three years and then return $20,000 to him at the end (of course, this argument is equally lopsided because he did have the utility function of a house for that period of time).

The wheels fell off the wagon when he defaulted to "you have to live somewhere" and then chided me repeatedly for "paying someone else's mortgage" by renting and "giving the government too much of your money". But come hell or high water, he wasn't going to concede that the leverage using OPM was actually costing him something. There was only upside.

Maybe while we're out educating the masses on basic American financial situations, we can we could outlaw Robert Kiyosaki just for completeness.

Germans and Japanese had their share of the housing bubble back in 1990, after the Berlin wall came down and the whole Germany was rejoiced in Wiedervereinigung. A German Bay Aryan on this blog talked about how he got trapped in the bubble before. I don't think those Germans who bought at the peak of the last bubble are able to come out even nominally in 2006.

Germans and Japanese are very much alike in many aspects, even in their bubble cycle. Perhaps it is about their turn to shine for the next decade. Germany and Japan are probably the countries with the smallest housing bubble, if at all, in the world right now.

Middle of the U.S. never experienced a bubble. We bought new homes in Oklahoma for about $160,000 each about 2 years ago. If energy problems continue, these homes should do well.

I wrote:

> I don’t understand why a gold digger can marry a guy
> for a few years and after to agreeing to stay with him
> “until death do us part” break the contract (to move in
> with her personal trainer) and take half the guys assets…

Jimbo Says:

> This is just not how it works FAB and you know it. She
> does not get half the guys assets, just half his increase in net
> worth during the time they were married, which seems
> perfectly reasonable to me.

My main point was that I don’t see why a person who breaks a marriage contract does not have to “pay damages” like the people that break other contracts.

If I sign a contract to coach the San Francisco 49ers for 5 years and the value of the team goes up in three years after I take the team to the Super Bowl I don’t get paid any of the increase in the team’s value if I break the contract and will have to pay them if I wanted to leave and coach the Dallas Cowboys.

I know that if you marry an aging pop star worth over half a Billion you will only get about $50 million if you dump him after a few years. Most of the divorced guys I know who got married when they were still paying off student loans and working long hours have lost close to half of everything when they got dumped for “someone more exciting”…

P.S. To any women reading this and thinking about getting married to a guy with a Masters in Electrical Engineering and a MBA who is working at a top 5 VC firm. The guy will probably never be “exciting”…

Middle of the U.S. never experienced a bubble.

Plenty of places inland from the coasts experienced a bubble. You're lucky if your town was excluded, but plenty of cities saw credit-leveraged overbuilding, rampant speculation, mortgage resets--the whole list of damages. The news tends to focus on metro areas, but the downturn has hit nearly everywhere.

Perhaps one difference might be: coastal areas think they're too strong for the bubble to collapse, while some heartland areas consider themselves too stable for the bubble to ever hit. From the data I've seen, the downturn is generally nationwide.

My main point was that I don’t see why a person who breaks a marriage contract does not have to “pay damages” like the people that break other contracts.

The person who breaks a marriage should pay a 150% tax on the proceeds.

# HeadSet Says:
Yahoo gives low six figure salaries to interns?

I don't know - seems unlikely - I hired a couple of stellar interns in my group (not yahoo, though) last year, who were paid a lot less. Her linkedIn profile said "intern". The newspaper article said "low six-figure salary". One of those is inaccurate.

I do not understand why Greenspan is so defnesive. He seemed to largely ignore the praise when he was lauded as the greatest Fed chief ever. So why now blog about the current problem not being of his deisgn? Let it go Alan. You played hero, now play goat. Its just media.

Fo my part, and I am guessing I am unique here, I have no problem with Greenspan from a monetary side. However, his lax view of regulation and his hyper-belief in 'effecient-markets' was sadly out of tune with the reality of man. To me its almost a classic case of one who sees the world as it ought to be versus one who sees the world as it is. Somehow I think he just cannot understand that given little or no oversight, people will game any system to maximize profit while performing as little work as possible - no matter the destruction it casues.
Kill Countrywide while pocketing hundreds of millions. Sure.
Make hundreds of millions with MBS then take a governement job to lock in those profits, Paulson, sure.
In truth, counterparty sruveilance no longer works becuase all financial roads lead, rather quickly, back to the Fed. This means the Fed IS the counterparty and it better start acting like it.
And as long as I am making demands, the rest of the Central Banks better start helping the Fed wth the heavy lifting or the world GDP contraction will be sharper, deeper, and longer lasting than they think.

It appears that WaMu is getting bailed out, but NOT by Well Fargo.

www.sfgate.com/cgi-bin/article.cgi?f=/n/a/2008/04/07/financial/f042734D60.DTL

Washington Mutual is close to landing a $5 billion cash infusion from private-equity firm TPG and other investors...

Who the heck is TPG?

$5billion is not going to cut it. Stay tuned on WaMu

"Who the heck is TPG?"

Texas Pacific Group, at least I'd guess. They bought out the Ducati that designed the 916, and replaced it with an entity capable of the 998 and 999. Resale values of "pre-TPG" bikes tell the story nicely. MotoGP is perhaps their only feather, and I'm not really convinced it's their feather.

Duke at 6:18am

I don't have the expertise to judge Greenspan on what you call the "monetary side". As to the rest of your post re: regulation etc: You are spot on in my opinion!

Google turns up half a dozen companies called "TPG".

Thomas Products Group
The Provo Group

etc.

Hey if an idea finally gets written up in the NY Times, is that idea now mainstream?

www.nytimes.com/2008/04/06/fashion/06survival.html?_r=1&ref=fashion&oref=slogin

It is not that of Barton M. Biggs, the former chief global strategist at Morgan Stanley. Yet in Mr. Biggs’s new book, “Wealth, War and Wisdom,” he says people should “assume the possibility of a breakdown of the civilized infrastructure.”

“Your safe haven must be self-sufficient and capable of growing some kind of food,” Mr. Biggs writes. “It should be well-stocked with seed, fertilizer, canned food, wine, medicine, clothes, etc. Think Swiss Family Robinson. Even in America and Europe there could be moments of riot and rebellion when law and order temporarily completely breaks down.”

DennisN-

Same guys: TPG Capital

Expect good things from WaMu, at least from a shareholder standpoint. TPG seems to be very good at wringing out profit potential, and what else matters right?

Brent,
Yeah, AP now reports it as "TPG (formerly Texas Pacific Group)".

Mish has an excellent piece on the Spanish housing bubble. Apparently, we share the view that EU will not survive in its form. Cracks are forming.

People speaking differently languages should NOT share a currency.

How can we profit from the European housing bust?

Peter P
can you provide a link?

http://globaleconomicanalysis.blogspot.com/2008/04/housing-bubble-bursts-wide-open-in.html

I'm working on a book whose thesis is that the UK should pull right out of the EU and enter the Union as a half-dozen odd states. It might be timely if I can get it out in another year.

My take is that the EU is little more than a cynical ponzi scheme of the French and Germans to suck up funds from the other countries to support their otherwise unsustainable social welfare states.

Watching Spain and the UK's housing bust unfold makes it all that much more difficult to listen to 'former' housing bulls. All throughout the "good times" they couldn't be bothered with the fact this was ramping up on a global basis. Any of those even remotely aware of what was taking place abroad only cited it as further evidence this thing was for real. This thing was here to stay.

So now all of a sudden they've begun to show in interest in... well, REALITY frankly. The cover of Money mag. has it's lead article on "How to deal with the "mean" economy! Mean, as in any time you can't tap your home for a little well deserved MEW it's just plain mean?

I was at a party Saturday night and a few perma-perma-bulls were really freaking out. They refused to be cheered up in any way. Before I was avoiding the whole bubble topic b/c it was frustrating. Now I avoid it b/c it's depressing.

Hopefully, the British Columbia housing bubble will deflate before I retire. :)

My take is that the EU is little more than a cynical ponzi scheme of the French and Germans to suck up funds from the other countries to support their otherwise unsustainable social welfare states.

I thought the entire Europe is one big unsustainable social welfare state.

Switzerland is one of the few countries in Europe with a sensible tax system.

Something is wrong if individual income tax rate is higher than 15-20%.

Switzerland and many other places in the world have proven that high tax is NOT a prerequisite to social stability. Higher tax simply means inefficient government, misplaced sense of entitlement, and pure stupidity.

Switzerland was smart that it never joined the EU.

And this is ridiculous:

http://news.bbc.co.uk/2/hi/europe/6313671.stm

But Brussels' quarrel is not with Switzerland's quality of life but with its tax system, and there the EU has made it clear it expects some compromise.

EU basically wants to export its welfare state and draconian tax system.

"Hey your system is too good, it makes us look bad. We should all collapse."

Thahks for the link Peter P

By the way and totally off-topic, have you seen this? Although I have no great sympathy for China, I strongly object to anyone using the GG Bridge to play politics. Or the Olympics for that matter but I don't pay taxes for that.

12:43 PDT SAN FRANCISCO -- Three demonstrators scaled the south tower of the Golden Gate Bridge today and unfurled a banner intended to draw attention to Chinese human rights violations in Tibet.

The activists began to rappel down around 12:30 p.m., leaving the banner hanging on the tower. Iron workers will cut it down, said Mary Currie, a spokeswoman for the Golden Gate Bridge district.

I have a hunch it's gonna be wild (and possibly embarrassing for SF) on Wednesday.

I always find it odd that people care about human rights "violations" in faraway countries.

I could not care less. These protesters should be arrested for disruptions.

These protesters should be arrested for disruptions

But it would've been more useful if they were shot down as they were trying to unfurl their stupid banner...isn't the bridge supposedly "protected"? WTF?!

ok maybe not shot with lethal weapons, but definitely tazered...like that UCLA idiot a while back :-)

I just don't understand their motivations. Who pays them to waste their time?

Richard Gere?

Huh?

If those protesters really want to free People of the World, they should support Free Market.

The freer the market, the freer the people.