America Says NO to the Bush Bailout!
America Says NO to the Bush Bailout!
People’s Speak Out to Stop the Bail Out
September 25, 2008
5:00 PM - 6:30 PMStand with your neighbors and say NO Bush Bailout! Bush strong-armed Congress into supporting the wars in Iraq and Afghanistan and has spent more than $800 billion for these wars. Now they demand a $700 billion blank check for Wall Street using fear and threats with no public debate! Bail Out the Troops and Main Street, Not Wall Street! Make some signs and bring your families and friends!
Address
front of MLK Library, 150 E. San Fernando St.
San Jose, CA 95112
DirectionsDr. Martin Luther King, Jr. Library is on the corner of San Fernando and Fourth Streets. Check the VTA web site for directions to the library by bus/light rail. If you have to drive, a parking garage is located across the street.
Burbed Reader Sunny asked me to share this with you.
September 25th, 2008 at 4:39 pm
While I fully support citizens voicing out their opinions on the street, I doubt the San Francisco Bay Area’s voice matters that much. See what happened with the protestations against the war on Iraq.
September 25th, 2008 at 4:55 pm
Regardless of what people feel about the popularity of this bailout, I believe it will go through, because just now another huge bank failed (Washington Mutual, whoo hoo). They have an office right on Pine and Lincoln, wonder what will happen to that. Congress is scared to death, they can try to listen to their constituency but in the end the economy will collapse completely if these large banks keep failing.
September 25th, 2008 at 6:13 pm
Today I was surprised to read that Warren Buffett “wholeheartedly” supports the bailout:
The Bush administration’s controversial financial bailout proposal may be getting a heavy dose of criticism today from angry lawmakers on Capitol Hill, but Warren Buffett tells us he wholeheartedly supports the plan.
He told CNBC’s Becky Quick over the weekend, “It’s what I would do if I were there.”
September 25th, 2008 at 7:14 pm
This bail out plan sounds a lot like the precursor to the Iraq War. Some imminent danger is about to befall us, and we must act now!
As I posted yesterday, we need a stretched out recession to flush things out, not another big ticket spending binge at next generation’s expense.
Guys, are you ready to ride out the tough times if you oppose the bail-out?
September 25th, 2008 at 7:46 pm
RealEstater - Very self-centered and narrow-minded. The real question is the social and political impact, not the personal financial impact. Who cares that you or I can ride tough times if the neighbors have turned to anthropophagy?
September 25th, 2008 at 7:47 pm
I’m actually shocked that Bush hasn’t mentioned that possibility. Maybe he’s keeping it under his sleeve for tomorrow.
September 25th, 2008 at 8:31 pm
Which possibility? That we’ll revert to cannibalism?
I guess you have a point, he’s certainly laid on the doom & gloom.
September 25th, 2008 at 8:58 pm
In the meantime, the banks have started the trend. So, soon it’ll be fashionable to eat your neighbor.
“Blessed are they who hunger and thirst [...], for they shall be satisfied” (Matthew, 5:6)
September 25th, 2008 at 9:25 pm
$700B for the bailout.
$612B defense bill for 2009.
$25B for GM, Ford and Chrysler.
What’s next?
September 25th, 2008 at 9:29 pm
What’s next? SEVERANCE!
September 25th, 2008 at 9:38 pm
WaMu finally toppled? That took long enough.
According to a couple diaries on Daily Kos, the Republicans all walked out of the negotiations, inspired by John McCain. I don’t think that they’re opposed to a bail-out, they’re just pissed there aren’t enough tax cuts in the deal that was close to being signed. And no, I’m not making this up.
September 25th, 2008 at 9:58 pm
http://www.nytimes.com/2008/09/26/business/26bailout.html?_r=2&hp&oref=slogin&oref=slogin
Sounds more like the Republicans were going along with the Democrats and then pulled the rug out from under them this afternoon. It happened after McCain showed up but I don’t think he was behind it at all. In fact, he doesn’t seem to be playing a meaningful role at all.
September 25th, 2008 at 10:05 pm
nomadic -
“pleas from a Treasury secretary who knelt before the House speaker ”
““I didn’t know you were Catholic,” Ms. Pelosi said”
Ms. Pelosi sees herself as Paulson’ very own Jesus Christ?…
September 26th, 2008 at 8:21 am
That little stunt Mccain pulled off yesterday had me infuriated. It was clear immediately that he was trying to appear as a “leader” only to flub up the meeting. Additionally, if he doesn’t show up to the debates, then he will have cost The University of Missouri around 5.5 million dollars that they had to raise in order to have the debate there. Disgusting. I hope the majority of Americans see right through his little trick. I at one time had at least an inkling of respect for him, but not anymore. That guy and his running mate is a joke if I ever saw one, and if they get elected, that’s a sad sign of just how little people pay attention.
Now that I’m done with that rant, onto the bailout. I don’t like it either. There’s a chance that regardless, we’re heading into a recession. We’re in one already in my book. But I begrudgingly support it for the one reason that they’ve already set the expectation that this bailout will save the day. If it DOESN’T pass, then the immediate reaction will be outright panic because to suggest that we needed such a huge bailout in the first place exposed just how bad the whole financial situation is. It must be passed if we intend on having anything close to a functioning economy.
The second reason is because the average American is financially ignorant and prone to panicking. Wamu ( even though I HATED their stupid “Woo-hoo!: slogan) was not in a position to fail. What caused its failure was that first off, everyone began asking what bank would fail next. That led to speculation that WaMu was next… which was a self-fulfilling prophecy just like oil futures and prices are. Say oil will go higher, and it does. Start saying a bank will fail, and it does because everyone panics and runs on the bank. That was the case for WaMu. Again, I dislike the bailout. Nobody I know loves it. But its passage would instill confidence in the market and remove a good deal of the rot and prevent more panics. The alternative is that we all get to stand in soup kitchen lines and work for the WPA.
Lastly, with each bank failure, the remaining banks grow larger and more powerful. This might sound great since the obvious thought is that perhaps lending will loosen with such powerful players. The truth is the opposite. Lending and credit will be more difficult to obtain. This means that it will be much harder to buy cars, houses, and procure business loans. JP Morgan actually made a statement about California Real Estate before their purchase of WaMu. They stated that RE in this state is likely to fall between 44-58%. Now why would you think they would suggest this? Because at least in the BA, a return to prices that equal 2.5-3% times earnings would mean that a couple making $100,000 a year ’should’ only be able to buy a 250k house. A couple making 200k… a 500k house. Even as it stands now, prices here are still very, very far from real fundamentals. The market is going to shift dramatically to prices that are more inline with wages. This is because these banks are only going to lend on sound principals, and unfortunately, states like California, Florida, and NY all have some serious adjustments to make.
But ultimately, a system that functions on more legitimate financial business is more secure. The end result that would have happened regardless of what the government, Fed, or banks did is that housing prices will ultimately fall to affordable levels. Affordable meaning that the elements of risk will be completely removed. Sorry investors… the “boom” isn’t coming back.
So yes- I support the bailout as the lesser of two evils. It is an embarrassment and an outrage that I- who for the last 5 years have looked at all the stupid schmucks buying up way overpriced RE get their rears handed to them. Yet I will have to pay for it still. But go ahead and pass the damned thing. Get it over with.
September 26th, 2008 at 8:53 am
Bob, Washington Mutual was not good financial position, that’s why it failed. It had $25 billion of cash and liquid assets on hand, and something close to $250 billion in outstanding loans, quite a few of which were subprime and alt-a and in a state of default. What happens is that the losses from the defaults are covered with capital, so capital was going down and it had fallen below minimum federal capitalization limits, so WaMu couldn’t make more loans. They have to re-capitalize, but nobody was willing to take the bad debt off their hands.
WaMu is the first big bank to fail, we’ll have more, especially in CA where subprime and alt-A were most popular. This is how the market rewards foolish investment. The smart banks will survive.
September 26th, 2008 at 9:46 am
mtv-renter,
I respectfully disagree on some of your points. Yes- Wamu Was on trouble. But the question is would they have failed had their customer base not taken out their money. Apparently, customers pulled over 9% of Wamu’s cash holdings out of accounts, which added to the amounts they had previously written off was the final straw. This is a classic case of what happens when people panic and run on the banks. The same occured in the 30’s.
September 26th, 2008 at 10:18 am
2bob: 9% is not much comparing to 250 bln loan balance. That was a stupid idea for a retail bank to step into RE crap in the first place. I will not be surprised if Wells Fargo will follow the case eventually.
September 26th, 2008 at 10:19 am
Haven’t had breakfast yet and already a word indigestion. Thanks bob.
“Ce qui se conçoit bien s’énonce clairement” (Pig French)
September 26th, 2008 at 10:55 am
You’ve hit on the fundamental cause of our problem, Bob. Fractional Reserve Banking in the form that we practice it is very susceptible to small changes in bank holdings.
For brevity, I will refer to the entire financial industry as The Bank. The US Government requires that banks hold a fractional reserve of at least 10%. So, when you deposit $100 into The Bank, it loans out $90 to a borrower. This borrower deposits $90 into The Bank, and the bank loans out $81 to the next dude, and so forth. This way, a single deposit ends up being loaned about about ten times. Now, this system, much as I dislike it, has been working fine for a very long time, even though it is very precarious. What started happening is that the banks started to loan out those deposits into risky markets, and they started to lose them, and this loss was multiplied by the leverage.
A bank which folds when 10% of deposits are withdrawn is ridiculous. A 10% run will happen from any natural disaster, financial regulation, etc. Lots of other banks will do fine. WaMu tried to make a leveraged profits and its bet failed.
Next big bank to fail: Wachovia. Too bad shorting is now banned.
September 26th, 2008 at 11:07 am
For those of you who want the bailout to happen, let me tell you why I think it’s a horrible idea.
The bailout requires huge amounts of money which we don’t have. So far, if we include the $700B, we’re spending just shy of $2 trillion on various bailout related costs. The US has two ways of raising this money, either borrow it or print it.
If we borrow the money, we will have to pay high interest rates to entice people to buy dollars, because the bailout will cause inflation, which will multiply the cost of this loan several fold over the term that it matures. This means we will need to raise taxes to pay the interest or the US government will default. Our economy will slow down, the dollar will weaken, and this influx of cash will also increase inflation.
If we print the money, the dollar is dead, we’ll have hyperinflation. Houses (and other stuff) will maintain their values in dollars, but since the dollar isn’t worth much, it’s pointless.
Now, let’s say we don’t do the bailout. We’re in for a credit crunch of epic proportions. Credit will be expensive like during the S&L crisis, on the order of 15-20% for home loans. This creates tremendous deflationary pressure, and people don’t spend during deflation. The economy will slow down, people will lose jobs, we’ll have a recession. We’ll emerge out of this recession with a very strong dollar and the financial system which led to this will be dead. The institutions which survive will be the ones who weren’t doing stupid stuff counting on a bailout.
Either way, the economy will be a lot slower. The last few years have been an anomaly driven by heavy leverage and debt spending. People were living above their means by cashing out of the bubble, taking on more credit. Living off credit is now over, the economy will be at a level that can be justified by productivity, not by speculation. People saddled with large loans will be paying them off, leaving even fewer dollars to spend on the crap that drives our economy.
September 26th, 2008 at 11:53 am
“The bailout requires huge amounts of money which we don’t have.”
If governments were only spending money they have, there would be no deficits. Deficits are not inherently economically destructive, it depends on what the credit is used for.
“Houses (and other stuff) will maintain their values in dollars, but since the dollar isn’t worth much, it’s pointless.”
Inflation is the mortgage borrower’s friend: the doller is cheaper and suddenly it becomes easier to pay off that debt.
People spend money to reward perceived creation of value (goods or services). I’d like to understand how the so-called bailout fits with that rationale. Certainly money shouldn’t be spent to prop up perception of value - it’s an unsustainable monetary policy.
September 26th, 2008 at 12:03 pm
Further on that note, the avowed purpose of the bailout is to “offer comfort” to the markets and “stem the paranoia”. In other words, it does not address financial or regulatory issues, it is merely a very expensive psychotherapy session for capital investors, sponsored by taxpayers.
The numbers may make sense and the alternative may look scary, but on principle it is indefensible to support the bailout. Bob’s pragmatism sounds like hypocrisy in my opinion (mandatory bob attack of the day).
September 26th, 2008 at 12:17 pm
MTV renter,
I too really dislike this bailout. But I think that if it doesn’t pass, the message to Wall Street will be clear: We’re Phucked, everyone take out all your money, and suddenly we’re not in a recession, but possible a depression. None of were alive then. But both my Grandparents were and I have listened to their stories.
If that occurs, we’ll be a hell of a lot worse than in 29′. Americans are far too soft, spoiled, and overextended to be creative enough to deal with a depression on par with anything like the one we had in the 30’s.
Anyhow, for those of you who think I’m full of crap, I did not make up the part about WaMu failing because of a run on the bank. How about reading about it yourself? That’s what I did. But to make it easy, here’s a snippet:
…Rep. Spencer Bachus, R-Ala., the top Republican on the House Financial Services Committee, said it was good news that the deal wouldn’t require taxpayer money.
“But, that aside, this economy is in a critical stage, so there’s a sense of urgency before WaMu, there’s a sense of urgency after it,” he said.
The Seattle-based company, which has been wracked by heavy losses from bad mortgage loans, suffered outflows of deposits totaling $16.7 billion since Sept. 15, the OTS said. Deposits have dropped to below $135 billion from over $188 billion at the end of June.
http://money.cnn.com/news/newsfeeds/articles/djf500/200809260038DOWJONESDJONLINE000004_FORTUNE5.htm
Hmmmmmm! OUTFLOWS of deposits! I wonder what that means?
September 26th, 2008 at 12:18 pm
DreamT, even though inflation helps debt holders, the net effect on the economy is very destructive.
September 26th, 2008 at 1:34 pm
DreamT, Madhaus
Good news. This economic crisis does not affect you guys.
#1 If you’re not working, it doesn’t matter how bad the job market gets.
#2 If you already have a house, it doesn’t matter if there’s no money to lend
September 26th, 2008 at 1:49 pm
Agree with #2 in a short-sighted way, but #1 does not apply if you’re nor working AND looking for a job.
September 26th, 2008 at 1:55 pm
Yeah. More news: If you’re currently employed, it doesn’t matter how bad the job market gets because you already have a job.
From this we can conclude whether or not you have a job or don’t have a job, you will not be affected by the economy.
pssst: If you need to move and there’s no money to lend, you’re stuck.
September 26th, 2008 at 2:55 pm
A few comments were made that surely- I must be an idiot because how could a bank fail with a run on it be depositors? I kid you not. I didn’t make this up. I heard it this morning on NPR and read it online. It seems to fairly common knowledge. But you all can read it here just the same:
“Deposit run at WaMu forced their hand, regulators say”
http://latimesblogs.latimes.com/money_co/2008/09/just-as-with-in.html
September 26th, 2008 at 2:57 pm
Bloomberg is reporting the same thing as well.
Remember, that’s what tipped it over the edge. The situation has been building before the run.
September 26th, 2008 at 4:36 pm
Bank run overseas:
http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article4825989.ece
September 26th, 2008 at 4:37 pm
News from overseas: Bank of East Asia in Hong Kong is experiencing a run on deposits as well.
September 26th, 2008 at 5:21 pm
bob, yeah I know you don’t really understand this stuff even though you think you do, but really…
are you so frackin’ stupid that you don’t understand the difference between root causes and proximal causes? WaMu has been in trouble for months. They loaned out lots of toxic mortgages. They had $57 billion in Option-ARM loans. Note the date of this article - February 2008. I’ve been hearing predictions of WaMu’s failure for months. (note the date on that one, too)
Yes, you really are that frackin’ stupid. Unbe-frackin’-lievable.
September 26th, 2008 at 5:57 pm
Madhaus…..
You obviously didn’t understand my post. YES I agree, the root cause of the troubles for WaMu was their tie to risky loans. The incident that did them in and ultimately caused their demise was in fact a run on the banks from freaked out customers who had “heard” rumors from various news sources that Wamu Might be next. I am not the only person to mention this.I didn’t simply hypothesis about it. I heard it n NPR, the financial show I listen to, the NY times, and CNN. So if you want to claim that I am FRackin’ stupid, or whatever you people in NJ like to say,then take it up with them.I’m sure they’d love to hear your feeback. Anyhow, you all can argue and bicker amongst yourselves. Weekend time! Adios.
September 26th, 2008 at 6:32 pm
I highly recommend that everyone reads the following analysis of our financial problems written by somebody who’s clearly done their research. It’s a long read, but very worthwhile:
http://unqualified-reservations.blogspot.com/2008/09/maturity-transformation-considered.html
Bailout or no bailout, things will change and banking will be different.
September 26th, 2008 at 8:02 pm
Hate to pile on bob, but his recurring insistance of what someone “should” be able to afford in a house is really too irritating not to comment. It ignores people’s individual priorites as well as completely ignoring down payment. By his measures, I “shouldn’t” have even been able to buy the last house I owned in relatively low-cost Michigan, for pete’s sake. PITI on that place (with a 25-30% down payment) was less than what we paid in rent after moving to California. And that was trading from 3600sf to an 1100sf apartment.
Back in the day, paying 2-3x annual income for a house was a decent rule of thumb. For first time buyers. To say it applies to someone who has owned a few times is silly. I don’t agree with RE’s apparent assertion that you should roll 3/4 (or similar) of your net worth into a house, but to not use ANY earned equity to improve your housing would be a very unusual choice. Unless you’re moving from CA to TN.
September 27th, 2008 at 8:56 am
Nomadic,
My comment about what should be the general percentage of income paid for a home is what is owed. So yes- I agree that if you say- put down a huge chunk of a down payment that lowers the mortgages to a more digestible level, then sure, that’s absolutely fine. But in many places like SF and so on, a lot of people were paying as much as 7-8 times income on their monthly mortgage amount, which is pretty unhealthy.
So yes- I am in total agreement with you. I also agree that putting the majority of your wealth into a home is a wise decision. That’s a sure-fire way to be eaten alive with inflation. Most economists these days make it clear that you aught to avoid paying off a home as long as possible, but before retirement. Not to say I will do that, but I agree with their points.
Anyhow, have a good Saturday.
September 27th, 2008 at 8:57 am
Nomadic,
My comment about what should be the general percentage of income paid for a home is what is owed. So yes- I agree that if you say- put down a huge chunk of a down payment that lowers the mortgages to a more digestible level, then sure, that’s absolutely fine. But in many places like SF and so on, a lot of people were paying as much as 7-8 times income on their monthly mortgage amount, which is pretty unhealthy.
So yes- I am in total agreement with you. I also agree that putting the majority of your wealth into a home is a un-wise decision. That’s a sure-fire way to be eaten alive with inflation. Most economists these days make it clear that you aught to avoid paying off a home as long as possible, but before retirement. Not to say I will do that, but I agree with their points.
Anyhow, have a good Saturday.
September 27th, 2008 at 9:53 am
Nomadic, in case you missed bob’s reply,
bob’s comment about what should be the general percentage of income paid for a home is what is owed. So yes- bob agrees that if you say- put down a huge chunk of a down payment that lowers the mortgages to a more digestible level, then sure, that’s absolutely fine. But in many places like SF and so on, a lot of people were paying as much as 7-8 times income on their monthly mortgage amount, which is pretty unhealthy.
So yes- bob is in total agreement with you. He also agrees that putting the majority of your wealth into a home is a wise decision. That’s a sure-fire way to be eaten alive with inflation. Most economists these days make it clear that you aught to avoid paying off a home as long as possible, but before retirement. Not to say bob will do that, but he agrees with their points.
Anyhow, have a good Saturday.
September 28th, 2008 at 9:18 pm
Name an economist who says you should not pay off a home for as long as possible, but before retirement.
Not a financial manager, an economist. I have a feeling a certain someone doesn’t understand the difference between financial planner and economist.
btw I do not agree with that advice. My house will be paid off in 5 years. We started with a variable rate 30, refi’d into a fixed rate jumbo 30, then a conventional fixed 30, then a conventional fixed 15, and finally a conventional fixed 10, but I’m paying it off as if it were an 8 so I don’t lose ground from when I got the 15 year loan.
September 28th, 2008 at 10:36 pm
Sounds stupid to me.
If you can afford to pay a loan off, sooner is better than later because interest has less time to accrue.
I can’t possibly think of a reason where this would not be the case.
What good does having outstanding debt offer?
September 29th, 2008 at 8:03 am
Anon-
The advantage of not paying off is this:
If you have a mortgage at 6%, you can deduct the interest. So let’s say the effective rate is 4%. Say you come into $100k (win the lottery?). You could pay down the mortgage, or invest in stocks/etc. If you pay down the mortgage, you are effectively getting a risk free return of 4%. That’s good. But if you invest, typically you would get 8% or so over time. And right now that 8% is taxed at 15% rate, not the 28% or whatever you might pay depending on your bracket. And that 28% is what the deduction of the interest is worth.
Now, over the last year, investing would have given you -12%. That’s bad. Historically though you would get 8% or so.
Think of the extreme case - if you could borrow money at 0% and buy CDs at 3.5%, would you? Sure, of course. Reality is not that clear cut but it’s an example.
So that’s the theory of delaying mortgage payoff.
Having said that, I’ve followed Madhaus’ strategy of refi-ing to shorter term and lower interest mortgages. For diversification - I have other riskier/higher return investments, so this is a good low-risk/low-return investment.
September 29th, 2008 at 8:15 am
TONS of economists and financial planners suggest not paying off a home loan early. I listen to a guy named Rob Black. He is on daily on KRON 4. He also has a radio show in the mornings on 1550AM. He’s probably the smartest financial person I’ve listened to. He strongly recommends not paying off home loans for as long as possible.
Now I know what you’re thinking. “If I have the money to pay off my loan… then why not pay it off early?” I admit that I too am also sort of in this line of thinking: Zero debt= better financial health… right? Not necessarily.
So why not? The basic reason is because if you have the financial means to pay more than what your monthly mortgage happens to be, then that means you have additional money to place into retirement and 401k plans, which will give you a higher rate of return over the long run than a house will.If you’re blowing all your cash on a house rather than investing more in the market, then you’re actually losing income from said investments.
I found a pretty good article that discusses this in depth. http://tinyurl.com/v4gan
I cut some of the summary statements as to why NOT paying off the mortgage early is a good idea. The article summed it up nicely.
1:Most workplace plans have matches, typically 50% of every dollar you put in up to 6% of your pay. If you’re not contributing enough to at least get the full company match, you’re leaving free money on the table (and missing out on an immediate 50% return).
2:You save taxes on the money going in. Federal tax brackets range from 15% to 35%; there are also federal tax credits when lower-income folks make retirement contributions. When the money comes out, you’ll owe taxes, but most people’s tax rates fall in retirement compared with when they’re working.
3:Your money can earn better returns in the market compared with paying off low-rate debt. Based on historical returns, a mix of 60% stocks, 30% bonds and 10% cash would earn an average of more than 8% a year in most 20- to 30-year periods, according to market researcher Ibbotson Associates.
The bottom line is that having serviceable debt is not absolutely evil as long as you buy well within your means, invest in a variety of financial markets, and have emergency funds available. These should be automatic anyway. The end game is how much money you have saved for retirement. If by the time you retire the home is paid for plus you have more retirement income as a result of having invested more earlier versus having paid off the home earlier, then you will be in better shape. Both examples own their homes. The only difference is that the second person will be better off.
September 29th, 2008 at 12:08 pm
I’m sorry, I should have been more clear. Assuming you cannot get a better return on your money elsewhere, it makes no sense to delay paying your mortgage off…
Would you guys say this is more correct?
I’m not saying neglecting 401k, etc in order to pay your mortgage is a good idea…Never was. All I’m saying is that having extra debt accruing interest is not beneficial.
September 29th, 2008 at 12:23 pm
Well, the simple fact is that RE isn’t a better return in investing. Thus it makes more sense to invest more in the market( even though today is AWFUL),and pay less on the house to enable more investment.
Not to say I’m necessarily going to do this. I’m in the mind to buy the whole house and have enough left over to dump in the market and so on to ride me into retirement. Probably going against the advice of the economists I quoted,admittedly.
September 29th, 2008 at 12:36 pm
bob - Your statements are a joke. You contradict yourself at every sentence. Read your post before clicking Submit and you’ll see that you sound like a clown.
anon - To be fair with the comparison you’d need to project whether you truly cannot get a better return on your money, not only today but over the life of the loan. Ex: if you pay off your mortgage today and fail to invest fully in a huge bull market two years later.
September 29th, 2008 at 12:48 pm
“Well, the simple fact is that RE isn’t a better return in investing. Thus it makes more sense to invest more in the market( even though today is AWFUL),and pay less on the house to enable more investment.”
Whoah, I don’t know about that one Bob…Stock market right now is for toying around with gambles, not long term investing…There’s no easy way out of the indulgences by the masses right now.
DT, that’s a good point…There’s a subjective timing aspect as well. I should retract my statement and say that as a rule of thumb its best to err on the side of paying off loans sooner?
September 29th, 2008 at 12:56 pm
DreamT,
You know what? I give up having economic discussions here.I am completely dead-serious that of the last several items that I’ve discussed, they were things that I read about or listened to on the radio from other economists and specialists and news sources.Many who are fairly well-respected in the field.Yet because those ideas don’t mesh with what YOU think is right… its stupid. Instead all I get are childish, retarded responses like: ” You’re a joke”, or ” You’re frakin’ stupid” or whatever.
So my advice is if you want to say that I’m a joke, stupid, full of crap, or whatever,then how about spending just a few minutes actually researching what I’ve posted first? I bet you’d find that I’m not as “crazy” as you think.
Anyhow, you and Madhaus have some serious attitude problems and lack the ability to converse without making frequent personal attacks. So to remedy the problem and tone down the nastiness and bring the peace on this blog, don’t bother replying to me anymore. I will not respond to what you or Madhaus have to write either. Don’t waste your time because I am not going to have any further dialog with either one of you.
September 29th, 2008 at 1:01 pm
Anon,
Perhaps not this very minute, but when talks are about the stock market, its just the same as with housing. It goes up, down, and flat. But over time, as in 20-30-40 years, it performs well. The fact is that over the last 100 years, stocks gain 7-10 years. The avg return is around 7-10% annually. The avg for housing is around 6% given its ups and downs.Thus the market regularly outperforms housing which I realize most people still refuse to believe given the latest fantastic bubble… which as we’re seeing is deflating dramatically. Secondly, the housing market recovers AFTER the stock market recovers. So even for now, if you invest in stocks today, your investments will likely start gaining value before a house does.
Again, look at it from the long term perspective. That’s where they payoff is. Not jumping into whatever is the latest fad. Its all about patience.
September 29th, 2008 at 1:14 pm
DreamT says,
>>bob - Your statements are a joke. You contradict yourself at every sentence. Read your post before clicking Submit and you’ll see that you sound like a clown.
I encourage you to keep your conversation civil. You need to learn to attack the issues without attacking the person.
September 29th, 2008 at 1:20 pm
Bob said: “Perhaps not this very minute, but when talks are about the stock market, its just the same as with housing. ”
It’s true, both markets appreciate over time.
However, this is exactly the line of reasoning I rip on RE for. The only difference is the market. YOu prefer stocks, he prefers real estate.
RE said: “encourage you to keep your conversation civil. You need to learn to attack the issues without attacking the person.”
Hey remember this conversation?
RE: Wo wo wo…just saw these posts. What’s with all the personal attacks? Can’t we all get along?
Looks like the “angry renter” and “angry no-able-to-move-up buyer” syndromes are taking its toll!
anon:
Now, now, RE.
The attacks are on your statements, not who you are as a person.
Rules of the game have changed: It’s “gleeful renter” syndrome now.
http://www.burbed.com/2008/09/23/palo-alto-houses-overbids-are-still-very-common/ POST 184
Are you purposely paraphrasing me or are you trying to quote me? LOL
I guess you CAN teach an old dog new tricks.
September 29th, 2008 at 1:45 pm
“You need to learn to attack the issues without attacking the person.”
The issue is bob’s brain, so it’s not possible to separate the two. Here’s what bob writes:
1. Stock market beats real estate (”simple fact”)
2. Let me correct: Stock market is an awful investment. I’ll go and buy a house cash
4. Let me correct: Do as I say, not as I do (”going against the advice of the economists I quoted”)
That doesn’t sound like a clownish post to you?!?
September 29th, 2008 at 1:48 pm
I encourage you to keep your conversation civil. You need to learn to attack the issues without attacking the person.
———
RealEstater,
What can you expect from “amateurs types” and “angry renters”!
September 29th, 2008 at 1:54 pm
anon - Rule of thumb is that if you want to live conservatively, eliminate debts. If you want to live with risks & rewards, leverage yourself. Neither one is right or wrong…
The former is passive gambling (currency movements, lack of investment opportunity) but at least you’re not likely to ever owe more than you can pay.
September 29th, 2008 at 2:01 pm
Anon,
The lesson here is that it isn’t healthy to invest heavily in one item over the other. Sure- for now I’m not nuts about buying a house. At least not in the Bay Area where a larger, perhaps overly risky chunk of my income would go to a house payment. If that was the case and I lost my job( which given the economy these days…) or something else, I’d more easily be out on the street come the day that I started being unable to make house payments. That is the peril of a high priced RE market that overrides actual salaries.
BUT in a more normalized housing market, which could mean the BA in a few more years once prices fall to levels that match incomes, or in another area where prices are already lower, buying a house makes sense. To be healthy, its wise to not only buy a house, but also buy stocks, invest in your 401k, get ROTH IRA’s, and so on. Even some cash is good. That way if something goes bad with one of those things, you still have at least something to fall back on.
A better way of looking at it is to make as many ways as possible to cover your ass in the event of some sort of calamity. Split it up, but don’t put all the coins on red.
September 29th, 2008 at 4:24 pm
Nice try bob, but you fail again. Rob Black is not an economist, and I specifically asked you to name some of those “lots of economists” who make that claim. And the reason I asked you to do that is because it’s not the sort of issue that an economist would usually address, it’s more of a financial planning issue. I suspect you don’t know the difference between the two and use them interchangeably. They are not the same.
The reason DreamT keeps calling your posts clownish is because your reading comprehension is so poor, you don’t even realize you don’t answer what’s asked, and that you cannot support any of your claims. I don’t know if I’d use the word clownish, the term I’d use is Palinesque.
And why would you think that that mortgage reduction versus equity investing is an either-or choice? The problem with your analyses is that like Chuckie, you’re incapable of imagining any situation other than your own. Since you don’t have enough money to invest in both the stock market and a mortgage, you assume nobody else does either. Some of us have maxed out our 401K contributions; so why shouldn’t we pay down the mortgage as well?
Where did you come up with the idea that “most companies” match 401K contributions? Have you proof for that? We haven’t had 401K matches since 1991, and given how many companies we’ve worked at, and how much longer we’ve been at it than you, I’d suspect your claim is just wrong, as usual. But feel free to back it up with some actual data, assuming your data is relevent to what I asked.
September 29th, 2008 at 5:07 pm
“anon - Rule of thumb is that if you want to live conservatively, eliminate debts. If you want to live with risks & rewards, leverage yourself. Neither one is right or wrong…
The former is passive gambling (currency movements, lack of investment opportunity) but at least you’re not likely to ever owe more than you can pay.”
I agree. I suppose I’m showing my conservative side because I’d still be hard pressed to find a reason to keep more debt outstanding.
You alluded to the following point when you mentioned its passive gambling. Remember even if you are investing it somewhere else, that is a potential return of say, 10%. It’s not a guarantee. What is guaranteed, however is the interest rate one (the borrower) is paying on a mortgage (as long as one is solvent). So, one is left with the choice between paying a off guaranteed 6% or the potential to earn more. The best guaranteed interest rates I could find for a while (up till, say, about a year ago) was around 4%. This leaves around a 2% delta for guarantees. Now, that 4% is more like 1.5-2%, isn’t it?
I would just go for the guarantee. That’s me.
My understanding is that, prior to this bubble craze, home loans tended to have the lowest interest rates out there. School loans have also been low but they are still not THAT low. While they are low, guaranteed returns for a consumer are typically lower.
September 29th, 2008 at 5:41 pm
There are guarantees both ways. If you defer paying off your mortgage, the cost of doing so is guaranteed to be your mortgage interest rate adjusted for tax-exemption. That known cost of deferred payment is reassuring to most folks actually, so in that sense it is also a conservative approach (predictable risk). They can invest what they haven’t used to pay off their mortgage as conservatively or liberally as they wish.
An added incentive to defer debt payoff is increased access to credit if you have an outstanding mortgage balance that you always pay timely. For many folks it is reassuring to know that additional credit can be tapped into if needed. Seeking financial reassurance is also akin to taking a conservative approach.
The passive gambling I’m alluding to is the hope that 1. house prices will be nominally higher when one sells; 2. inflation will decrease the importance of the debt; 3. one wouldn’t have been smart enough (or too lazy, or too busy) to consistently earn better returns elsewhere. Most of all, I point out that any financial choice (including “doing nothing” and “clearing all debts”) carries a present cost, a future cost, and a relative inherent “opportunity loss”
September 29th, 2008 at 5:41 pm
Bob is essentially cautioning against over investing in RE as an asset class. And in the BA that’s a real risk as many people are discovering.
If you decide to pay down your mortgage, you may be doing just that.
Also doing the calculations gets pretty tricky as a small percentage point either way has a huge effect over a 30 year (for eg.) period.
You have to factor in: tax rate (fed, state, muni), tax bracket changes, loan rate, return rate, repairs, etc…inflation?
That’s some calculator ;p
I’ve seen some rent versus own calculators, but all of them seem too simple.
Personally if I had everything maxed out as far as investments go I would keep serious cash on hand instead of putting more into my house.
Of course this is only with prices being what they are in the BA…if they went down to where a mortgage payment is closer to what rent is…
September 29th, 2008 at 5:58 pm
Moose - I read the opposite in bob’s post. He said “I’m in the mind to buy the whole house” (post #42).
In any case, you’re absolutely right that paying off one’s house is the same as over-investing in one asset class, which because it is rather risky, cannot be called a financially “conservative” decision…
September 29th, 2008 at 8:09 pm
My understanding is that, prior to this bubble craze, home loans tended to have the lowest interest rates out there. School loans have also been low but they are still not THAT low. While they are low, guaranteed returns for a consumer are typically lower.
I don’t know about you, but I have several loans at 5% or less, there is a balance transfer from 2005 at 2.99%, my undergraduate student loans at which I refinanced also in 2005 to 2.875%, and my remaining graduate student loans at 5%. I once also had a car loan at 4.125% (which I paid off with the balance transfer). Those loans were all from when I started grad school, I’m not crazy about them, but outside of my grad student loans, the other loans are lower priority. I once had a student loan at 6.8%, but I got rid of that fast.
September 30th, 2008 at 8:01 am
My Brother is getting ready to take out a school loan for the last year of his masters, so we’re probably talking about a 5-10k loan. I never had a student loan, but I was wondering how long you can defer the loan payments? I have a few friends who even though graduated over 10 years ago have deferred their loans even to this day.
Moose summed pretty much what the whole paying off your house versus investing argument is all about. To me, one of the biggest problems is that those who buy homes either outright, or rapidly are viewing their home the same way as stocks- which is to say that they are liquid assets. They’re not, and this is what places a major differentiation between investing in the market and “investing” in a house.
And Madhaus, Not sure if you read my response to DreamT or not, but you are both off my radar.Don’t bother wasting my time or yours writing responses to my posts because I will not read or respond to them any further.
September 30th, 2008 at 9:53 am
Happy sulking, bob. Best approach to feel better about yourself. Time-tested method too: all third-graders use it.
September 30th, 2008 at 11:03 am
Awww, bob’s taking the time to tell me that he’s read my message and that he won’t be reading my messages. How cute!
September 30th, 2008 at 11:08 am
PS… and bob, everyone knows you aren’t responding because you don’t know the difference between a financial planner and an economist, and you’re too flipping embarrassed to admit it. It takes a much bigger man than you are to admit he’s in over his head and could use some more time studying.
Never teach a pig to sing. It won’t work, the pig will squeal he can sing better than you, and you’ll get mud all over everything. And the donkey will bray that he can sing too.
September 30th, 2008 at 11:37 am
Ok, I lied. One more comment. You want to know why I don’t care to talk to either of you- especially you Madhaus? Its because you fail to ever have constructive,objective, on-topic dialog. Like I said, go and look up some of the things I’ve written about. It takes less energy than writing ugly responses to me over something you probably don’t know much about anyway. I know damned well exactly what I talk about.I often read about these things beforehand. You want to say otherwise? Good. Start using your brain and add constructive criticism for once and stop throwing personal, mud-slinging insults. All that does is piss me off, which I’m sure is your motif anyway which to me doesn’t say much about the quality of person that you are in real life nor prove much about your intelligence either.
Anyhow, that’s it. I’m ending my dialog with you both because this has gotten out of hand and for the sake of everyone on here, it is a mutual interest for we three to end conversation with each other. Capeche’? Good.
My apologies to the rest of the blog for the rant.
September 30th, 2008 at 11:50 am
bob - Apologies accepted.
September 30th, 2008 at 11:52 am
OK, guys and gals, ease up on the fighting. We must tolerate difference opinions, even if you strongly disagree with them!
September 30th, 2008 at 11:53 am
I meant “different” opinions. Please tolerate an occasional typo too!
September 30th, 2008 at 12:10 pm
Aw, isn’t that adorable! Chuckie’s telling everyone to make nice after being so mean before.
bob, I love how you insist you know what you’re talking about while proving otherwise with every post. You are a very confused person, and the most dangerous thing about you is you have no idea how poorly you understand the world around you.
But keep telling us how much you understand, that should prove it, huh? Don’t let little things like not knowing what an economist is when lecturing us about economic policy stop you for one minute!
DreamT, I guess we got Sarah to go with Chuckie, huh?
September 30th, 2008 at 12:46 pm
Looking at Bush administration’s record, I wouldn’t be surprised if they soon come up with a new name for the bail-out plan, such as “Economic Revitalization Plan” or “No Bank Left Behind”.
September 30th, 2008 at 12:47 pm
Madhaus,
You need to do your part if we’re all going to have peace here. It’s not very lady like to get into all the mud slinging.
September 30th, 2008 at 1:05 pm
Back to the bail-out plan, I think this plan is taking America toward socialism. Instead, it’s better to let the free market work off the excesses. In the short term, there will be some pain, but as market opportunities present themselves, there will be enterprises who will find ways to profit from it. The recent move by Birkshire is one example. So what if there is no money to lend? As long as there’s a profit incentive, someone will step in to occupy the vacuum created by failed banks. So what if home prices fall? We have all of you here who have been waiting in the side lines for the past 10 years trying to take advantage!
September 30th, 2008 at 1:18 pm
So what if home prices fall?
When houses in 94301 routinely sell for under a million I want to hear you say that again.
September 30th, 2008 at 1:55 pm
>>When houses in 94301 routinely sell for under a million I want to hear you say that again.
I think I’ve been consistently saying, I have no vested interest in real estate.
September 30th, 2008 at 1:58 pm
won’t happen. It will work itself out everyhere except RBA. This is what makes RBA RBA. This is a “fact.”
September 30th, 2008 at 2:00 pm
interesting. So you sold your home?
September 30th, 2008 at 2:10 pm
Anon,
I intend to be just like the owner of this house:
http://www.burbed.com/2008/09/30/original-owner-of-this-home-has-watched-all-of-the-trees-in-this-neighborhood-grow-tall/
Except the trees are already pretty tall…
September 30th, 2008 at 3:16 pm
Well then, let’s be clear. That means you won’t be cashing out so your equity means nothing. It’s value as an investment for what Bob is looking for is zero.
While I’m sure you love it, Palo Alto isn’t that great.
Vested means: fixed and absolute and without contingency; “a vested right”. Do you not have absolute title to your home?
September 30th, 2008 at 3:17 pm
Since you bought in 2003, how long do you anticipate before it has dropped to below what you paid for it?
September 30th, 2008 at 3:20 pm
Absolute, save the lien to bank, that is…
September 30th, 2008 at 3:52 pm
anon,
I don’t anticipate the price will drop at all, but I don’t really care, sinceI have no plan to sell. I can’t think of a place I’d rather move to anyways.
September 30th, 2008 at 4:07 pm
LOL. I saw this coming in post #68:
http://biz.yahoo.com/ap/080930/bailout_all_in_a_name.html
September 30th, 2008 at 4:09 pm
LOL. I saw this coming in post #68:
AP
The new bailout pitch: It’s NOT a bailout
Tuesday September 30, 5:55 pm ET
By Tom Raum and Martin Crutsinger, Associated Press Writers
How to sell the bailout after Congress says no: Well, for starters, don’t call it a bailout
WASHINGTON (AP) — The Bush administration is searching for a new way to sell its financial rescue plan after acknowledging some blunders and missteps in presenting it the first time around. One big key: Insist it’s not a Wall Street “bailout.”
Now it’s not about financial institutions. The focus has switched to everyday Americans. And it’s not an expenditure of taxpayer money, it’s an “investment.”
This was clearly evident in Bush’s grim warnings on Tuesday of “economic hardship for millions” if the plan can’t be revived. He declared, “For the financial security of every American, Congress must act.”
This emphasis was echoed on the presidential campaign trail.
“Let’s not call it a bailout. Let’s call it a rescue,” said Republican John McCain.
Democratic rival Barack Obama said, “This is no longer just a Wall Street crisis — it’s an American crisis, and it’s the American economy that needs this rescue plan.”
House Speaker Nancy Pelosi’s take: Its not a bailout but “a buy in, so that we can turn our economy around.”
Bush, McCain, Obama and top congressional leaders agree the plan — which would nationalize large numbers of bad mortgages and securities tied to them — is needed to unclog the nation’s financial arteries.
But it proved extremely unpopular across the country and was rejected on Monday in the House, a stunning setback to the administration that led to a dizzying 778-point plunge in the Dow Jones industrials. The Dow bounced back 485 on Tuesday amid word of efforts to salvage the plan.
Language seemed to matter.
An AP-Knowledge Networks poll last week that asked whether people supported Bush’s proposed federal “bailout” of financial institutions found only 30 percent backing it. Surveys by the nonpartisan Pew Research Center that asked whether people support “investing” or “committing” billions to keep markets secure found slightly more favoring the plan than opposing it.
White House spokesman Tony Fratto agreed the administration’s initial efforts to explain the legislation to Congress and the public left something to be desired.
“We need to be able to better demonstrate that there are impacts for American families, for retirees, for small businesses, for larger businesses who are hiring, for our banking system, for the ability to get home loans, for businesses to be able to make their payrolls, their small-business accounts,” Fratto said.
He said “it’s a hard thing to do” because of the complexity of both the problem and the solution. “There are four or five steps involved … before you get to the kitchen table of the average American family and how it affects them.”
Bush was trying on Tuesday.
“The dramatic drop in the stock market that we saw yesterday will have a direct impact on retirement accounts, pension funds and personal savings of millions of our citizens,” he said.
From the initial three-page request by Treasury Secretary Henry Paulson for unchecked powers to spend up to $700 billion with no oversight to the confusing explanations for why the plan was needed, the Bush administration’s sales pitch has followed a rocky path.
Perhaps because he was the former CEO of investment bank Goldman Sachs, Paulson talked to lawmakers about the plan in Wall Street-speak.
The treasury secretary and Federal Reserve Chairman Ben Bernanke spent more than 10 hours before congressional committees last week trying to explain to skeptical lawmakers why the rescue package was not a Wall Street bailout.
It was not an easy sell, in part because Paulson and Bernanke occupy jobs where most of the time they go out of their way to sound upbeat so as not to spook investors and send the markets crashing. But, as Senate Majority Leader Harry Reid, D-Nev., noted after one negotiating session, “We deal with Wall Street but we also deal with Main Street.”
“Those appointed officials, like Paulson and Bernanke, are going to have to become more realistic,” Reid said.
To many lawmakers, the request to put so much taxpayer money at risk was politically toxic — too risky right before an election, in a vote that an opponent could cast as a bailout for Wall Street.
“Lawmakers were upset because Secretary Paulson was asking them to give him a blank check and just go away. I think some of them were offended by what he presented to them initially,” said Sung Won Sohn, an economics professor at the Martin Smith School of Business at California State University, Channel Islands.
Bush himself appeared uncomfortable in talking about the crisis at first. He used phrases like “a substantial step to provide additional liquidity to the U.S. financial system.” And “the American people can be sure we will continue to act to strengthen and stabilize our financial markets and improve investor confidence.”
Now Bush is seeking to relate the crisis more directly to family and small-business economics.
Is there time?
Wayne Fields, an expert on political rhetoric at Washington University in St. Louis, said “talking about it as a bailout has hurt” the plan’s chances. That’s because most Americans don’t understand the intricacies of what’s involved but can relate to seeing their tax dollars used to reward those who helped create the mess in the first place.
“I don’t think you can change the language now,” he said.
September 30th, 2008 at 4:23 pm
“Language seemed to matter.”
As if mastery of language was no longer the rule #1 of both politics and management. You cannot blunder on use of language and still call yourself a professional politician.
September 30th, 2008 at 5:08 pm
As if mastery of language was no longer the rule #1 of both politics and management. You cannot blunder on use of language and still call yourself a professional politician.
———
And we are discussing it after four years since Bush’s won the reelection after Kerry’s infamous “I actually did vote for the $87 billion before I voted against it.”
This bailout plan just needs another “Clear Sky Act” or “Patriot Act” kind of positive title.
September 30th, 2008 at 5:50 pm
Aw, isn’t that adorable! Chuckie’s telling everyone to make nice after being so mean before.
————–
Being mean? He was just trying to help. Poor guy.
September 30th, 2008 at 6:08 pm
RE, “I don’t anticipate the price will drop at all, but I don’t really care, sinceI have no plan to sell. I can’t think of a place I’d rather move to anyways.”
That’s fine, and for your purposes the actual value of the home is irrelevant. But, understand: 1) you have a vested interest. 2) it won’t pay you until you move or take out a reverse mortgage.
So, for you to say “your home pays you - this is true every time,” you are wrong. The person you strive to be is a case in point. It paid someone else.
DT,” You cannot blunder on use of language and still call yourself a professional politician.”
Truer words were never spokenized.
September 30th, 2008 at 6:13 pm
I re-read that listing, and I assumed the owner died and that is why it is selling. Not sure if that is a correct assumption.
In any case, if he’s paid, he’s not living there.
September 30th, 2008 at 9:06 pm
>>1) you have a vested interest.
Let me give a counter example. Pralay does not own a house, but he has a vested interest - in the real estate market going down.
>>2) it won’t pay you until you move or take out a reverse mortgage.
It pays me every time I use my house to trade up.
September 30th, 2008 at 9:17 pm
“Let me give a counter example. Pralay does not own a house, but he has a vested interest - in the real estate market going down.”
Why? This assumes he is sitting on the sideline wanting to buy. He’s essentially shorting the market right now as he waits patiently - determining whether or not to buy from an objective standpoint. Unlike you, he has not made the decision based on nonsensical garbage spewed by real estate brokers.
“It pays me every time I use my house to trade up.”
No, it doesn’t. You roll your equity (savings) into the new home and you take on more debt by definition. If you didn’t, you would be either trading with no gain or trading down.
In the meantime, hope you don’t need a new roof, or new plumbing. Because, the longer you live there, the more the physical structure deteriorates. Just like a car.
September 30th, 2008 at 9:30 pm
>>He’s essentially shorting the market right now as he waits patiently
He is not shorting anything. I would characterize it as praying desparately for the market to fall.
>>You roll your equity (savings) into the new home and you take on more debt by definition
Most of my equity is not from my savings, but from appreciation. Madhaus will tell you the same regarding her shack. Essentially I am traveling on rollerskates while you are on the floor crawling.
September 30th, 2008 at 9:55 pm
“He is not shorting anything. I would characterize it as praying desparately for the market to fall.”
There is no praying, there is only watching.
“Most of my equity is not from my savings, but from appreciation. Madhaus will tell you the same regarding her shack. Essentially I am traveling on rollerskates while you are on the floor crawling.”
This failed to address my statements. You cannot see the forest for the trees. Homedebtors will no longer have appreciation to roll up. They will have depreciation.
September 30th, 2008 at 9:59 pm
anon,
Mortgage debt is good debt. It means you have leverage - using a small amount of money to make a lot of money.
September 30th, 2008 at 10:02 pm
And if they are forced to move, they will be forced to trade down.
September 30th, 2008 at 10:04 pm
Ok, now you’re just playing around, right? You can’t possibly be this stupid.
If you buy a home right now, you are using a small amount of money to LOSE a large amount of money.
If you had bought a 600,000 home a year ago, it is worth probably around 400,000. ISN’T LEVERAGE GREAT?
September 30th, 2008 at 10:11 pm
You need to sit back and think for a second before you repeat phrases like a parrot.
September 30th, 2008 at 10:18 pm
anon,
If you stay in your BA home for 15 years, it’s virtually impossible to lose money. You cannot find a 15 year span in BA history where you would lose money on a house - even in a place like East Palo Alto.
September 30th, 2008 at 10:23 pm
well, I have to say I hate that rescue plan or whatever they are calling it but the market for real estate where I look which is the lower end areas is really stagnant right now and I think its the credit crisis or whatever they call it that is doing it. If that bailout passes there will be a silver lining for me and I can get more properties, I am thinking. The last group of REOs that came on the market sold except for a few undesirables and nothing since about mid-July out here in the 400-450K range. Loans are still ok, no problem getting a loan from Wells or BofA. Most rentals I see are over $3K now so rents seem to be holding up and way up from last year.
September 30th, 2008 at 10:30 pm
mtv-renter, according to Paul Krugman the money for this bailout will not be printed, it is something of a loan from one of the trusts the US already maintained. its his opinion piece from yesterday, check it out. No opinion on this bailout, but if it goes through I am hoping to see more REOs on the market.. very disappointed in current selection.
Can anyone here comment on REOs in there area? I am wondering if REOs in the bay area were basically one big swoop and this is it?
September 30th, 2008 at 10:36 pm
The only part of the bail-out plan I really like is raising the FDIC limit from $100K to $250K. That way I can finally get rid of my 10 different bank accounts!
September 30th, 2008 at 10:42 pm
They’re making things worse…Senate is adding a big tax cut to the bill. WTF? Pretty soon they’re going to need a rescue package for the budget deficit!
September 30th, 2008 at 10:54 pm
I’m really annoyed by the new bill…the tax breaks have nothing to do with saving the failed banks. It’s just a major distraction.
September 30th, 2008 at 10:54 pm
Well I am one who thinks they may make money on this bailout if they do it, although I am opposed to it in principle. I am familiar with some of the assets they want to buy and the problem is that foreign investors have no way of valuing them. In fact since I am not getting the REO inventory that I wanted and I find bidding for houses to be very competitive in the 400-500K range in San jose, I considered buying some of these types of assets as an investment and learned all about them. But I’m not a bond trader so likely won’t do it. Most mortgage backed securities are trading at .35 on the dollar and LESS, even in some desirable parts of CA. But Japan who usually buys these things doesn’t know which group of bonds to buy, because they are ALL rated A-grade. It is obvious that mortgages need a better rating system, maybe A for neighborhood of house, B for this house in particular because it is average not upgraded, B for this buyers credit history so overall rating is A-B-B. A rating system like that would show that this pool of houses in Napa has value because its Napa. Right now, with these ratings there is no way to know. ANd to add insult to injury with all these bank failures the banks will not lend to each other anymore. So its a complete shutdown of corporate credit. I predict they will pass this bailout or something like it actually, because the CEOs of the world are worked up and worried.
September 30th, 2008 at 10:57 pm
Oh Christ, not more TAX CUTS. Can’t wait for the Obama administration. The only people unhappy that Obama will be elected are the producers at Saturday Night Live.
September 30th, 2008 at 11:00 pm
Wiat a minute- check that- it looks like the new bill has an AMT rollback which is not what I thought when RE said tax cut.
The package of tax credits will also include an annual fix to the alternative minimum tax credit so that more than 20 million middle-class Americans aren’t inadvertently affected by the tax.
This is the ONE tax cut I actually support, not because I think people that get stuck with it are paying too much but because it is bizarre and unfair in terms of how it calculates tax.
Hopefully Obama manages the budget better than Bush, well who can’t do that?
September 30th, 2008 at 11:04 pm
“If you stay in your BA home for 15 years, it’s virtually impossible to lose money. You cannot find a 15 year span in BA history where you would lose money on a house - even in a place like East Palo Alto.”
Fascinating. The same is true for the stock market. This isn’t what you are writing earlier, it is a completely separate and distinct point.
“They’re making things worse…Senate is adding a big tax cut to the bill. WTF? Pretty soon they’re going to need a rescue package for the budget deficit!”
This might allow more idiots to buy homes. Sounds like a good thing from your point of view.
September 30th, 2008 at 11:04 pm
>>In fact since I am not getting the REO inventory that I wanted and I find bidding for houses to be very competitive in the 400-500K range in San jose
If the stock market tanks further, I think you find more money diverted to real estate. For people with cash, now is an ideal time. As some analysts have noted, there is no lack of money on the sidelines, there’s only a lack of credit.
September 30th, 2008 at 11:07 pm
“If the stock market tanks further, I think you find more money diverted to real estate. For people with cash, now is an ideal time. As some analysts have noted, there is no lack of money on the sidelines, there’s only a lack of credit.”
Right. People (you) learned nothing from the dot com bust.
For most people, credit is a requirement to purchase. As a result they will be unable to purchase.
September 30th, 2008 at 11:09 pm
There is a healthy group of buyers for all desirable (non ESJ) properties in SJ at the price points I like to buy. I think the rent situation is driving property buyers because you literally can buy a place and rent it as cash flow positive. That is rare in the BA. But I was hoping for *much* more inventory now.
On this bailout I happened to see this,
Rep. Jeb Hensarling, Republican of Texas One of the leading proponents of the House Republicans’ alternative bailout plan
I fear that ultimately it may not work. I fear it is too much bailout and not enough work out. I fear that taxpayers may end up inheriting the mother of all debts. …
http://www.nytimes.com/interactive/2008/09/30/us/politics/CONGRESS-VOTE-QUOTES.html
This guy fears taxpayers are going to inherit the mother of all debts? Where the hell was he when Bush spent one trillion on the Iraq war? Or that Dept of Homeland Security which is nothing more than a license to rip off the govt? While this 700 billion is a lot of money it is NOTHING compared to what the Bush admin has spent, they have practically spent one trillion of debt PER YEAR! These republicans are too much.
September 30th, 2008 at 11:12 pm
>>This is the ONE tax cut I actually support, not because I think people that get stuck with it are paying too much but because it is bizarre and unfair in terms of how it calculates tax.
They need to get rid of AMT for all. Otherwise it’s still unfair to those who get taxed for it. However, I still see it as a separate matter from bail-out. The more stuff they roll into the bail-out, the more they over-complicate things, and the harder it will be to get agreement.
September 30th, 2008 at 11:13 pm
>>Right. People (you) learned nothing from the dot com bust.
Anon, if there’s one thing you should’ve learned from the dot com bust, is that it set off the real estate boom.
September 30th, 2008 at 11:25 pm
>>While this 700 billion is a lot of money it is NOTHING compared to what the Bush admin has spent, they have practically spent one trillion of debt PER YEAR! These republicans are too much.
Americans are going to pay a heavy price for all this spending binge. The government does not have this money. They are borrowing it from foreign countries like China. The interest on the debt alone will eat us alive.
Here is what we really need:
- Raise taxes
- Cut spending
- Forget the bail-out
- Stop the 2 wars immediately. Let terror happen occasionally. More people die from car accidents anyways.
September 30th, 2008 at 11:38 pm
You and I agree completely. And on the spending issue I think Obama’s number one priority should be healthcare, simply because we cannot afford this system anymore. The govt spends 450 billion on Medicare every year, we spend more on medicare than most countries spend to insure their entire population and that figure is projected to quadruple in the next 15 years. We need to get healthcare down to a more manageable 8% of GDP like what everybody else pays vs today’s 16%, with the govt paying half from taxes and individuals paying half. That represents a cost SAVINGS to most employers. It may be that the private healthcare infrastructure is no more. Too bad, so sad.