Post by: m1911owner on August 16, 2007, 08:37:53 AM
(Unless, of course, that's their plan, but that's a different thread...)I suppose this is probably already general knowledge to everybody except me. I'm a little slow sometimes.
There is probably a lesson in there somewhere about why we shouldn't have an organization like the Federal Reserve tinkering with the economy...
Post by: The Rabbi on August 16, 2007, 08:39:48 AM
Post by: Manedwolf on August 16, 2007, 08:41:15 AM
Post by: m1911owner on August 16, 2007, 08:43:48 AM
Of course they can raise rates. In fact they probably need to as inflation is still a problem. They wont do it until the current "turmoil" settles down. But they have other ways of controlling the money supply as well.
I meant, of course, that they "can't" as a practical matter. If they are willing to ignore the consequences, they can, of course, do whatever they danged well want to do.
Post by: AJ Dual on August 16, 2007, 09:35:06 AM
All those over extended borrowers who bought more house than they could afford are having the fixed teaser rates on their ARM's ending, balloon paments come due etc. If that weren't true, we wouldn't be in the first stages of the crisis without the Fed even doing anything yet.
A lot of them can't afford the based-on-prime ARM rate as it is. But by trying to leave prime alone as long as they dare, I'm guessing the Fed's hoping at least some of the least irresponsible buyers can re-fi into traditional fixed mortgages and will mitigate some of the worst of the housing/lending collapse.
It's a dangerous "try to please everyone" game they're playing...
Post by: Manedwolf on August 16, 2007, 09:38:17 AM
I really can't feel any sympathy for someone who does that to themselves. And I want to smack Edwards every time he suggests using taxpayer dollars to bail people like that out! It'd be punishing ME for being responsible and not buying a house I couldn't afford...and using my tax dollars to do it, keeping people in cushy houses they shouldn't have bought in the first place. That's saying "Awwww...too bad, see, you could have bought and be living in an ultra-luxury big house you can't afford, and we'd bail you out, but you kept to a rental condo and saved instead, so too bad, you missed out on the fun!"
Post by: m1911owner on August 16, 2007, 09:44:16 AM
All those over extended borrowers who bought more house than they could afford...
In defense of those "over-extended borrowers" (which they in fact are), many were not irresponsible people who were seeking extravagant living that they hadn't earned. Instead, they were merely seeking to buy a reasonable, modest home for their families, the price of which had been bid up to far more than what fundamentals will support by artificially-low interest rates combined with speculation.
Post by: m1911owner on August 16, 2007, 09:47:35 AM
As to that ARM thing, the news just had a bit on this morning mentioning a family in CA... they bought a $579,000 home...
You illustrate my point. A $579,000 home in California is a two-bedroom shack that's about to collapse from dry rot. (If fact, I don't think there is anything available around here that's even close to that cheap.)
I agree with you that absolutely they should not be bailed out with our tax money.
What should happen is what is happening--the market is collapsing, which will bring the cost of homes back to some reasonable connection with fundamental values.
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"Awwww...too bad, see, you could have bought and be living in an ultra-luxury big house you can't afford...
Again, that was no "ultra-luxury big house" they bought with the $579,000; that much gets you a grotesquely-overpriced shanty that's about to fall down. (Edit: Actually, come to think about, around here that won't even get you a shack that has already fallen down.
)(By the way, I'm with you--I'm in a rental.)
Post by: m1911owner on August 16, 2007, 10:09:32 AM
The point of my original post is that the Fed is now pretty much stuck with current interest rates, unless they want to further exacerbate the problem that they've created in the real estate market. (Which, from my point of view as a renter, just might be a good thing, because it would bring the cost of buying a house back to a sane level. But, on the other hand, it would result in a huge loss of net-worth in the country, which would have many serious ripple effects.)
Post by: The Rabbi on August 16, 2007, 10:10:15 AM
But the problem has been there is too much liquidity (read: money chasing assets). So if the Fed bails out the banks and mortgage companies they will be setting an awful precedent and things will get worse.
I'd rather see a bunch of people suffer for their bad decisions and shake out the bond and housing market now.
Post by: m1911owner on August 16, 2007, 10:12:50 AM
... So if the Fed bails out the banks and mortgage companies they will be setting an awful precedent and things will get worse.
I'd rather see a bunch of people suffer for their bad decisions and shake out the bond and housing market now.
I'd rather see a bunch of people suffer for their bad decisions and shake out the bond and housing market now.
Agreed.
Post by: Manedwolf on August 16, 2007, 10:16:41 AM
Post by: m1911owner on August 16, 2007, 10:20:06 AM
Which of course just makes your point even more strongly than you already did.
Post by: Manedwolf on August 16, 2007, 10:26:24 AM
If you go closer to the commuter distance to Boston, even southern NH, it goes up exponentially from there.
Post by: Len Budney on August 16, 2007, 10:30:05 AM
That's what a starter house in Northern New England generally goes for.
Yep, I can testify. You can get a reasonable home in central Connecticut for about $300K, if you don't care about your commute. It's all about location. For example, my five-bedroom starter home in Pittsburgh set me back almost $60K. (now where's that "neener" emoticon when you need it?
)--Len.
Post by: The Rabbi on August 16, 2007, 10:52:42 AM
A starter house for $350,000?? What fanatsy world are you living in? That will maybe get you a starter studio condo in a drug-infested neighborhood.
Which of course just makes your point even more strongly than you already did.
Which of course just makes your point even more strongly than you already did.
And that point would be, what exactly? That CA real estate is expensive? Monaco is expensive too. Paris is expensive. Tokyo is expensive. So what??
Post by: m1911owner on August 16, 2007, 10:57:24 AM
A starter house for $350,000?? What fanatsy world are you living in? That will maybe get you a starter studio condo in a drug-infested neighborhood.
Which of course just makes your point even more strongly than you already did.
Which of course just makes your point even more strongly than you already did.
And that point would be, what exactly? That CA real estate is expensive? Monaco is expensive too. Paris is expensive. Tokyo is expensive. So what??
OK, I'll acknowledge that comment of mine as over-the-top. In reality, I'm the one living in a fantasy world--the fantasy world known as "California."
Post by: The Rabbi on August 16, 2007, 11:17:48 AM
I understand some people's frustration at not being able to buy a house where they want, or struggling to pay for it. But so what? There is no right to live in CA. If it's too expensive, move.
My oldest brother was going to take a job at Stanford (this was over 20 years ago). He could afford about $250k, which was a lot then. He found himself looking at fixer uppers in bad neighborhoods. So he went to Portland instead and bought some huge house with a view of Mt Hood. Moral of the story, if you don't have the stakes, don't play the game.
Post by: roo_ster on August 16, 2007, 11:37:50 AM
...But the problem has been there is too much liquidity (read: money chasing assets). So if the Fed bails out the banks and mortgage companies they will be setting an awful precedent and things will get worse...
It is called "moral hazard," IIRC.http://en.wikipedia.org/wiki/Moral_hazard#Moral_hazard_in_economics
Post by: SomeKid on August 16, 2007, 12:03:55 PM
Post by: The Rabbi on August 16, 2007, 12:10:57 PM
Gotta love living in the South I guess. for 100k you can buy the land and build your own very nice home. Starter houses in bad neighborhoods with virtually no commute time to the downtown I have seen go for under 10k.
Hey, squelch that talk, Kid. We got enough Californicators here already.
Post by: jnojr on August 16, 2007, 12:46:51 PM
In defense of those "over-extended borrowers" (which they in fact are), many were not irresponsible people who were seeking extravagant living that they hadn't earned. Instead, they were merely seeking to buy a reasonable, modest home for their families, the price of which had been bid up to far more than what fundamentals will support by artificially-low interest rates combined with speculation.
Doesn't matter. If you can't afford it, you can't afford it. There is no "right" to home ownership. All of those people should be renting.
Post by: m1911owner on August 16, 2007, 01:02:28 PM
Doesn't matter. If you can't afford it, you can't afford it. There is no "right" to home ownership. All of those people should be renting.
I'm not suggesting that there is any right to home ownership. I'm merely objecting to the assertion that those with failing mortgages are all irresponsible people seeking a lifestyle of grandeur and luxury, when it is very likely that many of them were relatively responsible people trying to buy a very modest home. And further, I understand that in many cases we are talking about people who were defrauded by mortgage brokers who concealed from them the nature of the negative amortization and "teaser" rates of their mortgages.
I'm in no way suggesting that we should bail them out. I'm only pointing out that much (not all) of the blame for this situation lays at the feet of the Federal Reserve. I'm not inclined to heap a lot of guilt on those who were indeed victimized by the market created by the Federal Reserve. These people still are responsible for the consequences of their actions, but I don't see that the "blame" for this situation is totally theirs.
And BTW, renting is getting awfully expensive, too.
Post by: The Rabbi on August 16, 2007, 01:23:30 PM
Doesn't matter. If you can't afford it, you can't afford it. There is no "right" to home ownership. All of those people should be renting.
I'm not suggesting that there is any right to home ownership. I'm merely objecting to the assertion that those with failing mortgages are all irresponsible people seeking a lifestyle of grandeur and luxury, when it is very likely that many of them were relatively responsible people trying to buy a very modest home. And further, I understand that in many cases we are talking about people who were defrauded by mortgage brokers who concealed from them the nature of the negative amortization and "teaser" rates of their mortgages.
I'm in no way suggesting that we should bail them out. I'm only pointing out that much (not all) of the blame for this situation lays at the feet of the Federal Reserve. I'm not inclined to heap a lot of guilt on those who were indeed victimized by the market created by the Federal Reserve. These people still are responsible for the consequences of their actions, but I don't see that the "blame" for this situation is totally theirs.
And BTW, renting is getting awfully expensive, too.
Why is it there has to be "victims" and "defrauders"??
The people with mortgages they cannot pay are not victims. I worked in the mortgage business for 9 years. It is one of the most regulated supervised businesses there are. I know of no other business where you have to tell the customer how much money you are making on the transaction.
Some of the borrowers were trying to live in luxury. Some of them just wanted a starter home. All of them had the opportunity to read the contract before they signed, ask questions, have attorneys review it, etc. They signed the papers betting things would continue as they were.
They bet wrong.
The lenders loaned money betting on higher wages and higher home prices.
The bet wrong too.
That's too bad but there are no guarantees in life. Buying a house (like writing mortgages) is an investment and all investment involves risk. Sometimes risk means you lose money. Welcome to the real world.
Post by: jnojr on August 16, 2007, 01:33:14 PM
I'm not suggesting that there is any right to home ownership. I'm merely objecting to the assertion that those with failing mortgages are all irresponsible people seeking a lifestyle of grandeur and luxury, when it is very likely that many of them were relatively responsible people trying to buy a very modest home.
Who cares how they're characterized? They bought houses they can't afford. It doesn't matter if they bought them to provide shelter to starving orphans. Their intentions matter exactly nothing... only their ability to pay.
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And further, I understand that in many cases we are talking about people who were defrauded by mortgage brokers who concealed from them the nature of the negative amortization and "teaser" rates of their mortgages.
They were not "defrauded". They may very well have signed paperwork they didn't understand. Doubtless, in many cases, they allowed themselves to be misled. But, seriously, who ever expected that someone making $40K per year could afford a $600K house?
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I'm in no way suggesting that we should bail them out. I'm only pointing out that much (not all) of the blame for this situation lays at the feet of the Federal Reserve.
And I would agree with that. But the point remains... they should have rented, not rushed out to buy houses they couldn't afford just because the prices dictated by the market weren't "fair".
Quote
I'm not inclined to heap a lot of guilt on those who were indeed victimized by the market created by the Federal Reserve. These people still are responsible for the consequences of their actions, but I don't see that the "blame" for this situation is totally theirs.
Where does "blame" come into this? The owe money they cannot pay. Looking for "reasons" is the first step towards excuses and then "bailouts".
Quote
And BTW, renting is getting awfully expensive, too.
That'll happen. What's your point? If rent becomes "too much", like house prices are currently "too much", then the market corrects that situation.
Post by: French G. on August 16, 2007, 01:45:46 PM
Besides the sub-prime mess, the market is nervous now, they will be more nervous the more people like John Edwards or Hillary say "tax, capital gains, or health care", economic warfare will heat up internationally because with the coming Olympics it is quite the sport to stick it to the Chinese. I enjoy the show but pretty soon Joe sixpack will not want to buy Chinese and won't be able to afford to buy American. Factor in the traditionally crappy stock months of August-October and hopefully a hurricane season that shows us a little something and I think now is most certainly not the bottom.
So, I agree, no way the Fed can tighten down the money valve anytime soon without writing a whole new meaning to market bottom. Between Wal-Mart saying they see weakness in the economy and pressure on the consumer and the Treasury Sec. today saying the economy is in good shape I'll take Wal-Mart. In many ways the economy is in great shape. In many ways the Titanic was a great ship too except for those pesky bulkheads that did not go all the way to the overhead and some incredible pile of hubris at its con.
Post by: m1911owner on August 16, 2007, 02:00:06 PM
There is some sentiment among the eternal optimists that today we "found bottom",
I know a researcher at the Hoover Institute. At a Christmas party in 2, he told me how he thought Greenspan really had "the touch", and that he was going to "soft-land this thing."
Post by: m1911owner on August 16, 2007, 02:05:42 PM
Rather, I think that it is interesting that the Fed probably can't raise interest rates. I think this has major ramifications for where the economy is going to be going over the next year or two, though I don't yet have enough understanding of the dynamics of the economy to be able to understand where this is going to be taking us.
I think it is likely that we are going to be seeing further problems in the real estate market. Inflation is also a possibility, although dropping real estate values would seen to have the effect of removing "net worth" from the economy, which would seem to operate in the opposite direction from inflation.
Post by: SomeKid on August 16, 2007, 04:04:06 PM
Around here it tends to be New Yorkers and other Yankee types what come down here. Good point though, we don't need to advertise cause I don't want either one.
Post by: The Rabbi on August 16, 2007, 04:05:33 PM
Rabbi,
Around here it tends to be New Yorkers and other Yankee types what come down here. Good point though, we don't need to advertise cause I don't want either one.
I meet both kinds.Around here it tends to be New Yorkers and other Yankee types what come down here. Good point though, we don't need to advertise cause I don't want either one.
I grew up in NYC btw.
Post by: SomeKid on August 16, 2007, 04:08:01 PM
Actually, you can stay. I somehow don't see you as the Harold Ford loving liberal worm type. Some of the ones I have met however have been. Need less to say, I really wish they would go away.
Post by: The Rabbi on August 16, 2007, 04:12:44 PM
Post by: AJ Dual on August 16, 2007, 04:39:52 PM
As to my comment about over-extended borrowers. I do feel for them. The example of the warehouse manager with a $500,000+ mortgage was probably on a tiny bungalow, depending on where he was in CA, that aside from the dollar value, probably was commensurate, if not below his station in life.
That is not lost on me.As a right-libertarian, I don't think there's any solution the .gov ought to have for those people though, it'll only make things worse.
Post by: French G. on August 16, 2007, 06:28:42 PM
I know a researcher at the Hoover Institute. At a Christmas party in 2, he told me how he thought Greenspan really had "the touch", and that he was going to "soft-land this thing."
ROFL. Maybe Helicopter Ben is better, but this may look more like an autorotation to a smoking heap of wreckage by the time it's done.
Post by: roo_ster on August 17, 2007, 02:03:46 AM
It very well could be a problem with Wal-mart, not the consumer. As a regular customer, have seen WM drift from its core competency into Target territory by dropping the cheap lines and trying to go a bit upscale.
They are stocking pricier stuff without the whole-hog makeover that Target already did into a provider of "less cheap cool-looking stuff."
Thing is, Target does that schtick better. And while WM is playing at the cool end of the pool, it loses customers on the not-so-cool end who want thier super-cheap (but functional) stuff.
Post by: The Rabbi on August 17, 2007, 04:07:15 AM
Post by: Len Budney on August 17, 2007, 04:13:07 AM
Well, they did it. Fed cut discount rate 1/2 percent this morning. Bailing out the stupid. It never works. They will be very sorry they did this.
I'm waiting for negative rates. Then I plan to borrow a million dollars at -5%, use the kickback to pay off my mortgage, and then give 'em back the principle.
--Len.
Post by: Manedwolf on August 17, 2007, 06:03:09 AM
Quote
Aug. 17 (Bloomberg) -- The dollar fell versus the euro and pound after the Federal Reserve reduced its discount lending rate to prevent credit market losses from slowing the economy.
The dollar weakened against 15 of 16 major currencies as a reduction in borrowing costs dims the allure of U.S. assets. The decline today trimmed the dollar's weekly advance as investors had sought safety in the currency after a global rout of credit markets. U.S. and European stocks rallied.
The dollar weakened against 15 of 16 major currencies as a reduction in borrowing costs dims the allure of U.S. assets. The decline today trimmed the dollar's weekly advance as investors had sought safety in the currency after a global rout of credit markets. U.S. and European stocks rallied.
A reduction in that rate makes the dollar less attractive. There's no such thing as an easy fix. Everything has a cost.
Post by: K Frame on August 17, 2007, 06:21:21 AM
Post by: jnojr on August 17, 2007, 09:18:49 AM
Not really so much bailing out the stupid as it is trying to stabilize the markets and ensure that credit of all kinds doesn't tighten up too much.
Exactly.
However, this illustrates a huge problem with our economy. The recent downturn has been caused by tighter credit. Credit is now "the lifeblood of our economy". Businesses used to use cash for operations, acquisitions, etc. No more! Countrywide tapped $11.5 billion in credit for day to day operations! When credit gets tight, the economy suffers... and nobody is seeing this as a huge sign of impending trouble? Our economy is utterly dependant upon an ever-increasing supply of cheap money?
Post by: K Frame on August 19, 2007, 07:31:12 AM
Well, not entirely.... It's certainly a contributing factor, though.
The problems in the subprime mortgage market have scared a lot of investors out of stocks and back into more secure investment vehicles. Multiple subprime lender failures certainly haven't helped. Many of the remaining subprime lenders slapped the brakes on lending, which roils the hell out of the housing market in general. As the housing market gets rocky, companies such as appliance manufacturers are affected, which causes people to pull money out of those companies, and so forth and so on.