Jump to content

Anybody interested in current economics??


Recommended Posts

On a macro level, it's great to see banks being picky about their loan making, doing realistic appraisals, and demanding down payments of 10%. On a personal level, it's sad to see these folks getting squeezed among their three houses. My guess is they cut the price again.

Risk appraisal has to be part of the equation for owners also. If these people went ahead and bought a third home without selling one of the other two and now have to drop the price, why should we feel sorry for them?

because this is america and biting off more than one can chew through reliance on other people's willingness to also bite off more than they can chew, in order to facilitate your greed, is the american way. you a commie or something?

  • Like 1
Link to post
Share on other sites
  • Replies 141
  • Created
  • Last Reply

Top Posters In This Topic

Top Posters In This Topic

Popular Posts

An economist's take on Fed's August 27, 2010 speech on economic conditions and monetary policy...     Leeds on Finance, the August 30 column

exactly.

because this is america and biting off more than one can chew through reliance on other people's willingness to also bite off more than they can chew, in order to facilitate your greed, is the america

The guy seems to be neither much of a research person, nor particularly close to markets. None of this is anything that you couldn't have read in the ft at least a year ago.

 

But I'm a little confused about the idea that the private sector needs to get cracking on job creation. The private sector has neither the moral obligation nor the economic ability to create jobs when there's no demand for what they sell. US consumers obtained credit that was far too cheap. Both borrowers and lenders assumed it would always be thus and lent and spent accordingly. Suddenly the lenders realized the risk wasn't priced in well enough, and credit became more expensive. Meanwhile consumers could no longer refinance and now they need to dig themselves out of a massive hole of debt. Until they do, demand will be in the gutter. (Unless china saves us all etc. etc.)

 

In any case, I don't see the moral issue there.

 

Where moral issue comes in is that the government could step in with fiscal stimulus like extending unemployment benefits. They could (as in Germany) subsidize employees who are put on half time by their employers -- here the unemployment rate has stayed at a stable 7,5%. But this costs money and might lead to higher taxes (though my marginal rate is about the same as it would be in the US) or at some point eventually to inflation. So in the end the decision to provide fiscal stimulus is driven by ideology and a widely differing range of hypotheses on how inflation works. I happen to agree with one side more than another, but I also appreciate that it is driven by my personal world-view more than any hard-headed economic certainty.

 

eta: cross posted with a few comments above

Link to post
Share on other sites

demanding down payments of 10%

There was a reason why the system evolved around the idea of a 20% downpayment. People need to figure that out.

The PMI industry must be making a killing in this new economy.

Link to post
Share on other sites

On a macro level, it's great to see banks being picky about their loan making, doing realistic appraisals, and demanding down payments of 10%. On a personal level, it's sad to see these folks getting squeezed among their three houses. My guess is they cut the price again.

Risk appraisal has to be part of the equation for owners also. If these people went ahead and bought a third home without selling one of the other two and now have to drop the price, why should we feel sorry for them?

 

I fully agree. I'm sad for good friends who are trying to de-leverage, but I recognize that they went farther out on a limb than they could handle.

 

It's the same general story with municipal and state services where the expectations for future benefits, etc are out of line with the current ability to pay. In our area, people are losing "courtesy busing" where the town transported school kids who didn't live in the areas approved for busing. The district was able to cut three routes, although that created an uproar. Trying to re-balance income and obligations is never going to be pleasant when there's less income and more obligations.

Link to post
Share on other sites

demanding down payments of 10%

There was a reason why the system evolved around the idea of a 20% downpayment. People need to figure that out.

The PMI industry must be making a killing in this new economy.

killing or getting killed - its like a battle to see who can sell more business at higher prices before their old book of business bankrupts them.

Link to post
Share on other sites

The guy seems to be neither much of a research person, nor particularly close to markets. None of this is anything that you couldn't have read in the ft at least a year ago.

 

But I'm a little confused about the idea that the private sector needs to get cracking on job creation. The private sector has neither the moral obligation nor the economic ability to create jobs when there's no demand for what they sell. US consumers obtained credit that was far too cheap. Both borrowers and lenders assumed it would always be thus and lent and spent accordingly. Suddenly the lenders realized the risk wasn't priced in well enough, and credit became more expensive. Meanwhile consumers could no longer refinance and now they need to dig themselves out of a massive hole of debt. Until they do, demand will be in the gutter. (Unless china saves us all etc. etc.)

 

In any case, I don't see the moral issue there.

 

Where moral issue comes in is that the government could step in with fiscal stimulus like extending unemployment benefits. They could (as in Germany) subsidize employees who are put on half time by their employers -- here the unemployment rate has stayed at a stable 7,5%. But this costs money and might lead to higher taxes (though my marginal rate is about the same as it would be in the US) or at some point eventually to inflation. So in the end the decision to provide fiscal stimulus is driven by ideology and a widely differing range of hypotheses on how inflation works. I happen to agree with one side more than another, but I also appreciate that it is driven by my personal world-view more than any hard-headed economic certainty.

 

eta: cross posted with a few comments above

you've been out of the US too long. Anything Keynesian like suggesting the government has a role in job creation and investment means you have a spot waiting next to Mao in his mausoleum..

 

The irony is that with all of the bitching from companies (and believe me I hear it every fucking time I talk with one of them) they've actually been reducing the investments in the US since before the bush tax cuts. All this whinging about regulation and "unknowable taxation" is just jawboning.

Link to post
Share on other sites
Peter, what you list are not "reasons" but opinion.

 

Suzanne, I'm not intending to be snippy when I say that businesses would dearly love to consider the list as opinion rather than reality. Any or all of the 7 reasons listed are cited over and over by businesses and economists. I'm witnessing it firsthand in my business. Reference is made to the example that Paul just posted about.

 

All of this is impeding the private sector from doing what it has always done before and would love to continue doing. So many businesses and individuals are seriously hemorrhaging and unable to do anything besides downsize or stagnate or close up shop.

Link to post
Share on other sites

The guy seems to be neither much of a research person, nor particularly close to markets. None of this is anything that you couldn't have read in the ft at least a year ago.

 

But I'm a little confused about the idea that the private sector needs to get cracking on job creation. The private sector has neither the moral obligation nor the economic ability to create jobs when there's no demand for what they sell. US consumers obtained credit that was far too cheap. Both borrowers and lenders assumed it would always be thus and lent and spent accordingly. Suddenly the lenders realized the risk wasn't priced in well enough, and credit became more expensive. Meanwhile consumers could no longer refinance and now they need to dig themselves out of a massive hole of debt. Until they do, demand will be in the gutter. (Unless china saves us all etc. etc.)

 

In any case, I don't see the moral issue there.

 

Where moral issue comes in is that the government could step in with fiscal stimulus like extending unemployment benefits. They could (as in Germany) subsidize employees who are put on half time by their employers -- here the unemployment rate has stayed at a stable 7,5%. But this costs money and might lead to higher taxes (though my marginal rate is about the same as it would be in the US) or at some point eventually to inflation. So in the end the decision to provide fiscal stimulus is driven by ideology and a widely differing range of hypotheses on how inflation works. I happen to agree with one side more than another, but I also appreciate that it is driven by my personal world-view more than any hard-headed economic certainty.

 

eta: cross posted with a few comments above

 

 

i think there is something that gets lost in these discussions as well. people made investments which depended on the fact that the economy was expanding or that it appeared to expand. for instance people took out mortgages assuming that there would either be economic growth (ie "i will be able to find a job") and/or inflation ("the mortgage will be smaller in 10 years because of inflation"). those have been reasonable assumptions for the past several decades and have been shared by lenders and borrowers alike. but they don't hold right now, so a lot of reasonable lending has become problematic.

Link to post
Share on other sites

i think there is something that gets lost in these discussions as well. people made investments which depended on the fact that the economy was expanding or that it appeared to expand. for instance people took out mortgages assuming that there would either be economic growth (ie "i will be able to find a job") and/or inflation ("the mortgage will be smaller in 10 years because of inflation"). those have been reasonable assumptions for the past several decades and have been shared by lenders and borrowers alike. but they don't hold right now, so a lot of reasonable lending has become problematic.

Because of my position, I can't go too much in depth about the real estate market. But since this situation is history and common knowledge, I feel I'm in neutral territory.

 

Yes, people took out mortgages, but lenders were giving out percentages that never existed before and hopefully will never exist again. At the height of irrational exuberance, some lenders were giving out 125% mortgages. The reasoning: your house will increase in value by at least 50% over the next 3-5 years, so taking out a mortgage for 25% more than the house is worth is a safe investment in the "American Dream".

 

That's why 30% of current homeowners owe more on their home than it's worth. That number is scary, that number is why most real estate sales during the next two years will be short sales. That's why it will take another ten years for the economy to completely re-cycle.

 

Government can help by printing money, but the money never gets into the right hands at the right time. And be careful of printing money because when inflation rears its ugly head, the money must be pulled back. But as I said earlier, the economy will survive this depression, it will just take a long time. Crawling, baby steps and then walking - the economy knows what to do, we just need to have patience in a society that has come to embrace immediate gratification.

Link to post
Share on other sites

right, but people are sheep, really stupid sheep and paid more they than could actually afford for houses that were worth less than they paid for them. just because a bank tells you that they will lend you a million dollars, when you only have $5k in cash, so that you can buy a house worth only $500k doesn't mean you have to do it.

Link to post
Share on other sites

right, but people are sheep, really stupid sheep and paid more they than could actually afford for houses that were worth less than they paid for them. just because a bank tells you that they will lend you a million dollars, when you only have $5k in cash, so that you can buy a house worth only $500k doesn't mean you have to do it.

Absolutely Splink. But the temptation of keeping up with the Joneses and possibly doing them one better was too much to resist. And let's not forget, these people were listening to and being advised by "expert" mortgage lenders and underwriters.

Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...

×
×
  • Create New...