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Government deaf to simple plea: less debt!


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2008 Apr 21, 12:30am   39,885 views  307 comments

by Patrick   ➕follow (59)   💰tip   ignore  

nono

Saver: I'd really like lower house prices instead of "affordability" programs that just tell me to get deeply into debt.

Government: How about the nice mortgage debt interest deduction? The more you borrow, the more you save! But if you have no debt, then no tax break. Sorry.

Saver: You're not listening. I don't want debt. I just want your debt-mongering programs to go away, so I won't have to bid against people committing financial suicide with debt. No saver can bid as much for a house as foolish borrowers can, borrowers who don't care about their future bankruptcy.

Government: Say, have you considered what Fannie Mae can do for you? You can get a slightly lower interest rate on your debt since we have taxpayers on the hook in case of your default.

Saver: I still don't want any debt.

Government: OK, we'll increase the Fannie Mae conforming limit, so you can get whopping jumbo loans in California, and we'll make Midwestern taxpayers cover it! Then you get hella deep into debt and the banks will be safe in case you default.

Saver: NO! I still don't want any debt.

Government: You're a tough nut to crack. OK, I'm going to hand you cash and say you borrowed it.

Saver: But I don't want to borrow money!

Government: Too late, I just added your "stimulus" payment to your part of the national debt. Ha! Gotcha.

#housing

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121   OO   2008 Apr 22, 7:13am  

OK, now it makes sense. AGI, not gross income.

122   Peter P   2008 Apr 22, 7:16am  

Citizens in the West, China and India must realize that the meat on their plate and biofuels in their expensive cars carry a cost for those in the developing world, Evans said.

http://preview.tinyurl.com/6dqr8x

The food crisis is coming. If we are not vigilant, Free Market will be under attack.

Those "food rights" activists must realize that hunger is the best weapon against world hunger. (Similarly, high prices cure high prices.)

I am against any mandate to use bio-fuel. However, if people choose to put food in their fuel tanks, they should be free to do so.

123   Randy H   2008 Apr 22, 7:18am  

I think it was Peter T who claimed that owning can be cheaper than renting, even today. Sorry if I misattributed that, but I know I saw you claim that landlords were buying and renting cash flow positive right now, in the BA.

Both are false in aggregate, though perhaps some really incredible exceptions exist in your circle of homies.

Owning has not been cheaper than renting in this MSA since 1978. Never. In 1975 owning was much cheaper = 0.76. By 1978 that was 0.92. Thereafter owning has always cost more than renting, without exception. Though, the difference never exceeded 100% in aggregate.

Rent yields have been well below the cost of capital since at least 2004, for most but the largest corporate rental unit operations. Even those would only reach back to 2001, with 2002 being an exception due to the Greenspan zero-rate policy. But that eroded pretty quickly in terms of capital available to most would-be landlords.

124   Randy H   2008 Apr 22, 7:21am  

AGI is a better measure. In fact, I would argue an even better measure would be NET income, after taxes. Because, well, we have to pay taxes.

They use AGI (or realtors use simple gross) because they're afraid to use Excel and turn on iteration, which is required to actually compute the tax effect of deductions. Also, realtors just luuuuv to exaggerate the benefits of the mortgage interest deduction, which they can easily do if you don't bother to worry taxes.

125   Randy H   2008 Apr 22, 7:23am  

*flip flop the actors in the last para of my rent-yield discussion. Obviously bigger guys get a better cost of capital -- that should be obvious.

126   northernvirginiarenter   2008 Apr 22, 7:31am  

Food crisis is already here. I've found one gets no satisfaction in "I told you so", which I feel like is a refrain for me the past 3 or 4 years. Even here in the US folks, we've got a crime wave coming, hunger, and widespread civil discontent. I've been suprised at how slow motion the train derails, but when the employment dam really breaks we will be faced with some trouble.

Prices are set to skyrocket and inflation is really about to get out control.

I'd say this constitutes an emergency, but who am I to say? Most people don't understand just how fragile our system is, martial law is not an unreasonably thought not too far down the road. Our supply chains are time sensitive and very fragile. Take a guess what happens when shelves are suddenly empty at the grocery stores? Nothing pretty, I assure you. Can't happen here?

Well, it's already begining. A little hoarding to start things off proper.

RICE RATIONING IN THE US

Food Rationing Confronts Breadbasket of the World

By JOSH GERSTEIN, Staff Reporter of the Sun | April 21, 2008
MOUNTAIN VIEW, CALIF. — MANY PARTS OF AMERICA, LONG CONSIDERED THE BREADBASKET OF THE world, are now confronting a once unthinkable phenomenon: food rationing.

Major retailers in New York, in areas of New England, and on the West Coast are limiting purchases of flour, rice, and cooking oil as demand outstrips supply. There are also anecdotal reports that some consumers are hoarding grain stocks.

At a Costco Warehouse in Mountain View, Calif., yesterday, shoppers grew frustrated and occasionally uttered expletives as they searched in vain for the large sacks of rice they usually buy.

“Where’s the rice?” an engineer from Palo Alto, Calif., Yajun Liu, said. “You should be able to buy something like rice. This is ridiculous.”

The bustling store in the heart of Silicon Valley usually sells four or five varieties of rice to a clientele largely of Asian immigrants, but only about half a pallet of Indian-grown Basmati rice was left in stock. A 20-pound bag was selling for $15.99.

127   HARM   2008 Apr 22, 7:32am  

EBGuy Says:

So where did this 6x crap come from?
The 6x number is a 30 year average.

Again, let's keep this in perspective: 5-6X income might be common for the more 'desirable' CA municipalities post-Prop.13 (1978), which Randy has demonstrated using Marin Co. as 'prime' example. However, this is simply not so for most of the country, where 2-3X median gross HH income is more like it.

128   northernvirginiarenter   2008 Apr 22, 7:34am  

Sun article on rationing in US from last post

http://www2.nysun.com/article/74994?page_no=1

129   Peter P   2008 Apr 22, 7:35am  

Rationing is anti-market behavior.

We MUST find a way to effectively invest in food and water.

California should introduce the castle doctrine to stop the wave of crime.

I afraid the Mayan might be right about 2012.

130   HARM   2008 Apr 22, 7:36am  

We MUST find a way to effectively invest in food and water.

As long as there's Soylent Green, the world will never run out of food.

131   KurtS   2008 Apr 22, 7:38am  

"I do my own gardening and repair work to the extent I can, and I don’t make extravagant unnecessary purchases...F*ck the Jones’s. “Rich” is a state of mind."

Good call...admittedly I used to be a tool of consumerism, but I saw the future and changed things. And, unless the Jones's have endless liquidity, they truly are f*cked. But prepare yourself for an endless litany of whining by the "demographic of entitlement"--coming soon to a MSM near you.

132   Peter P   2008 Apr 22, 7:39am  

RE: Soylent Green

LOL :)

Anyway, the future for humanity is bleak.

133   HARM   2008 Apr 22, 7:42am  

Rationing is anti-market behavior.

Wrong. *Price* is itself a rationing mechanism. It is but one of many possible rationing mechanisms, though it is the most efficient one discovered thus far, which is why it is the default choice in most open market economies. "Fairness" on the other hand...

134   KurtS   2008 Apr 22, 7:44am  

As long as there’s Soylent Green, the world will never run out of food.

Realtors could be a renewable food source that would be converted during economic downturns.

135   HARM   2008 Apr 22, 7:46am  

Realtors could be a renewable food source that would be converted during economic downturns.

Yes, but what about the gas and horrible aftertaste?

136   Peter P   2008 Apr 22, 7:47am  

HARM, as someone living in the first world, you may not want fairness after all.

Instead of striving for fairness, shouldn't we fight for advantageous unfairness? :)

137   northernvirginiarenter   2008 Apr 22, 7:48am  

I've got a little spot picked out in Brazil where the fishing is good, soil productive, broadband access reasonable, english language books plentiful, and possibly most importantly the local plump bottomed Brazilian girls are very friendly.

Everyone is just so happy and content there. Tempting fantasy or a viable plan? I honestly don't know.

138   Peter P   2008 Apr 22, 7:54am  

Anyway, I just think using the food crisis to promote vegetarianism is a new low for even them.

139   northernvirginiarenter   2008 Apr 22, 8:03am  

Wachovia went so far as to change its models on how quickly loans will go bad in the face of what it called "unprecedented" changes in consumer behaviour.

"I don't know where the tipping point is," Wachovia chief risk officer Don Truslow told analysts on a conference call. "But somewhere when a borrower crosses the 100 percent loan to value, somewhere north of that...their propensity to just default and stop paying their mortgage rises dramatically and really accelerates up. It's almost regardless of how they scored, say, on FICO or other kinds of credit characteristics."

Ummmm helloooooo. This is the guy IN CHARGE of risk for Wachovia? What a lame ass shithead dickwad. "It's not my fault, don't blame me."
Bloody F*ing nonsense.

And I'll bring up Fair Issac again, pushing their monopoly FICO consumer scores. They bear enormous responsiblity, somebody should kill their cash cow business.

Tanta is smoking crack if she thinks walkaways are not an issue. We are about to experience the en masse walkaway. Keep in mind, as of last month, 90% of homeloanowners still believe that THEIR houses have not lost any value. What happens when they finally summon the courage to face reality?

And then all the banksters and economists will refrain with, "who could have predicted it would be this bad". Infuriating.

I'm furious at the latest rounds of "we really couldn't see this coming at all, who could have imagined a real estate downturn?" Talk of $1 Trillion bailouts of Fannie and Freddie. It's really begining to hit home now how all those shitheads who have been living off the home ATM splurging on crap are now about to directly affect my quality of life and I'm pissed off.

140   HARM   2008 Apr 22, 8:11am  

90% of homeloanowners still believe that THEIR houses have not lost any value. What happens when they finally summon the courage to face reality?

Some are born cognizant of reality, some achieve awareness of reality, and others have reality thrust upon them.

In which group do FBs belong?

And then all the banksters and economists will refrain with, “who could have predicted it would be this bad”. Infuriating.

I believe the proper term is "Hoocoodanode?"

141   Peter P   2008 Apr 22, 8:14am  

Some are born cognizant of reality, some achieve awareness of reality, and others have reality thrust upon them.

HARM, we should save this quote somewhere. It is classic.

142   DennisN   2008 Apr 22, 8:22am  

A 20-pound bag [of basmati rice] was selling for $15.99.

If rice is too expensive, let them eat cake. :)

Actually let them eat potatos. I bought a 10 lb bag of potatos this week for $1.59. Rice is only important in cultures without cold storage - potatos would rot there. Heck today I scored a 50 lb bag of really nice medium onions for $4.72.

Food is less of a crisis than oil simply because people can substitute out items who have temporarily spiked in price.

Let's see what the ads say....

FM has FF whole fryers for $0.69 / lb. It's really easy to butterfly-cut a whole fryer for the BBQ. :) Pauls has rib cut pork chops for $1.79 / lb., and 12 oz. pastas for $0.49. With staples like these people shouldn't go hungry, and in fact should eat well.

143   KurtS   2008 Apr 22, 8:26am  

Speaking of oil...I've heard talk in business news of speculation-driven crude prices--has anyone heard anything to support that? Or is it simply like current Au/Ag spot prices, ostensibly supported by "demand"?

144   HARM   2008 Apr 22, 8:31am  

HARM, we should save this quote somewhere. It is classic.

Thanks, but I cannot take full credit for that. It's a modest re-wording of a famous quote from Twelfth Night

145   DennisN   2008 Apr 22, 8:33am  

IIRC the basmati rice Costco sells is imported from India, who has just embargoed any rice exports. So Costco is merely reflecting the shortage manufactured by the government of India.

On the other hand, Idaho has definately not embargoed the export of potatos.

146   Peter P   2008 Apr 22, 8:33am  

If rice is too expensive, let them eat cake.

LOL!

I am just as happy eating rice, pasta, and boiled potatoes. (I hate roasted potatoes)

Speaking of oil…I’ve heard talk in business news of speculation-driven crude prices–has anyone heard anything to support that?

They certainly like blaming speculators. Even if that is true, I don't see anything wrong about that. Let high prices cure high prices.

147   Peter P   2008 Apr 22, 8:35am  

It’s a modest re-wording of a famous quote from Twelfth Night

I wouldn't know... Shakespeare puts me to sleep.

Anyway, life is just a tale told by an idiot. :)

148   OO   2008 Apr 22, 8:45am  

Oil didn't go up in the last 2 weeks if you pay for oil in AUD, Euro or other stronger currencies.

Oil went to $120 because you were looking from the lens of USD. Gold actually went down in AUD. Speculation? Yea, speculation that USD will soon become toilet paper.

149   OO   2008 Apr 22, 8:47am  

I honestly think we should start talking about Au/Ag oil in Euro terms.

I am actually very surprised that inflation of the BA is still rather low. The big jump was at the beginning of the year, but our grocery bill didn't move that much. We didn't substitute either. If anything we shopped more organic now that the price difference is closing.

150   DennisN   2008 Apr 22, 8:50am  

So what is everyone cooking tonight? I'll start off. For me, it's chicken marsala over a bed of rice pilaf.

151   Peter P   2008 Apr 22, 8:51am  

So what is everyone cooking tonight? I’ll start off. For me, it’s chicken marsala over a bed of rice pilaf.

Not cooking tonight. I love chicken marsala.

152   Peter P   2008 Apr 22, 9:01am  

Question: how do you guys caramelize onion?

I could get pretty good results but my rented apartment would smell like onion for a whole week. Any advice?

153   EBGuy   2008 Apr 22, 9:28am  

I am going to disagree with Randy that the HSBC report uses AGI. From Appendix C Income Estimates :
For the 50 states and DC, we have used the Census Bureau historical data on median household income directly for the available years from 1984-2004. These estimates come from the Census’ Annual Social and Economic Supplement to the Current Population Survey.
Everything I've seen on the web regarding CPS ASEC suggests that that their household median numbers are money income (not AGI with its attendant deductions).

HARM said: Again, let’s keep this in perspective: 5-6X income might be common for the more ‘desirable’ CA municipalities post-Prop.13 (1978), which Randy has demonstrated using Marin Co. as ‘prime’ example.
Okay, lets be a bit more exacting; his example was NOT Marin County. As Randy said, 6.3 price-to-income for San Francisco-San Mateo-Redwood City, CA (MSAD). FYI, price-to-income for Oakland-Fremont-Hayward, CA (MSAD) is 5.9 (again, 30 year average). I took both of those and said 6x to come up with a general estimate for the Bay Area. BTW, note that the Oakland MSAD price-to-income spiked to 11.6 by 2005. So using HSBC 2005 income numbers (yes, Oakland MSAD income is more than SF according to HSBC) and historic 30 year ratios we can calculate where median home prices should be (circa 2005):
Oakland MSAD $69,572 * 5.9 = $410,475
SF MSAD $68,087 * 6.3 = $428,946
All this to say, income did not go up that much, so we have a long way to fall (even using the 6x mutlitplier)! For reference SF MSAD median home price (circa Q3 2005) $767,777 and for the Oakland MSAD $804,363. Again all of this is from the HSBC report on Randy's website and the spreadsheet linked by BAI.

154   KurtS   2008 Apr 22, 9:30am  

Oil didn’t go up in the last 2 weeks if you pay for oil in AUD, Euro or other stronger currencies.

Hmm...can you provide a source to support your statement? USD:EURO has fallen about 9% since Feb '08. Does that entirely explain the approx. 31% rise in crude prices (USD) over the same period? Surely the situation is more complex than that--whether or not our currency is "toilet paper". And, since speculation is rampant in other areas, I always question the trends...I'm expecting serial bubbles.

http://tinyurl.com/3a73f9

http://tinyurl.com/c4u59

155   Randy H   2008 Apr 22, 9:48am  

I thought the census derived it's income data from tax filings which implies AGI. I could be wrong. It's been almost 2 years since I really dove deep on these data sets. But I recall determining the original data was AGI-based.

Otherwise the HSBC data is in direct contradiction with numerous other affordability data sets from matching periods. There is no way raw-gross-income supported people buying at 6x income for the past 40 years, not even in this gilded area. As much as the realtors would love to plug that into their economic drug pushing.

156   EBGuy   2008 Apr 22, 9:59am  

Here is a link to the Census Burea website. The data is survey based.

Annual Social and Economic Supplement (ASEC) to the Current Population Survey (CPS)

Because of its detailed questionnaire, the CPS ASEC is the primary source of timely official national estimates of poverty levels and rates and of widely used estimates of household income and individual earnings, as well as the distribution of that income.

The CPS ASEC provides a consistent historical time series of many decades in length at the national level, and can also be used to look at state-level trends and differences (through multi-year averages). The relatively large sampling errors of state-level estimates for smaller states somewhat limit their usefulness.
My head hurts. I haven't had this much fun since the Randy/FAB price-to-rent debates.

157   StuckInBA   2008 Apr 22, 10:03am  

Does this mean sushi will become even more expensive ? :-(

158   Peter P   2008 Apr 22, 10:10am  

Does this mean sushi will become even more expensive ?

Don't worry... we will have more sashimi. :)

159   EBGuy   2008 Apr 22, 10:15am  

There is no way raw-gross-income supported people buying at 6x income for the past 40 years, not even in this gilded area.

Randy note that:
Three of the most widely used measures of household income are BEA’s measure of personal income, the Census Bureau’s measure of money income, and the Internal Revenue Service’s measure of adjusted gross income of individuals.
Money income seems to be what is used in the HSBC report . Personal income (aka raw-gross-income?) appears to be substantially more than money income used in the CPS ASEC reports. See this link.

160   DennisN   2008 Apr 22, 10:41am  

Don’t worry… we will have more sashimi.

That sounds like a raw deal to me.

Whenever I caramelize onions, I throw in enough garlic so you don't smell the onions.

There are benefits to being a batchelor......

Peter, do you have a gas barbeque? You could always move smelly cooking outdoors.

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