Over the last 54 years I have owned 18 houses. That’s one every three years. Why? Because I love owning the place where I live. I also love building and fixing-up houses. My wife has often said I should have been a home builder, not a pilot.
We even bought our houses when I was in the Navy and knew we would be moving in 2-3 years.
I’ve both made and lost money on my houses. Overall, I’m ahead financially and the emotional rewards have been huge.
Today I see many articles and blog posts that say it’s stupid for anyone to buy a house. I think that heralds the bottom of the real estate market. When no one wants to buy a house is when the pickings are good. My wife doesn’t want me climbing up on ladders or crawling around in crawl spaces as I’ve done so much of in the past. My days of that are past. But if I were 15-20 years younger I would be looking to buy cheap property with an eye to the next ten years.
IMNSHO, Obama could stop the housing decline quite easily by asking Congress to pass a law providing enhanced depreciation and 5% capital gains for the next seven years on foreclosures that are bought and turned into rentals. But it won’t happen because someone might make a profit and that is a dirty word under the Obama administration. Sighhh!
Well whadayaknow, there is someone else in the entire state of Maine with half an once of sense after all.
IMNSHO is an acronym partially over my head.
But I am in principle troubled by tweaking systems in order to generate social “goods” in the short term. Such tweaks can become permanent, yielding a harvest of unintended consequences over the long term, which the short-term tweakers never had reason or foresight to contemplate.
It’s all about the phenom called “The Austrian Demand Limit”. I’m in the middle of the Kindle version (on my PC), for, I think, $9.99 for the book “Return of the Great Depression”, a lot of interesting and very relevant material; but you can, apparently, get it for $1.99 in a different format here to read on your pc:
You said: “But I am in principle troubled by tweaking systems in order to generate social “goods” in the short term.”
The problem we have is deflation. Deflation is not easily defeated. Japan has been struggling with it for the last twenty years. We experienced it here during the 1930s. Don’t know how old you are, but I have seen such short term policies instituted and dropped several times in my adult life. Usually in response to the threat of deflation. When prices keep going lower, humans tend to postpone purchases, waiting for lower prices. That leads to higher savings and ever lower economic activity = Depression! It becomes a self-fulfilling spiral.
A maxim that is well known to investors: Money tends to flow where it receives the best treatment. Policies (and all policies are short term) that discourage investing and major purchases create a downward spiral of lower economic activity and increasing joblessness. As an example: Interest rates are another part of economic policies that are used to foster economic activity. We’re effectively at -1/2% right now. So that tool is has done all it can do. When economic activity picks up, interest rates will be adjusted upward. (Short term policy again.)
Obama could revive the economy very quickly with a two year extension of the Bush tax cuts (short term policy), providing streamlined permitting for nuclear power plants, opening our offshore areas and ANWR for oil exploration, and dropping corporate taxes to 20-25%. (Corporate taxes ought to be much lower because corporations do not pay taxes; their customers do.) He won’t do it because someone might make some money and the Big Green Monkey of the environmentalist movement is draped all over his back.
When you hear people call for letting the housing market fall to whatever level it would go to without government policies to prop it up, they do not know what they are asking for. The amounts that have been lost in real estate to this point are humongous but can be worked off over a period of five-ten years or so.(Short term again) However, those losses can be much, much larger (More than the present national debt!) if the psychology of deflation is allowed to take hold. Would we have any chance of ever getting our economy started with so much wealth destroyed? Yes, but it would be much harder starting from such a low level.
On the other hand, maybe I’m full of it and all I think I learned in the last 54 years is wrong. Maybe Obama and the environmentalists are right.
This scenario about how the crash was the peoples fault has been going around the internet on the blogs for about 4 years now. Here’s another scenario for you:
1991 Penny Pritzker, a Lib Dem, of Superior Bank comes up with the Mortgage Backed Security to sell portfolio’s of Sub Prime loans from her Bank.
1995 JP Morgan comes up with the Credit Default Swap as a Hedge against any loss they may incur from the purchase of the Sub Prime tier of CDO’s.
2000, ACORN goes after Ameriquest and Ameriquest makes a big Donation and teams with ACORN to sell their 100% no Down no Doc loans. Paul Sarbanes tells the then CEO of Ameriquest Kirk Lang in front of the Senate Banking Committee “you guys do it right”.
2003, Roland Arnall of Ameriquest, after years as a liberal Democrat, changes parties and backs Arnold S. for Gov. over Gray Dufuss and becomes a support of President Bush. Arnall becomes a Neo-Con and finances a private intelligence gathering community headed up by Michael Ledeen. The Left headed by George Soro’s unsheathes the long knives.
2005, Eliot Spitzer a Democratic Presidential hopeful goes after Ameriquest.
2005, John Paulson the head of Paulson & Co. Hedge Fund has a lunch meeting with Soros and they begin buying CDS’s against Ameriquest CDO’s and shorting the ABX. George Soros nephew is the largest investor in Paulson’s fund. Paulson and Goldman Sachs set up the Abacus Fund loaded with companies that are buyers of Ameriquest CDO’s. As an aside, Soros warns his close associates Herb and Marion Sandler, the owners of World Savings the originators of the Adjustable Rate Mortgage, to sell out which they did just before the crash making a cool 21 Billion dollars.
As more CDS’s are bought, automatic triggers for drops in ratings from Moody’s, Fitch, MBIC etc are triggered.
2006, Ameriquest can’t sell CDO’s because the ratings are dropping. The Hedge Fund Sharks smell blood and circle, buying every CDS they can get and begin buying them against the other Sub Prime CDO’s from other Investment Banks and Lenders and anyone who bought Sub Prime CDO’s.
2007 New Century and Ameriquest are bled to death (Citigroup led by a Lib Dem, Robert Rubin, picked up the pieces of both) and fold. Paulson makes 14 Billion, Soros makes 13 Billion. The Hedge Fund Managers go into full feeding frenzy and buy CDS against anything that lends money and then begin using Naked Shorts to make sure the ratings drop on the Investment Banks making their CDS explode in value. Also, the companies issuing the Mortgage Bonds can’t find enough crappy loans to issue bonds on to create the other side of the CDS trade so the start writing phony Bonds backed by nothing.
2008 Bear Stearns is nearly driven into the dirt by the Hedge Funds and the game is exposed.
2008 The FED steps in and backs Wall Street making CDS held by Hedge Funds worth pennies on the dollar and the redemptions begin as wealthy Sovereign Funds and Pension Funds put sell orders in to get their money before the Hedge Funds go belly up. Hedge Funds sell everything in sight to cover the redemptions, almost crashing the stock market and commodities. Almost 50% of Hedge Funds are gone now.
Soros has purposefully crashed the Mortgage Market, the Housing Market and the US Economy with two outcomes in mind. 1) Cut off funding for the Conservatives (Real Estate, Home Builders and Mortgage Industries are big contributors to Republicans) and 2) Crash the Economy and insure his candidate Barrack Obama is elected President. This is what happened and either financial columnist like the one that wrote this article are stupid or they are covering Soros’s butt for him.
Trebuchet,
I’ve just finished reading “TOO BIG TO FAIL,” by Andrew Ross Sorkin. Very well researched story of the meltdown. Your timeline as laid out is correct, but, if Sorkin is right, the melt down was not so much due to a nefarious plot by Soros or any other financial player.
My take away is that these companies got started with the derivatives kind of slowly, but as the housing boom continued and the money was good, they kept piling on the leverage – some to the tune of 41 times. The quants kept telling them that everything was okay as long as housing didn’t decline by more than 6%. The conventional wisdom was that housing was never going down by that much. Whoops!! When things began to unravel, there were hedge funds and shorts who kept pushing rumors about worthless derivatives and falling assets. The shorts used naked shorting to drive the equities down and soon all the banks were undercapitalized and in need of raising capital. Good luck on that when everybody “knew” their assets were all toxic. Adding fuel to the fire was the FASBs insistence on marking the illiquid derivatives (MBSs, CDOs, etc.) to a non-existent market.
I was amazed at how surprised the CEOs Dimon, Blankfein, Fuld, Pandit, Lewis, Thain and many others were to find themselves backed into corners from which they could not escape without government intervention. The biggest mistake made, according to the book, was to let Lehman Brothers go bankrupt. The conventional wisdom at Treasury was that it would calm the markets. It had just the opposite effect.
It was the easy money when times were good, the desire to out compete their rivals, and not understanding how dangerously over leveraged they were that led to the crisis. These very smart men and women who made so much money, turned out to be all too human when things turned against them.
It was the TARP guarantee and the eventual dropping of the mark to market rule by FASB that stopped the carnage. TARP was a Hail Mary pass to shore up investor psychology. Imperfect as it was, it worked. But things did not really stabilize until the mark to market rule was dropped in February of 2009.
You may be right that Soros or some other evil character is behind the crisis, but the evidence I have seen so far does not bear that out.
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Over the last 54 years I have owned 18 houses. That’s one every three years. Why? Because I love owning the place where I live. I also love building and fixing-up houses. My wife has often said I should have been a home builder, not a pilot.
We even bought our houses when I was in the Navy and knew we would be moving in 2-3 years.
I’ve both made and lost money on my houses. Overall, I’m ahead financially and the emotional rewards have been huge.
Today I see many articles and blog posts that say it’s stupid for anyone to buy a house. I think that heralds the bottom of the real estate market. When no one wants to buy a house is when the pickings are good. My wife doesn’t want me climbing up on ladders or crawling around in crawl spaces as I’ve done so much of in the past. My days of that are past. But if I were 15-20 years younger I would be looking to buy cheap property with an eye to the next ten years.
IMNSHO, Obama could stop the housing decline quite easily by asking Congress to pass a law providing enhanced depreciation and 5% capital gains for the next seven years on foreclosures that are bought and turned into rentals. But it won’t happen because someone might make a profit and that is a dirty word under the Obama administration. Sighhh!
Well whadayaknow, there is someone else in the entire state of Maine with half an once of sense after all.
IMNSHO is an acronym partially over my head.
But I am in principle troubled by tweaking systems in order to generate social “goods” in the short term. Such tweaks can become permanent, yielding a harvest of unintended consequences over the long term, which the short-term tweakers never had reason or foresight to contemplate.
It’s all about the phenom called “The Austrian Demand Limit”. I’m in the middle of the Kindle version (on my PC), for, I think, $9.99 for the book “Return of the Great Depression”, a lot of interesting and very relevant material; but you can, apparently, get it for $1.99 in a different format here to read on your pc:
http://www.scribd.com/doc/21344045/Return-of-the-Great-Depression
Tom,
IMNSHO =In my not so humble opinion.
You said: “But I am in principle troubled by tweaking systems in order to generate social “goods” in the short term.”
The problem we have is deflation. Deflation is not easily defeated. Japan has been struggling with it for the last twenty years. We experienced it here during the 1930s. Don’t know how old you are, but I have seen such short term policies instituted and dropped several times in my adult life. Usually in response to the threat of deflation. When prices keep going lower, humans tend to postpone purchases, waiting for lower prices. That leads to higher savings and ever lower economic activity = Depression! It becomes a self-fulfilling spiral.
A maxim that is well known to investors: Money tends to flow where it receives the best treatment. Policies (and all policies are short term) that discourage investing and major purchases create a downward spiral of lower economic activity and increasing joblessness. As an example: Interest rates are another part of economic policies that are used to foster economic activity. We’re effectively at -1/2% right now. So that tool is has done all it can do. When economic activity picks up, interest rates will be adjusted upward. (Short term policy again.)
Obama could revive the economy very quickly with a two year extension of the Bush tax cuts (short term policy), providing streamlined permitting for nuclear power plants, opening our offshore areas and ANWR for oil exploration, and dropping corporate taxes to 20-25%. (Corporate taxes ought to be much lower because corporations do not pay taxes; their customers do.) He won’t do it because someone might make some money and the Big Green Monkey of the environmentalist movement is draped all over his back.
When you hear people call for letting the housing market fall to whatever level it would go to without government policies to prop it up, they do not know what they are asking for. The amounts that have been lost in real estate to this point are humongous but can be worked off over a period of five-ten years or so.(Short term again) However, those losses can be much, much larger (More than the present national debt!) if the psychology of deflation is allowed to take hold. Would we have any chance of ever getting our economy started with so much wealth destroyed? Yes, but it would be much harder starting from such a low level.
On the other hand, maybe I’m full of it and all I think I learned in the last 54 years is wrong. Maybe Obama and the environmentalists are right.
This scenario about how the crash was the peoples fault has been going around the internet on the blogs for about 4 years now. Here’s another scenario for you:
1991 Penny Pritzker, a Lib Dem, of Superior Bank comes up with the Mortgage Backed Security to sell portfolio’s of Sub Prime loans from her Bank.
1995 JP Morgan comes up with the Credit Default Swap as a Hedge against any loss they may incur from the purchase of the Sub Prime tier of CDO’s.
2000, ACORN goes after Ameriquest and Ameriquest makes a big Donation and teams with ACORN to sell their 100% no Down no Doc loans. Paul Sarbanes tells the then CEO of Ameriquest Kirk Lang in front of the Senate Banking Committee “you guys do it right”.
2003, Roland Arnall of Ameriquest, after years as a liberal Democrat, changes parties and backs Arnold S. for Gov. over Gray Dufuss and becomes a support of President Bush. Arnall becomes a Neo-Con and finances a private intelligence gathering community headed up by Michael Ledeen. The Left headed by George Soro’s unsheathes the long knives.
2005, Eliot Spitzer a Democratic Presidential hopeful goes after Ameriquest.
2005, John Paulson the head of Paulson & Co. Hedge Fund has a lunch meeting with Soros and they begin buying CDS’s against Ameriquest CDO’s and shorting the ABX. George Soros nephew is the largest investor in Paulson’s fund. Paulson and Goldman Sachs set up the Abacus Fund loaded with companies that are buyers of Ameriquest CDO’s. As an aside, Soros warns his close associates Herb and Marion Sandler, the owners of World Savings the originators of the Adjustable Rate Mortgage, to sell out which they did just before the crash making a cool 21 Billion dollars.
As more CDS’s are bought, automatic triggers for drops in ratings from Moody’s, Fitch, MBIC etc are triggered.
2006, Ameriquest can’t sell CDO’s because the ratings are dropping. The Hedge Fund Sharks smell blood and circle, buying every CDS they can get and begin buying them against the other Sub Prime CDO’s from other Investment Banks and Lenders and anyone who bought Sub Prime CDO’s.
2007 New Century and Ameriquest are bled to death (Citigroup led by a Lib Dem, Robert Rubin, picked up the pieces of both) and fold. Paulson makes 14 Billion, Soros makes 13 Billion. The Hedge Fund Managers go into full feeding frenzy and buy CDS against anything that lends money and then begin using Naked Shorts to make sure the ratings drop on the Investment Banks making their CDS explode in value. Also, the companies issuing the Mortgage Bonds can’t find enough crappy loans to issue bonds on to create the other side of the CDS trade so the start writing phony Bonds backed by nothing.
2008 Bear Stearns is nearly driven into the dirt by the Hedge Funds and the game is exposed.
2008 The FED steps in and backs Wall Street making CDS held by Hedge Funds worth pennies on the dollar and the redemptions begin as wealthy Sovereign Funds and Pension Funds put sell orders in to get their money before the Hedge Funds go belly up. Hedge Funds sell everything in sight to cover the redemptions, almost crashing the stock market and commodities. Almost 50% of Hedge Funds are gone now.
Soros has purposefully crashed the Mortgage Market, the Housing Market and the US Economy with two outcomes in mind. 1) Cut off funding for the Conservatives (Real Estate, Home Builders and Mortgage Industries are big contributors to Republicans) and 2) Crash the Economy and insure his candidate Barrack Obama is elected President. This is what happened and either financial columnist like the one that wrote this article are stupid or they are covering Soros’s butt for him.
Trebuchet,
I’ve just finished reading “TOO BIG TO FAIL,” by Andrew Ross Sorkin. Very well researched story of the meltdown. Your timeline as laid out is correct, but, if Sorkin is right, the melt down was not so much due to a nefarious plot by Soros or any other financial player.
My take away is that these companies got started with the derivatives kind of slowly, but as the housing boom continued and the money was good, they kept piling on the leverage – some to the tune of 41 times. The quants kept telling them that everything was okay as long as housing didn’t decline by more than 6%. The conventional wisdom was that housing was never going down by that much. Whoops!! When things began to unravel, there were hedge funds and shorts who kept pushing rumors about worthless derivatives and falling assets. The shorts used naked shorting to drive the equities down and soon all the banks were undercapitalized and in need of raising capital. Good luck on that when everybody “knew” their assets were all toxic. Adding fuel to the fire was the FASBs insistence on marking the illiquid derivatives (MBSs, CDOs, etc.) to a non-existent market.
I was amazed at how surprised the CEOs Dimon, Blankfein, Fuld, Pandit, Lewis, Thain and many others were to find themselves backed into corners from which they could not escape without government intervention. The biggest mistake made, according to the book, was to let Lehman Brothers go bankrupt. The conventional wisdom at Treasury was that it would calm the markets. It had just the opposite effect.
It was the easy money when times were good, the desire to out compete their rivals, and not understanding how dangerously over leveraged they were that led to the crisis. These very smart men and women who made so much money, turned out to be all too human when things turned against them.
It was the TARP guarantee and the eventual dropping of the mark to market rule by FASB that stopped the carnage. TARP was a Hail Mary pass to shore up investor psychology. Imperfect as it was, it worked. But things did not really stabilize until the mark to market rule was dropped in February of 2009.
You may be right that Soros or some other evil character is behind the crisis, but the evidence I have seen so far does not bear that out.