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(former)FormerSanDiegan
ParticipantFor hyperinflation, the best thing to do is to borrow today’s dollars at low (fixed) interest rates, buy hard assets whose value will go up in significantly in dollar terms due to the hyperinflation and sell these in the future to pay back your loans in substantially weaker dollars. Some of these assets would include gold and real estate.
Unfortunately, if you are wrong and we are in a disinflationary or deflationary environment you would be hosed.
ParticipantFor hyperinflation, the best thing to do is to borrow today’s dollars at low (fixed) interest rates, buy hard assets whose value will go up in significantly in dollar terms due to the hyperinflation and sell these in the future to pay back your loans in substantially weaker dollars. Some of these assets would include gold and real estate.
Unfortunately, if you are wrong and we are in a disinflationary or deflationary environment you would be hosed.
ParticipantFor hyperinflation, the best thing to do is to borrow today’s dollars at low (fixed) interest rates, buy hard assets whose value will go up in significantly in dollar terms due to the hyperinflation and sell these in the future to pay back your loans in substantially weaker dollars. Some of these assets would include gold and real estate.
Unfortunately, if you are wrong and we are in a disinflationary or deflationary environment you would be hosed.
ParticipantFor hyperinflation, the best thing to do is to borrow today’s dollars at low (fixed) interest rates, buy hard assets whose value will go up in significantly in dollar terms due to the hyperinflation and sell these in the future to pay back your loans in substantially weaker dollars. Some of these assets would include gold and real estate.
Unfortunately, if you are wrong and we are in a disinflationary or deflationary environment you would be hosed.
Participant80% adjustable! 47% interest only, which isnt really even reseting yet! And how many of those 20% fixed rate loans are really backed by an adjustable second? Include that 2005, 2006, and the first half of 2007 had generally lower standards of loan quality, and I get a picture of a problem that is ALOT bigger than the general public understands. Imagine if 80% of the buyers in 2004-2006 walked because of no equity and reseting payments!
Consider the ALT-A loans made in 2003-2005. COnsider Joe ALt-A borrower who ill-advisedly took out a 5-year ARM in 2003 or a 3-year ARM in 2005. These reset in 2008. Suppose his initial rate was 5.75%. These loans are/were typically tied to LIBOR + 2.25% or 1-year treasury + 2.75%. Guess what happens if his loan resets based on current index rates.
The reset rate would be …. Drumroll please …somewhere between 5.625% and 6.25%.
Not that it helps the guy who bought in 2005 in terms of lack of or negative equity, or those in sub-prime categories who have much worse loan terms (higher margins) but the payment shock is either small or non-existent for the alt-A and prime loan segments at current rates. The level of interest rates over the next 3 years is an important consideration in terms of assessing the impact of these re-setting loans.
Participant80% adjustable! 47% interest only, which isnt really even reseting yet! And how many of those 20% fixed rate loans are really backed by an adjustable second? Include that 2005, 2006, and the first half of 2007 had generally lower standards of loan quality, and I get a picture of a problem that is ALOT bigger than the general public understands. Imagine if 80% of the buyers in 2004-2006 walked because of no equity and reseting payments!
Consider the ALT-A loans made in 2003-2005. COnsider Joe ALt-A borrower who ill-advisedly took out a 5-year ARM in 2003 or a 3-year ARM in 2005. These reset in 2008. Suppose his initial rate was 5.75%. These loans are/were typically tied to LIBOR + 2.25% or 1-year treasury + 2.75%. Guess what happens if his loan resets based on current index rates.
The reset rate would be …. Drumroll please …somewhere between 5.625% and 6.25%.
Not that it helps the guy who bought in 2005 in terms of lack of or negative equity, or those in sub-prime categories who have much worse loan terms (higher margins) but the payment shock is either small or non-existent for the alt-A and prime loan segments at current rates. The level of interest rates over the next 3 years is an important consideration in terms of assessing the impact of these re-setting loans.
Participant80% adjustable! 47% interest only, which isnt really even reseting yet! And how many of those 20% fixed rate loans are really backed by an adjustable second? Include that 2005, 2006, and the first half of 2007 had generally lower standards of loan quality, and I get a picture of a problem that is ALOT bigger than the general public understands. Imagine if 80% of the buyers in 2004-2006 walked because of no equity and reseting payments!
Consider the ALT-A loans made in 2003-2005. COnsider Joe ALt-A borrower who ill-advisedly took out a 5-year ARM in 2003 or a 3-year ARM in 2005. These reset in 2008. Suppose his initial rate was 5.75%. These loans are/were typically tied to LIBOR + 2.25% or 1-year treasury + 2.75%. Guess what happens if his loan resets based on current index rates.
The reset rate would be …. Drumroll please …somewhere between 5.625% and 6.25%.
Not that it helps the guy who bought in 2005 in terms of lack of or negative equity, or those in sub-prime categories who have much worse loan terms (higher margins) but the payment shock is either small or non-existent for the alt-A and prime loan segments at current rates. The level of interest rates over the next 3 years is an important consideration in terms of assessing the impact of these re-setting loans.
Participant80% adjustable! 47% interest only, which isnt really even reseting yet! And how many of those 20% fixed rate loans are really backed by an adjustable second? Include that 2005, 2006, and the first half of 2007 had generally lower standards of loan quality, and I get a picture of a problem that is ALOT bigger than the general public understands. Imagine if 80% of the buyers in 2004-2006 walked because of no equity and reseting payments!
Consider the ALT-A loans made in 2003-2005. COnsider Joe ALt-A borrower who ill-advisedly took out a 5-year ARM in 2003 or a 3-year ARM in 2005. These reset in 2008. Suppose his initial rate was 5.75%. These loans are/were typically tied to LIBOR + 2.25% or 1-year treasury + 2.75%. Guess what happens if his loan resets based on current index rates.
The reset rate would be …. Drumroll please …somewhere between 5.625% and 6.25%.
Not that it helps the guy who bought in 2005 in terms of lack of or negative equity, or those in sub-prime categories who have much worse loan terms (higher margins) but the payment shock is either small or non-existent for the alt-A and prime loan segments at current rates. The level of interest rates over the next 3 years is an important consideration in terms of assessing the impact of these re-setting loans.
Participant80% adjustable! 47% interest only, which isnt really even reseting yet! And how many of those 20% fixed rate loans are really backed by an adjustable second? Include that 2005, 2006, and the first half of 2007 had generally lower standards of loan quality, and I get a picture of a problem that is ALOT bigger than the general public understands. Imagine if 80% of the buyers in 2004-2006 walked because of no equity and reseting payments!
Consider the ALT-A loans made in 2003-2005. COnsider Joe ALt-A borrower who ill-advisedly took out a 5-year ARM in 2003 or a 3-year ARM in 2005. These reset in 2008. Suppose his initial rate was 5.75%. These loans are/were typically tied to LIBOR + 2.25% or 1-year treasury + 2.75%. Guess what happens if his loan resets based on current index rates.
The reset rate would be …. Drumroll please …somewhere between 5.625% and 6.25%.
Not that it helps the guy who bought in 2005 in terms of lack of or negative equity, or those in sub-prime categories who have much worse loan terms (higher margins) but the payment shock is either small or non-existent for the alt-A and prime loan segments at current rates. The level of interest rates over the next 3 years is an important consideration in terms of assessing the impact of these re-setting loans.
ParticipantAssuming one has stable income, or is sitting on a pile of cash (or stable commodities, like gold), how is deflation bad?
1. Something like 1/3 of the federal budget goes to debt service. Deflation means less economic activity as measured in dollars. At some point the debt service would overwhelm the budget.
2. In a deflationary environment it is advantageous to wait to purchase anything until the future. This results in depression of economic activity which means that there is no such thing as a “stable job” in a broad deflationary environment.
ParticipantAssuming one has stable income, or is sitting on a pile of cash (or stable commodities, like gold), how is deflation bad?
1. Something like 1/3 of the federal budget goes to debt service. Deflation means less economic activity as measured in dollars. At some point the debt service would overwhelm the budget.
2. In a deflationary environment it is advantageous to wait to purchase anything until the future. This results in depression of economic activity which means that there is no such thing as a “stable job” in a broad deflationary environment.
ParticipantAssuming one has stable income, or is sitting on a pile of cash (or stable commodities, like gold), how is deflation bad?
1. Something like 1/3 of the federal budget goes to debt service. Deflation means less economic activity as measured in dollars. At some point the debt service would overwhelm the budget.
2. In a deflationary environment it is advantageous to wait to purchase anything until the future. This results in depression of economic activity which means that there is no such thing as a “stable job” in a broad deflationary environment.
ParticipantAssuming one has stable income, or is sitting on a pile of cash (or stable commodities, like gold), how is deflation bad?
1. Something like 1/3 of the federal budget goes to debt service. Deflation means less economic activity as measured in dollars. At some point the debt service would overwhelm the budget.
2. In a deflationary environment it is advantageous to wait to purchase anything until the future. This results in depression of economic activity which means that there is no such thing as a “stable job” in a broad deflationary environment.
ParticipantAssuming one has stable income, or is sitting on a pile of cash (or stable commodities, like gold), how is deflation bad?
1. Something like 1/3 of the federal budget goes to debt service. Deflation means less economic activity as measured in dollars. At some point the debt service would overwhelm the budget.
2. In a deflationary environment it is advantageous to wait to purchase anything until the future. This results in depression of economic activity which means that there is no such thing as a “stable job” in a broad deflationary environment.
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