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rseiser.
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July 8, 2007 at 9:26 AM #9469July 8, 2007 at 9:53 AM #64610
greekfire
ParticipantThe line that separates a conspiracy theorist from a concerned, law-abiding citizen can be very blurry at times. I like some of the ideas that Ron Paul has. He seems like a true representative of the people and a strict follower of the Constitution. I saw him on a video about the legality of the income tax by Aaron Russo on YouTube:
July 8, 2007 at 9:53 AM #64669ParticipantThe line that separates a conspiracy theorist from a concerned, law-abiding citizen can be very blurry at times. I like some of the ideas that Ron Paul has. He seems like a true representative of the people and a strict follower of the Constitution. I saw him on a video about the legality of the income tax by Aaron Russo on YouTube:
July 8, 2007 at 10:23 AM #646164plexowner
ParticipantPension funds left vulnerable after unlikely bet on CDOs
http://www.ft.com/cms/s/e31a9f32-2b59-11dc-85f9-000b5df10621.html
“… But if Mr Bolton is even partly right, it begs an interesting question: namely if these instruments do end up producing losses, exactly who would be hit?Assessing this is not easy, since there is no public data about who is holding CDOs.”
~
This seems to be one of the underlying themes with the current shakeup of the paper mountain – nobody really knows who is holding all the different pieces of paper – or how the pieces of paper are inter-related – some of the pieces of paper represent derivative positions on other pieces of paper!
~
Oh what a tangled web we weave
When first we practice to deceive
Sir Walter ScottJuly 8, 2007 at 10:23 AM #64675ParticipantPension funds left vulnerable after unlikely bet on CDOs
http://www.ft.com/cms/s/e31a9f32-2b59-11dc-85f9-000b5df10621.html
“… But if Mr Bolton is even partly right, it begs an interesting question: namely if these instruments do end up producing losses, exactly who would be hit?Assessing this is not easy, since there is no public data about who is holding CDOs.”
~
This seems to be one of the underlying themes with the current shakeup of the paper mountain – nobody really knows who is holding all the different pieces of paper – or how the pieces of paper are inter-related – some of the pieces of paper represent derivative positions on other pieces of paper!
~
Oh what a tangled web we weave
When first we practice to deceive
Sir Walter ScottJuly 8, 2007 at 10:37 AM #64618ParticipantFor some reason I just remembered “The Adams Family” TV show
Does anyone remember how Gomez would crash his trains into one another when he got upset?
Gomez would storm off to his attic in some fit of rage and the family would hear him start up one of his trains … whoo-whoo!!
The family waited and sure enough, they heard the next train starting up … whoo-whoo!!!
The tension onscreen mounted dramatically as the family waited for the inevitable crash …
~
Does anyone besides me feel the tension building?
July 8, 2007 at 10:37 AM #64677ParticipantFor some reason I just remembered “The Adams Family” TV show
Does anyone remember how Gomez would crash his trains into one another when he got upset?
Gomez would storm off to his attic in some fit of rage and the family would hear him start up one of his trains … whoo-whoo!!
The family waited and sure enough, they heard the next train starting up … whoo-whoo!!!
The tension onscreen mounted dramatically as the family waited for the inevitable crash …
~
Does anyone besides me feel the tension building?
July 8, 2007 at 10:50 AM #64624LA_Renter
Participant4plexowner, I have to admit it has been difficult rapping my mind around this whole investment banking situation but the Adams Family analogy above gave me a much deeper understanding which could say something about me. I do think we are going to see some fireworks in the offing.
July 8, 2007 at 10:50 AM #64683Participant4plexowner, I have to admit it has been difficult rapping my mind around this whole investment banking situation but the Adams Family analogy above gave me a much deeper understanding which could say something about me. I do think we are going to see some fireworks in the offing.
July 8, 2007 at 11:06 AM #64632JWM in SD
Participantthe problem with this scenario is wages. If a inflated assets stay inflated then how do people afford them? Its called pushing on a string. Japan tried that and it didn’t work. The only way is to Hyperinflate wages but how does the Fed get that $ into J6packs acct??? How? With global Outsourcing I don’t see tht happening. Also, H Inflation would cause Interst rates to skyrocket.
All of Helicopter drop crap is nonsense. Dollar hegemony must be protected. Otherwise, H Inflation leads to total debasement od USD and a new currency. Why is that bad? Well, because it also leada to a new political system. Proof: Weimer lead to Hitler coming into powr and the Nazi party ultimately causing a WWII which was just a natural sequal to unresolved issues in WWI.
This is not tinfoil hat stuff. This irrefutable. This is why I say that Bernanke does not give a crap about the value of someones SD condo.
July 8, 2007 at 11:06 AM #64691Participantthe problem with this scenario is wages. If a inflated assets stay inflated then how do people afford them? Its called pushing on a string. Japan tried that and it didn’t work. The only way is to Hyperinflate wages but how does the Fed get that $ into J6packs acct??? How? With global Outsourcing I don’t see tht happening. Also, H Inflation would cause Interst rates to skyrocket.
All of Helicopter drop crap is nonsense. Dollar hegemony must be protected. Otherwise, H Inflation leads to total debasement od USD and a new currency. Why is that bad? Well, because it also leada to a new political system. Proof: Weimer lead to Hitler coming into powr and the Nazi party ultimately causing a WWII which was just a natural sequal to unresolved issues in WWI.
This is not tinfoil hat stuff. This irrefutable. This is why I say that Bernanke does not give a crap about the value of someones SD condo.
July 8, 2007 at 2:09 PM #64658ParticipantJWM – I fully agree with you – I’m not saying that anything the Fed is trying currently or will try in the future will work – history and common sense say that it won’t – bottom line (for me anyway) is that there is no such thing as a free lunch and the Fed’s very existence (along with fiat currency) is based on free-lunch theory
As you mention, the current inflation (monetary debasement) isn’t feeding into wages in America (new jobs or pay raises) – to combat this issue during the 1930s the govt created the WPA and CCC (Works Progress Administration and Civilian Conservation Corp) – these programs were part of the New Deal and essentially handed out printing press money to jobless Americans [as an aside, the Fed was supposedly created in 1913 to prevent the exact boom-bust cycle that the country experienced in the 1920s and 30s]
This time around we have our govt telling us that we are in a “Forever War” and that we face an “Historic” confrontation between good and evil – coincidently, this position allows them to hand out lots of printing press money to otherwise unemployed American defense workers and soldiers – interesting …
I personally believe the US Dollar and the Canadian Dollar are about to be converted into the Amero – this will be done as part of the SPP (Security and Protection Plan) where once again our government is watching out for our best interests (and if you believe that …) – Google on ‘North American Union’ if you don’t know what I’m referring to
The rollout of the Amero could be used to hide the collapse of the US Dollar – I’m not sure what will distract the American consumer from the collapsing housing market – perhaps a terror event (UK this time?) or a war with Iran? – my take on the history of fiat currency systems is that war is a very common part of the end-game strategy – the war distracts the populace from the fleecing that they just took from the bankers – the destruction caused by the war creates lots of opportunity for new building and the financing that goes along with new building (let me say it one more time, read “The Creature from Jekyll Island” and get some insight into the banking system)
Note that the Canadian dollar is approaching par with the US Dollar which will make the introduction of the Amero that much easier (the EU countries struggled with conversion rates before the Euro was rolled out – in general, business people used the conversion as an opportunity to inflate prices because they could blame the inflation on the currency conversion – the consumer got screwed twice – once by the govt playing fiat currency games and destroying the original currency and then again by the inflation created when business people were given the opportunity to inflate prices and hide it behind the currency conversion)
July 8, 2007 at 2:09 PM #64717ParticipantJWM – I fully agree with you – I’m not saying that anything the Fed is trying currently or will try in the future will work – history and common sense say that it won’t – bottom line (for me anyway) is that there is no such thing as a free lunch and the Fed’s very existence (along with fiat currency) is based on free-lunch theory
As you mention, the current inflation (monetary debasement) isn’t feeding into wages in America (new jobs or pay raises) – to combat this issue during the 1930s the govt created the WPA and CCC (Works Progress Administration and Civilian Conservation Corp) – these programs were part of the New Deal and essentially handed out printing press money to jobless Americans [as an aside, the Fed was supposedly created in 1913 to prevent the exact boom-bust cycle that the country experienced in the 1920s and 30s]
This time around we have our govt telling us that we are in a “Forever War” and that we face an “Historic” confrontation between good and evil – coincidently, this position allows them to hand out lots of printing press money to otherwise unemployed American defense workers and soldiers – interesting …
I personally believe the US Dollar and the Canadian Dollar are about to be converted into the Amero – this will be done as part of the SPP (Security and Protection Plan) where once again our government is watching out for our best interests (and if you believe that …) – Google on ‘North American Union’ if you don’t know what I’m referring to
The rollout of the Amero could be used to hide the collapse of the US Dollar – I’m not sure what will distract the American consumer from the collapsing housing market – perhaps a terror event (UK this time?) or a war with Iran? – my take on the history of fiat currency systems is that war is a very common part of the end-game strategy – the war distracts the populace from the fleecing that they just took from the bankers – the destruction caused by the war creates lots of opportunity for new building and the financing that goes along with new building (let me say it one more time, read “The Creature from Jekyll Island” and get some insight into the banking system)
Note that the Canadian dollar is approaching par with the US Dollar which will make the introduction of the Amero that much easier (the EU countries struggled with conversion rates before the Euro was rolled out – in general, business people used the conversion as an opportunity to inflate prices because they could blame the inflation on the currency conversion – the consumer got screwed twice – once by the govt playing fiat currency games and destroying the original currency and then again by the inflation created when business people were given the opportunity to inflate prices and hide it behind the currency conversion)
July 8, 2007 at 2:28 PM #64664patientrenter
ParticipantI don’t buy into theories that say the economic world is coming to an end, or that a there’s a small cabal directing the world’s affairs. I hesitate to respond to this thread because it seems designed to attract those who have faith in some of these theories. But the point about the GSEs (Fannie etc) being a useful potential tool for our political leaders to minimize a downturn in house prices, and socialize the cost, is valid. Oh, well, here goes…
If housing prices drop enough, regular people will feel that their future plans to spend a lot but save a little are endangered. They will not accept that easily.
Most baby boomers and some in earlier generations have seen fantastic returns for 25 years now from their strategy of buying assets, even while they were still in debt. It’s become expected as part of the culture that you can buy an asset today for $1 worth of goods and services, and expect the rest of the world to supply you with $5 worth of goods and services in return for that asset when you’re older and crankier. It’s also expected that you can borrow that $1 today and repay it with much less than $5 in real value, so it’s always better to borrow over the long haul. There are even articles in respected outlets that say that the national savings rate is much higher than it appears, because the net gains from asset price inflation are not included in the savings amounts.
That’s the political pressure behind keeping home prices high. It’s probably stronger than the pressure to keep inflation low, because a lot of inflation damage is done behind the scenes and to foreigners (investing in US bonds). Inflation at 5-7% for 10-15 years wouldn’t be considered earth-shattering by voters compared to home prices dropping 50% in the next 2-5 years.
So how could house prices be supported using the GSEs? Let’s start with new loans:
1. Increase the qualifying maximum amounts of loan. Let’s throw out $850,000, for argument’s sake.
2. Permit less of a down payment, probably using complicated rules involving higher rates for less downpayment, and distinguishing between various sources of downpayment money. But let’s keep it simple: Allow 2% down, say.
3. Permit lower payments in the early years. Because of the bad smell coming from huge increases in early payments in the very early years on existing ARMs, this would probably be limited to loans with gradual annual increases, let’s say 3-7%, in the annual payments over the life of the loan, with the higher values allowed only in the earliest years.
Would this increase GSE risk? Absolutely. Would stockholders stand for it? Sure, if they got a few % extra dividends today, which would add way less than 10bp to the loan interest rate. if the market tanked, they would get wiped out, but the GSEs’ equity is tiny. Almost all the shortfall would then be picked up by future generations of taxpayers.
How about existing loans?
Offer re-fi rescue loans to homeowners in trouble. Existing lenders have to accept some haircut in their pay-off, and the borrower has to accept continued, though lower payments, and Treasury has to forgo taxes on the debt forgiveness. These loans would have options to pay low amounts today in return for higher payments later. These higher payments could be fixed, or they could be a portion of any future increase in the home equity.There are lots more ideas out there and I’m sure many more are possible.
Of course, the GSEs are only one policy tool, and many policy tools would be brought to bear at once. Obviously, lowering short-term rates would help keep home prices high, so that’ll happen if the prices drop too much for too many people. The resulting drop in the dollar will have a muted impact, because so many of our costs of production are in yuan, and it’s unlikely the $/yuan rate will be allowed to move much. I’d expect the degree of action to be calibrated to keep inflation less than 5-7% for any one year.
Patient renter in OC
July 8, 2007 at 2:28 PM #64723ParticipantI don’t buy into theories that say the economic world is coming to an end, or that a there’s a small cabal directing the world’s affairs. I hesitate to respond to this thread because it seems designed to attract those who have faith in some of these theories. But the point about the GSEs (Fannie etc) being a useful potential tool for our political leaders to minimize a downturn in house prices, and socialize the cost, is valid. Oh, well, here goes…
If housing prices drop enough, regular people will feel that their future plans to spend a lot but save a little are endangered. They will not accept that easily.
Most baby boomers and some in earlier generations have seen fantastic returns for 25 years now from their strategy of buying assets, even while they were still in debt. It’s become expected as part of the culture that you can buy an asset today for $1 worth of goods and services, and expect the rest of the world to supply you with $5 worth of goods and services in return for that asset when you’re older and crankier. It’s also expected that you can borrow that $1 today and repay it with much less than $5 in real value, so it’s always better to borrow over the long haul. There are even articles in respected outlets that say that the national savings rate is much higher than it appears, because the net gains from asset price inflation are not included in the savings amounts.
That’s the political pressure behind keeping home prices high. It’s probably stronger than the pressure to keep inflation low, because a lot of inflation damage is done behind the scenes and to foreigners (investing in US bonds). Inflation at 5-7% for 10-15 years wouldn’t be considered earth-shattering by voters compared to home prices dropping 50% in the next 2-5 years.
So how could house prices be supported using the GSEs? Let’s start with new loans:
1. Increase the qualifying maximum amounts of loan. Let’s throw out $850,000, for argument’s sake.
2. Permit less of a down payment, probably using complicated rules involving higher rates for less downpayment, and distinguishing between various sources of downpayment money. But let’s keep it simple: Allow 2% down, say.
3. Permit lower payments in the early years. Because of the bad smell coming from huge increases in early payments in the very early years on existing ARMs, this would probably be limited to loans with gradual annual increases, let’s say 3-7%, in the annual payments over the life of the loan, with the higher values allowed only in the earliest years.
Would this increase GSE risk? Absolutely. Would stockholders stand for it? Sure, if they got a few % extra dividends today, which would add way less than 10bp to the loan interest rate. if the market tanked, they would get wiped out, but the GSEs’ equity is tiny. Almost all the shortfall would then be picked up by future generations of taxpayers.
How about existing loans?
Offer re-fi rescue loans to homeowners in trouble. Existing lenders have to accept some haircut in their pay-off, and the borrower has to accept continued, though lower payments, and Treasury has to forgo taxes on the debt forgiveness. These loans would have options to pay low amounts today in return for higher payments later. These higher payments could be fixed, or they could be a portion of any future increase in the home equity.There are lots more ideas out there and I’m sure many more are possible.
Of course, the GSEs are only one policy tool, and many policy tools would be brought to bear at once. Obviously, lowering short-term rates would help keep home prices high, so that’ll happen if the prices drop too much for too many people. The resulting drop in the dollar will have a muted impact, because so many of our costs of production are in yuan, and it’s unlikely the $/yuan rate will be allowed to move much. I’d expect the degree of action to be calibrated to keep inflation less than 5-7% for any one year.
Patient renter in OC
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