Posted by: Timothy Ellis (The Tim)

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

74 responses to “Monday Open Thread (2010-08-16)”

  1. Cheap South

    Tim; any way to find out the latest numbers on out of state driver’s licenses surrendered in WA? Is this data available for other states? If so, where? I am wondering what the state population has been doing in the past 2 years.

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  2. deejayoh

    By Cheap South @ 1:

    Tim; any way to find out the latest numbers on out of state driver’s licenses surrendered in WA? Is this data available for other states? If so, where? I am wondering what the state population has been doing in the past 2 years.

    you can look that up on the Washington OFM site. they post it every quarter or so

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  3. softwarengineer

    Today’s Stock Market News, Article in Part:

    “…Homebuilder confidence dropped for the third straight month in August as the struggling economy and a flood of cheap foreclosed properties kept people from buying new homes….”

    http://finance.yahoo.com/news/Homebuilder-confidence-sinks-apf-2415930954.html?x=0&sec=topStories&pos=main&asset=&ccode=

    But the home price declines have bottomed out? LOL

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  4. Scotsman

    Hey Pfft- I’m waiting for your response to my posts # 125 and #126 on the weekend open thread.

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  5. Scotsman

    Love it. Krugman still believes social security has a trust fund that will cover any shortfalls, even though there isn’t anything in the fund except IOUs from a government that’s running 20%+ deficits from here to eternity. What partisan crap, and a dis-service to the whole country.

    http://www.nytimes.com/2010/08/16/opinion/16krugman.html?_r=1&ref=opinion

    The comments are interesting:

    http://community.nytimes.com/comments/www.nytimes.com/2010/08/16/opinion/16krugman.html

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  6. Chris

    RE: Scotsman @ 5
    Scotsman – over the weekend I ran across this July 14 1998 article from Krugman: http://www.nytimes.com/2008/07/14/opinion/14krugman.html

    Right when Fannie Mae and Freddit Mac were about to go under he wrote: “Fannie and Freddie had nothing to do with the explosion of high-risk lending a few years ago, an explosion that dwarfed the S.& L. fiasco. In fact, Fannie and Freddie, after growing rapidly in the 1990s, largely faded from the scene during the height of the housing bubble.” Krugman basically absolved these government sponsored entities of being involved in the debacle.

    However the month before the Washington Post indicated Fannie Mae and Freddie Mac were (are) a central figure in legitimizing subprime mortgages: http://www.washingtonpost.com/wp-dyn/content/article/2008/06/09/AR2008060902626.html

    Here’s a paragraph from the WP article: “The agency neglected to examine whether borrowers could make the payments on the loans that Freddie and Fannie classified as affordable. From 2004 to 2006, the two purchased $434 billion in securities backed by subprime loans, creating a market for more such lending. Subprime loans are targeted toward borrowers with poor credit, and they generally carry higher interest rates than conventional loans.”

    For some reason Krugman really seems to like any program with a government stamp of approval and will bend the facts to protect it from criticism even if its assets are a stack of IOUs guaranteed by someone deeply in debt and getting more so.

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  7. Scotsman

    RE: Chris @ 6

    “Krugman really seems to like any program with a government stamp of approval ”

    Understatement of the year. ;-)

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  8. Chris

    That Krugman pro-Fannie Mae and Freddie Mac article appeared right before the feds backed those companies with the full faith and credit of the US government. It seems whenever a government program is imperiled the bat signal goes up and out plops another pro-government intervention column.

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  9. Cheap South

    I like the price changes in this condo; $209, $109, oh what the heck, let’s go for $210

    http://www.redfin.com/WA/Kirkland/12617-NE-130th-Way-98034/unit-E106/home/39792

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  10. One Eyed Man

    RE: Scotsman @ 7RE: Chris @ 6

    Yeah, those government programs were the big mistake, not like those smart private market guys at Countrywide, Wachovia and WAMU who always get it right. Perhaps we should be a little more objective about the facts. There were errors in both the public sector and the private sector. As a matter of fact, the government guys were stupid, but the private sector guys were even bigger idiots based upon the size of their share of the subprime market.

    According to the NY Times article, Fannie and Freddie were required by HUD to increase subprime participation and did that by buying MBS’s rather than direct ownership of loans. Never the less, their percentage of the subprime market acquired thru MBS purchases appear to have been smaller than their percentage of the conforming loan market. Fannie and Freddie always had less than half of the subprime market and only as MBS’s at that, where as if I recall correctly they had more than 50% of the conforming market.

    The private sector was even heavier into the sub prime and more responsible for its creation and growth. That profit motive thing doesn’t always lead to the most intelligent decisions either, unless of course you live in an Ayn Rand utopia where all the capitalists are just swell people who would never take advantage of the unsuspecting and are just out to make it a better world thru hard work. I’m in favor of less government, but the idea that the private sector always does a better job is a myth. Fannie’s been around for 75 yrs. A lot of private sector lenders did a lot worse during the S & L crisis than Fannie did.

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  11. One Eyed Man

    RE: Scotsman @ 5

    Chris if you read commen 5, it would appear that Scotsman agrees with me that the social security trust fund is just an accounting sham that hides the fact that FICA and other payroll taxes are regressive income taxes on the working class that get spent in the general fund. Don’t forget to add in that 13+% of earned income next time you determine how much of the tax burden is paid by the bottom 50% of taxpayers.

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  12. Scotsman

    RE: One Eyed Man @ 10

    Who claimed two wrongs make a right? Did Chris? Did I? I guess I missed that in your partisan rant. . . Why so defensive?

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  13. Ross Jordan

    By Cheap South @ 9:

    I like the price changes in this condo; $209, $109, oh what the heck, let’s go for $210

    http://www.redfin.com/WA/Kirkland/12617-NE-130th-Way-98034/unit-E106/home/39792

    $109 sounds like a typo that was rather quickly corrected.

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  14. Scotsman

    RE: One Eyed Man @ 11

    Um, no. Social Security funds are collected and put in a trust fund that will be used to pay benefits on those rare occasions when the cash inflows for the program fall short of covering the stated and owed benefits. With careful management and investment we expect the trust to grow to the point where future generations will have to pay less to maintain the same or greater level of benefits. Why, in fact, at some point this fund may be so damed flush that no one will ever have to work again and we will all have french maids in cute outfits assisted by cuban pool boys wearing nothing almost nothing at all, both bringing us drinks on the veranda.

    I’m pretty sure that’s what you. . . and Krugman thought. But BUSH f#ck#d it up. Do I have that right? ;-)

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  15. pfft

    By Scotsman @ 5:

    even though there isn’t anything in the fund except IOUs from a government that’s running 20%+ deficits from here to eternity.

    if by IOUs you mean US government bonds then yes. if they aren’t anything can I have them?

    where did you get the 20% deficits from?

    Meanwhile, an aging population will eventually (over the course of the next 20 years) cause the cost of paying Social Security benefits to rise from its current 4.8 percent of G.D.P. to about 6 percent of G.D.P. To give you some perspective, that’s a significantly smaller increase than the rise in defense spending since 2001, which Washington certainly didn’t consider a crisis, or even a reason to rethink some of the Bush tax cuts.

    http://www.nytimes.com/2010/08/16/opinion/16krugman.html?_r=1&hp

    no problemo.

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  16. pfft

    By Scotsman @ 14:

    RE: One Eyed Man @ 11But BUSH f#ck#d it up. Do I have that right? ;-)

    he almost did. thank god he was stopped from privatizing it.

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  17. Scotsman

    Hey Pfft- I’m waiting for your response to my posts # 125 and #126 on the weekend open thread.

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  18. Scotsman

    Man, it’s too hot- I’m off on the boat for a week or so. Keep it honest and real.

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  19. Chris

    RE: One Eyed Man @ 10
    One Eyed Man – I don’t have any more faith in the financial sector (at least what it has become) than you do. I think the US has morphed into a banana republic where the finance industry has interwoven itself with the government. Here’s an interesting article that validates this view: http://www.theatlantic.com/magazine/archive/2009/05/the-quiet-coup/7364/

    “But there’s a deeper and more disturbing similarity [between the US and banana republics]: elite business interests—financiers, in the case of the U.S.—played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them.”

    We are just keeping the game of musical chairs going longer and going deeper in the hole is what I’m saying.

    Also to say that Fannie Mae and Freddie Mac play(ed) a minor role in the creation of the rules of the game in real estate finance isn’t correct. Many standard practices there became industry standard. I know credit scoring was piece meal until they started to require a certain score to have the loan bought in the secondary market in the 1990s. After that almost all residential loans required a certain score range. The stamp of approval of a quasi-government entity that hires elected officials through the revolving door (and their relatives) carries a lot of weight in any industry.

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  20. Pegasus

    RE: pfft @ 16 – Right. Those banksters would have stolen all of the trust fund by now…whew!. Instead we have our own government stealing it for them. Here is your hero Krugman getting severely spanked today. Correctly I might add.

    Revoke Krugman’s PhD (Social Security)

    http://market-ticker.org/archives/2584-Revoke-Krugmans-PhD-Social-Security.html

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  21. Chris

    RE: One Eyed Man @ 11 – Like I said over the weekend, if your point is the government is taking money ostensibly for a social insurance program that is in fact a sham (ie you won’t see the money again), why would you trust the same government to take more money from anyone to use as “stimulus” where it proved it is irresponsible?

    I very much doubt Scotsman ever said he wanted the government to increase taxes for a stimulus. One eyed man, is your position we should consider social security withholdings to be a straight tax payment? If we do that I acknowledge the calculations showing half pay taxes and half don’t (http://www.taxfoundation.org/press/show/22652.html) would need to be re-calibrated but wouldn’t you be conceding the larger argument on whether the government can be trusted to spend the stimulus money (the reason we are discussing raising taxes) wisely?

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  22. One Eyed Man

    RE: Scotsman @ 14

    I never mentioned Bush and you and I both know he didn’t start the SSI trust fund accounting. And if you read my post, you also know I didn’t say that SSI could afford its current level of benefits, with or without the trust fund. We both know that its an unfunded plan with a modest surplus from past years that weren’t designed to make it a fully funded plan. I’ve always agreed that SSI benefits need to be frozen if not cut and the retirement age needs to be raised. But according to the CBO, if you believe in the Trust Fund it wouldn’t be necessary any time soon because the Trust Fund would pay any shortfall in FICA taxes for another 30 or 40 years.

    You’re the one who first implied in this thread that the SSI trust fund is an accounting farce. But that’s not much of a secret if you lived thru the ’80’s. Pay particular attention to the last sentence of the following quote.

    “The 1983 Amendments and the Social Security Trust Fund
    The 1983 Amendments also included a provision to exclude the Social Security Trust Fund from the unified budget (In political jargon, it was proposed to be taken “off-budget.”[citation needed] Yet today Social Security is treated like all the other trust funds of the Unified Budget.[citation needed] It is a political way of using a cash budget instead of the more appropriate accrual budget (for all the budgets in the U.S. government), and a way of disguising total debt.[56] This provision also provided for the exemption of Social Security and portions of the Medicare trust funds from any general budget cuts beginning in 1993.[45] This change was one way of trying to protect Social Security funds for the future.

    As a result of these changes, particularly the tax increases, the Social Security system began to generate a large short-term surplus of funds, intended to cover the added retirement costs of the “baby boomers.” Congress invested these surpluses into special series, non-marketable U.S. Treasury securities held by the Social Security Trust Fund. Under the law, the government bonds held by Social Security are backed by the full faith and credit of the U.S. government. Because the government had adopted the unified budget during the Johnson administration, this surplus offsets the total fiscal debt, making it look much smaller[citation needed]. There has been significant disagreement over whether the Social Security Trust Fund has been saved, or has been used to finance other government programs and other tax cuts.”

    http://en.wikipedia.org/wiki/Social_Security_(United_States)

    Face it, taxes to fund the entitlements are no different than any other government revenue stream and the bottom half of the income spectrum pays a significant portion of their incomes in entitlement taxes (much more than the misleading 3% they pay thru income taxes).

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  23. One Eyed Man

    RE: Chris @ 21

    FICA and other payroll taxes are an income tax. It’s irrelevant that that income tax is used to pay SSI benefits. The name you give the tax is irrelevant. Its a flat tax based upon earned income and its regressive because it doesn’t apply to incomes over something like 108K.

    The Trust Fund is a small part of SSI. SSI is an unfunded plan. The Trust Fund could at best fund about 3 years of benefits. The Trust Fund isn’t intended to fund all the needed benefits for the baby boomers, only the projected short fall of necessary future revenues to pay the then current benefits. All of us know that the government already spent the 2.4 trillion in the SSI Trust Fund and issued intra-government bonds. That could be considered a sham or an accounting gimick to the extent that those bonds mask an even bigger general tax revenue shortfall and borrowing need by the federal government.

    Stimulus is a separate issue. As I think I said in the weekend thread, I consider the stimulus an insurance payment to hedge the risk of deflationary spiral and depression. The purpose of the stimulus to me (including programs like TARP) was to stop the continuing economic contraction and collapse of the financial system, not necessarily to create a new expansion. It’s clear that some of the stimulus was poorly spent but thats not necessarily the same as the issue of whether some stimulus was a good idea at the time.

    I don’t necessarily expect to get a quantifiable return on the stimulus in the form of increasing GDP or increasing employment any more than I expect a return on my insurance premium for my house or my car. Its a payment to hedge the risk. It’s value is in limiting the downside not necessarily in creating the upside. There is no way to measure that value because there is no way to tell how bad things would have gotten. Most of the time you don’t have an insured loss, but you still buy the insurance just in case.

    Scotsman believes stimulus is a waste of money because he thinks we are headed for deflation and/or depression in any event and have incurred additional debt with little benefit. He may be right, but only the time will tell for sure. His prediction hasn’t happened yet. Clearly the improvement in the economy is slowing or stalled right now. But most of the big names in economics and investment seem to be handicapping the risk of a double dip at about 25%. Another world crisis like a bombing of Iranian uranium enrichment sites could substantially increase that percentage. With GDP and corporate profits still growing and private employment running slightly possitive, its not currently a recession or depression. But as the zen master said, we’ll see.

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  24. pfft

    By Pegasus @ 20:

    RE: pfft @ 16 – Right. Those banksters would have stolen all of the trust fund by now…whew!. Instead we have our own government stealing it for them. Here is your hero Krugman getting severely spanked today. Correctly I might add.

    Revoke Krugman’s PhD (Social Security)

    http://market-ticker.org/archives/2584-Revoke-Krugmans-PhD-Social-Security.html

    I don’t read karl anymore.

    pols know you don’t mess with SS. people who SS have some of the best voter participation rates. their participation would be much higher if SS were cut or even privatized.

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  25. pfft

    By Chris @ 21:

    RE: One Eyed Man @ 11 – Like I said over the weekend, if your point is the government is taking money ostensibly for a social insurance program that is in fact a sham (ie you won’t see the money again), why would you trust the same government to take more money from anyone to use as “stimulus” where it proved it is irresponsible?

    with any big program you can find problems in the rush to spend money.

    here are the results.

    One year after the stimulus, several independent macroeconomic firms including Moody’s and IHS Global Insight estimated that the stimulus saved or created 1.6 to 1.8 million jobs and forecasted a total impact of 2.5 million jobs saved by the time the stimulus is completed.[73] The Congressional Budget Office considered these estimates conservative.[74] The CBO estimated 2.1 million jobs saved in the last quarter of 2009, boosting the economy by up to 3.5 percent and lowering the unemployment rate by up to 2.1 percent.[75] The CBO projected that the package would have an even greater impact in 2010.

    http://en.wikipedia.org/wiki/American_Recovery_and_Reinvestment_Act_of_2009#Developments_under_the_Act

    also don’t ignore the international success.

    How do stimulus size and economic growth compare internationally?
    http://voices.washingtonpost.com/ezra-klein/2010/06/research_desk_responds_how_do.html

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  26. Kary L. Krismer

    By One Eyed Man @ 10:

    That profit motive thing doesn’t always lead to the most intelligent decisions either, unless of course you live in an Ayn Rand utopia where all the capitalists are just swell people who would never take advantage of the unsuspecting and are just out to make it a better world thru hard work.

    Beyond that, you need to look at whether the motivation of the participants is long-term or short-term profit. Short-term outlook by management can get companies in trouble.

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  27. Kary L. Krismer

    By One Eyed Man @ 23:

    RE: Chris @ 21

    FICA and other payroll taxes are an income tax. It’s irrelevant that that income tax is used to pay SSI benefits. The name you give the tax is irrelevant. Its a flat tax based upon earned income and its regressive because it doesn’t apply to incomes over something like 108K.

    It also doesn’t apply to rental or investment income.

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  28. pfft

    By Kary L. Krismer @ 26:

    By One Eyed Man @ 10:
    That profit motive thing doesn’t always lead to the most intelligent decisions either, unless of course you live in an Ayn Rand utopia where all the capitalists are just swell people who would never take advantage of the unsuspecting and are just out to make it a better world thru hard work.

    Beyond that, you need to look at whether the motivation of the participants is long-term or short-term profit. Short-term outlook by management can get companies in trouble.

    correct.

    just read “the big short.”

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  29. Chris

    RE: pfft @ 25
    Pfft – Moody’s better hope the stimulus works. The CA AG claims they are not cooperating in a probe of their business practices. http://www.huffingtonpost.com/2010/04/19/jerry-brown-moodys-wont-c_n_543476.html Also on Moody’s: “Last month’s Senate hearings showed how Moody’s and S&P gave favorable investment-grade ratings to complex bonds and ignored analysts’ concerns that underlying loans were of poor quality.” : http://www.mcclatchydc.com/2010/05/10/93858/moodys-stock-falls-on-word-of.html

    Bottomline: I don’t think Moody’s is going to say anything that gets the attention of the Secretary of the Treasury in a bad way.

    As for IHS Global – I don’t think they’re as optimistic about the stimulus as you claim they once were. At least not their “Chief U.S. Economic Analyst” (sounds like a title from the Daily Show) last week: “The growth outlook is worse than the Federal Reserve has been assuming, and the risk of deflation greater,” warned Global Insight’s chief U.S. economist Nigel Gault.
    http://www.signonsandiego.com/news/2010/aug/12/economic-group-lowers-forecast-through-2011/

    On the chart you provided, even if I decide to trust the Brookings Institute they include tax cuts in with government spending you favor (eg hiring more census workers than the government really needed). http://www.brookings.edu/~/media/Files/rc/articles/2009/03_g20_stimulus_prasad/03_g20_stimulus_prasad_table.ashx

    Look at the countries that cut taxes you claim are coming back from recession. According the the underlying numbers the Brookings Institute is using, the best bang for the buck comes from tax cuts. Look at Australia, Brazil, Indonesia and Russia. And this leaves aside considerations of the quality of the spending. I’m not saying tax cuts are the answer but this certainly questions raising them like you favor.

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  30. One Eyed Man

    RE: Chris @ 29

    Chris, I don’t have time right now to read the articles, but I have a question about how the ratings agencies and AIG (and similar entities) contributed to the issuance of bad MBS’s. My recollection is that in the past, the sources I looked at said that the rating agencies knew the MBS’s were risky and wouldn’t give the MBS’s a AAA rating until they got some form of insurance from a highly rated insurer like AIG (probably in the form of a CDO). That would imply that the rating agencies were relying on the insurance for their rating and not on the strenght of the underlying mortgages. At least that was the “excuse” that I heard the rating agencies originally gave. Did you see anything discussing that issue? Just curious.

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  31. softwarengineer

    Social Security, Medicare and Retirement Are Moot Points

    Article in part:

    “…Last fall, we discussed the problems state inspectors found at Emeritus at Crossing Pointe, a Florida nursing home, that posed an immediate threat to resident safety. During an inspection at the nursing home, inspectors discovered:

    An 82-year-old patient who died after staff failed to provide her heart medication for four days
    Inaccurate resident counts by facility managers
    Residents with infected bed sores (also called decubitus ulcers, pressure ulcers or pressure sores)
    Neglected patients- some Alzheimer’s patients had toe nails so long that they curved around their toes
    Falsified medical records
    Staff administering the wrong medications to patients that resulted in injury
    The living conditions were so poor that Florida officials banned the facility from accepting new patients.

    Now, it seems Emeritus officials have officially thrown in the towel at this facility. After months of attempting to improve the living conditions at the facility, Emeritus officials have elected not to re-new the facilities nursing home license. Now, the skilled nursing facility will transition to a ‘senior housing’ facility….”

    http://www.nursinghomesabuseblog.com/articles/neglect-1/

    And this SB readers is your fate when your family won’t take you in and all of us will get old sooner or later…perhaps a bit better than this, perhaps not.

    How about Medicare?

    Article in part:

    “…On a recent visit to the Edmonds Family Medicine Clinic, Curtis Wiggins was shocked to find a flier announcing the clinic will no longer take new Medicare patients.

    It made him so angry he started calling and writing his elected officials.

    What’s going to happen to retired and disabled people? demanded Wiggins, who is 63 and soon will be eligible for Medicare. “Why don’t we put ‘em in an incinerator and burn them up, if nobody’s going to take care of them?” ,..”

    http://www.medequote.com/insurance/medicare.html

    Ahhhhhhhhhh…..health care reform will fix it? Not, if we ever go public option, it’s like expanding Medicare doctors refusing part pay. Expecting Americans to all of the sudden pay like $500-1000/mo mandatory health insurance if they make over $40k [avg American household income] is another health care reform pipedream.

    Nope, we’re all gonna work ’til we die and when we can’t work no more we’ll die….

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  32. Chris

    RE: One Eyed Man @ 23
    One Eyed Man – Even Krugman disagrees with your characterization of social security. In the same article you and Pfft cite to he says “Social Security has been running surpluses for the last quarter-century, banking those surpluses in a special account, the so-called trust fund. The program won’t have to turn to Congress for help or cut benefits until or unless the trust fund is exhausted, which the program’s actuaries don’t expect to happen until 2037 — and there’s a significant chance, according to their estimates, that that day will never come.”
    http://www.nytimes.com/2010/08/16/opinion/16krugman.html

    If what you are saying is true, the government converted a social insurance program – http://en.wikipedia.org/wiki/Social_insurance – into an outright government hand out and retirees are welfare recipients. If true this is more cynical than any serious statement ever made by either side.

    FHA morphed from a straightforward, self financed guarantee program for the needy into a behemoth with a default rate approaching 10% (that will need a bail out). Fannie Mae and Freddie Mac morphed from government chartered, for profit companies intended to keep the price of loans down into predatory loan purchasers, crony capitalists while increasing real estate prices by helping create a bubble and dumping billions of tax payer dollars to maintain the bubble for a few months more. I suppose I shouldn’t be extremely surprised if what you said about social security is true, but it is far more cynical than anything I’m prepared for right now.

    If Social Security is social insurance, it is proper to take out of wages and to cap deductions at a certain level since anyone making above some amount will rely on private retirement funds to pay for anything beyond basic needs. Social Security is properly excluded from income tax and I don’t think you can find anyone who disagrees other than Pfft who also has no problems with the FHA insuring failing luxury condo projects. http://www.nypost.com/p/news/local/manhattan/luxury_uite_deals_7ftSC1XEEZLeitHBJM61lK

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  33. Chris

    RE: Chris @ 32
    And by “income tax” I point to “income tax burden” as used to analyse the percentage of income paid by various tiers of tax payers: http://www.taxfoundation.org/press/show/22652.html

    That is the general discussion that started this social security thread.

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  34. Kary L. Krismer

    By Chris @ 32:

    FHA morphed from a straightforward, self financed guarantee program for the needy into a behemoth with a default rate approaching 10% (that will need a bail out).

    Are you sure about that? I don’t recall that FHA ever had any income limitations. There were times when it wasn’t very popular because it was more expensive than other options, but I don’t think it was ever set up just to help low income people.

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  35. Chris

    RE: One Eyed Man @ 30
    I think most of the complaints against Moody’s were about its ratings of residential mortgage backed securities and conflict of interest since those who sought the ratings paid Moody’s.

    http://scholar.google.com/scholar_case?case=9824482018967866559&q=moody's+investors+service&hl=en&as_sdt=2002&as_ylo=2009

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  36. Chris

    RE: Kary L. Krismer @ 34
    Kary – I found this statement on the Wikipedia entry:
    “FHA insured loans are a type of federal assistance and have historically allowed lower income Americans to borrow money for the purchase of a home that they would not otherwise be able to afford.”
    http://en.wikipedia.org/wiki/FHA_insured_loan

    However that article doesn’t cite to authority. Looking around it appears HUD doesn’t like to tout the loans as low income. As you point out it is more expensive financing since it is a pool of people without a down payment. It also doesn’t receive money (yet) to insure its guarantee program so I suppose only someone without a down payment would participate.

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  37. Kary L. Krismer

    RE: Chris @ 36 – I think originally it was designed to provide better mortgage options in general. I guess since only the “unwealthy” would need mortgages of any type it did help lower income people more. But I think the only income limitations have been having enough income that they think you can repay the loan. As far as I know, you’d never have been rejected for having too much income.

    There’s lots of stuff we’ll never know if something had changed it if would have been different, but I wonder if conventional loans w/ PMI would still be the preferred option over FHA if the 80/20 loan package hadn’t become so popular. But for that happening, the PMI companies would have had more revenue coming in, and perhaps would still be willing to insure 96.5% down loans.

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  38. Kary L. Krismer

    Oh, oh. Geithner is risking being fired! He just said that the problems at Fannie and Freddie were caused by both parties. That’s not the official White House stance, which is to blame everything on Bush. ;-)

    http://www.msnbc.msn.com/id/38736597/ns/business-real_estate/

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  39. softwarengineer

    RE: Chris @ 6

    Fannie and Freddie in Today’s News

    Article in part:

    “…n other words, the sinkhole that is Fannie and Freddie — Freddie just said it needed an additional $1.8 billion and the Congressional Budget Office says the combined companies could cost taxpayers $389 billion over the next decade — is not a function of those firms making new loans that have gone bad, but the continued “bleeding,” as Mr. Frank put it, from previous loans made before the crisis that are still going belly-up.

    More important, shutting down Fannie and Freddie and having the private market step in, as politically popular a sound-bite as that may be, is economically unfeasible. For better or worse, Fannie, Freddie and Ginnie Mae were behind 98 percent of all mortgages in this country so far this year, according to the Mortgage Service News. Pulling the rug out from under them would be pulling the rug from under the entire housing market as it continues to struggle….”

    http://finance.yahoo.com/news/2-Zombies-to-Tolerate-for-a-nytimes-3087745768.html?x=0&sec=topStories&pos=1&asset=&ccode=

    98% of the mortgages and a $400B bailout?

    Private sector Banksters worse? One Eye’d Man, I’d like to know how they could be worse than Freddie and Fannie, using today’s “Zombie Bank” news article?

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  40. Ira Sacharoff

    RE: Kary L. Krismer @ 38
    I never thought of Geithner as being especially partisan. Just incompetent.

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  41. Dirty_Renter

    RE: Chris @ 35

    I realize this may sound simplistic, but the role the ratings agencies played in this financial debacle can not be over-estimated. If they hadn’t rated that toxic sludge AAA, there would have been no market w/ the retirement & sovereign & other funds. No market, no toxic loans. Banks & mortgage companies were selling loans to F & F and securitization firms for decades, with absolutely no problem.

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  42. softwarengineer

    The Impact of 0% Zombie Banks On America’s Economic Mess

    RE: Low interest in your 401Ks, etc….too.

    Isn’t just a prop for Freddie and Fannie to write mortgages in 2010. Article in part:

    “…With the overall unemployment rate hovering at 9.5%, many older workers have now found themselves at the back of the line to return to the work force. “Many employers seem to think it is not worth their time or effort to train me in a position,” says Kathleen McCabe, 59, a former apartment manager in Tulsa, Okla., who has been out of work since April 2009. “They assume I will leave for retirement soon.”

    The diminishing work prospects will require many older folks to make do with less—a discouraging outlook for firms hoping to sell them everything from restaurant meals to cars….”

    http://finance.yahoo.com/focus-retirement/article/110364/another-threat-to-economy-boomers-cutting-back?mod=fidelity-buildingwealth&cat=fidelity_2010_building_wealth

    You can rant about how over-sized pensions are and privatizing Social Security will fix it….but there’s a ying to every “pro low interest rate Zombie Bank” yang. And that ying ain’t good SB bloggers.

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  43. Kary L. Krismer

    By Ira Sacharoff @ 40:

    RE: Kary L. Krismer @ 38
    I never thought of Geithner as being especially partisan. Just incompetent.

    Lately all he’s been doing is repeating the talking points of the Administration. I think that maybe comes with the job.

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  44. Kary L. Krismer

    RE: Dirty_Renter @ 41 – I think that might be right. I’ve often wondered how real business people could be fooled by the claim that a debt is secured by real estate. That’s the type of claim that attracts naive retirees, but shouldn’t fool people actively involved in business. Perhaps it’s the rating that did the trick!

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  45. Chris

    RE: softwarengineer @ 39 – Looks like Fannie Mae and Freddie Mac didn’t really “fade from the scene” at the height of the housing bubble (Krugman quote) after all.

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  46. Chris

    RE: pfft @ 47
    Pfft – I think you downplay the importance of Fannie Mae and Freddie Mac to the subprime and private securities market, but they created the pass through mortgage securities we know and love. It is interesting to read some of the propaganda from 2003 on these securities. 2003 was pass through securities’ Summer of Love before the Manson Family came to town.

    According to the (then) proud pass-through security mortgage folks:

    The first mortgage-backed securities arose from the secondary mortgage market in 1970. Investors had traded whole loans, or unsecuritized mortgages, for some time before the Government National Mortgage Association (GNMA), also called Ginnie Mae, guaranteed the first mortgage pass-through securities that pass the principal and interest payments on mortgages through to investors. (Ginnie Mae is a government agency that guarantees securities backed by HUD- and Veterans Administration-guaranteed mortgages.) Ginnie Mae was soon followed by Fannie Mae, a private corporation chartered by the federal government—along with Freddie Mac—to promote homeownership by fostering a secondary market in home mortgages.

    http://financialservices.house.gov/media/pdf/110503cc.pdf (reading this 2003 Congressional testimony to see how everyone was so proud of these instruments is heavy on ironic humor; it’s kind of like watching Mad Men and seeing everyone smoking, driving without seat belts and kids playing with plastic dry cleaning bags, all oblivious to the danger).

    The government-sponsored Fannie Mae, Freddie Mac, and Ginnie Mae could have supplied the solution (to creating mortgage backed securities). All three already did, or could, create mortgage-backed securities and thus generate from investors billions in new mortgage funds for the nation’s homebuyers. Under their federal charters, they were exempt from the restrictions on mortgage securities trading that so vexed Lewis Ranieri and his team. Indeed, Ranieri’s department had been created to sell Ginnie Mae’s mortgage-backed securities to investors, and when Ranieri saw how much money there was to be made by buying up and reselling mortgages from flailing S&Ls, he persuaded Freddie Mac to create securities out of those home loans. Its sales of the Freddie Mac securities made Ranieri’s division Salomon’s biggest moneymaker by far.

    http://www.thebigmoney.com/articles/history-lesson/2009/06/25/dubious-birth-mortgage-backed-securities?page=0,1

    When you read the history of these companies you realize they took advantage of the prominent position a government chartered entity in creating industry standards through federal preemption of state securities laws. Once it was an industry standard, it took just one more visit from Salomon Brothers lobbyists and the completely private banks were in the game for these securities, selling them nationally and internationally.

    Fannie Mae and Freddie Mac also created other standards like requiring (faulty) FICO credit scoring in the 1990s: http://tiny.cc/q3vi3; shady accounting practices: http://www.usatoday.com/money/companies/regulation/2004-09-24-fannie-letter_x.htm; legalizing deceptive subprime loan practices http://www.newsweek.com/2008/08/09/the-predators-ball.html to name just a few of the abuses. I won’t even get into the political buy outs from both sides of the isle they bought off over the years.

    Having a behemoth sanctioned by the federal government that can preempt state laws will eventually lead to an industry standard. Fannie Mae and Freddie Mac initiated (or at best aided and abetted ) every deceptive practice that later became widespread.

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  47. pfft

    By Chris @ 29:

    RE: pfft @ 25 According the the underlying numbers the Brookings Institute is using, the best bang for the buck comes from tax cuts. Look at Australia, Brazil, Indonesia and Russia. And this leaves aside considerations of the quality of the spending. I’m not saying tax cuts are the answer but this certainly questions raising them like you favor.

    I didn’t say raise taxes now. there is a strong correlation between stimulus and GDP growth. the washington post link proved it. the best bang for the buck does not come from tax cuts. if you give a $1 of tax cuts some will be saved so the multiplier will most likely not be postive. if the government spends $1 on widegets(beacause the private sector isn’t) the mulitplier will likely be positive beacuse even if a lot is saved some will still be spent by those who produce the widgets. a multipier of 1.5 implies whomever receives the $1 spends some and saves some.

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  48. pfft

    By Chris @ 45:

    RE: softwarengineer @ 39 – Looks like Fannie Mae and Freddie Mac didn’t really “fade from the scene” at the height of the housing bubble (Krugman quote) after all.

    their share dropped from 50% to 30%. so near 70% of the market wasn’t fannie or freddie. the private sector rushed in and helped exacerbate the mess. subprime exploded when the private sector rushed in.

    read “the big short.”

    Things Everyone In Chicago Knows
    http://krugman.blogs.nytimes.com/2010/06/03/things-everyone-in-chicago-knows/

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  49. pfft

    no recovery here.

    Industrial Production, Capacity Utilization increase in July
    http://www.calculatedriskblog.com/2010/08/industrial-production-capacity.html

    how can industrial capacity go from 68% to 75% and there not be a recovery.

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  50. hoary

    By pfft @ 47:

    By Chris @ 45:
    RE: softwarengineer @ 39 – Looks like Fannie Mae and Freddie Mac didn’t really “fade from the scene” at the height of the housing bubble (Krugman quote) after all.

    their share dropped from 50% to 30%. so near 70% of the market wasn’t fannie or freddie. the private sector rushed in and helped exacerbate the mess. subprime exploded when the private sector rushed in.

    read “the big short.”

    Things Everyone In Chicago Knows
    http://krugman.blogs.nytimes.com/2010/06/03/things-everyone-in-chicago-knows/

    I read the Big Short. It was an entertaining read. I thought it did a good job arguing unrestrained greed is a bad thing — and in a humorous way too.

    Too many swears for my taste, though. I like a few swears, but using an F-bomb on every page makes it lose it’s emphasis.

    You quote Krugman alot bro. There are other economists out there too, you know :-)

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  51. pfft

    By hoary @ 49:

    By pfft @ 47:
    By Chris @ 45:
    RE: softwarengineer @ 39 – Looks like Fannie Mae and Freddie Mac didn’t really “fade from the scene” at the height of the housing bubble (Krugman quote) after all.

    their share dropped from 50% to 30%. so near 70% of the market wasn’t fannie or freddie. the private sector rushed in and helped exacerbate the mess. subprime exploded when the private sector rushed in.

    read “the big short.”

    Things Everyone In Chicago Knows
    http://krugman.blogs.nytimes.com/2010/06/03/things-everyone-in-chicago-knows/

    I read the Big Short. It was an entertaining read. I thought it did a good job arguing unrestrained greed is a bad thing — and in a humorous way too.

    Too many swears for my taste, though. I like a few swears, but using an F-bomb on every page makes it lose it’s emphasis.

    You quote Krugman alot bro. There are other economists out there too, you know :-)

    yes I quote krugman a lot but he’s the only person I read that seems to address every talking point by the austerity crowd a day before I read it here! no matter who I quote a certain number of people already have formed their opinions on tarp, the stimulus and fannie/freddie. the numbers in the krugman post showing near 70% of loans weren’t fannie or freddie will not sway people who know it was the governments fault.

    New research suggests that misinformed people rarely change their minds when presented with the facts — and often become even more attached to their beliefs.

    In Politics, Sometimes The Facts Don’t Matter
    http://www.npr.org/templates/story/story.php?storyId=128490874

    I learned my lesson that during the 2002-2008 bull market that you need to be flexible. nobody can know everything especially about the stock market. smart people have been learning this since march of 2009.

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  52. One Eyed Man

    RE: softwarengineer @ 31

    I believe that all of the “non-profit” health care providers are required to take medicare patients to qualify for 501(c)(3) status. I’ve never looked for the percentages but a lot of the HMO’s and hospitals are “non-profit” corporations. I know that Multicare and Group Health are.

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  53. Sniglet

    In case anyone is interested, the Linked:Seattle on-line community I manage for area professionals, is having it’s first networking event tomorrow night (Wednesday 18th) in downtown Seattle. This is a free meetup, and anyone is welcome to attend.

    Here is the site for RSVPs and details:
    http://bit.ly/ceh5Np

    I promise not to say a WORD about deflation!

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  54. One Eyed Man

    RE: Chris @ 32

    Chris, I didn’t site Krugman, Pfft did. My support of Pfft was because Krugman wasn’t the only economist that supported stimulus as Scotsman was implying. Probably the majority of economists supported some level of stimulus and I cited an article from Roubini were he supported stimulus in the form of extended unemployment benefits and more aid to the states as recently as a few weeks ago.

    Nothing I’ve said about SSI is new or different. Social Security isn’t a retirement plan, its an unfunded insurance plan with a retirement benefit as one component and it always has been. The Reagan administration increased the FICA tax to try to collect extra revenue up front to fund part of the cost of the huge numbers of seniors who would get SSI as part of the baby boomer generation. They spent that extra money and issued intra-government bonds to acknowledge that they took the money for non-SSI expenses. But SSI and medicare have always used the current revenues to pay the current benefits. The “trust fund” didn’t even exist for the first 45 years SSI was in existence.

    Krugmans statement that SSI is OK thru about 2040 is true in the sense that even thou FICA taxes won’t be able to pay the estimated amount of all benefits during that period, the “Trust Fund” will make up the difference and run out in about 2040 (or later if you use the CBO numbers.)

    And SSI has also been taxable for those making over about 40K or so for about the last 20 yrs.

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  55. One Eyed Man

    RE: Kary L. Krismer @ 34

    If I recall correctly, the size of the loan that FHA would do was so low prior to 2006 that it became a low income program on a defacto basis as primarily low income people bought homes in a price range low enough to qualify.

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  56. David Losh

    Banking execs say gov’t needs to back mortgages
    By ALAN ZIBEL, AP
    5 hours ago

    WASHINGTON — The Obama administration invited banking executives Tuesday to offer advice on changing the government’s role in the mortgage market. Their response: stay big.

    While the executives disagreed on the exact level of support needed, the group overwhelmingly advocated the government should maintain a large role propping up the nearly $11 trillion market.

    Bill Gross, managing director of bond giant Pimco, said the economic recovery required more government stimulus, particularly in the housing market. He suggested the administration push for the automatic refinancing of millions homes backed by mortgage giants Fannie Mae and Fannie Mac.

    OK? Help me out, because I live in a little world of my own, don’t get out much, and live the life of a mushroom, but why is the government guaranteeing bank losses? Why is PIMPCO saying we need more stimulus?

    Fannie, and Freddie just need to cool the jets for right now, and take losses. The government needs to shed agencies, enforce regulations, and start some anti Trust actions against Bank of America, Chase, and Wells Fargo.

    There are more than enough laws on the books to address all of the concerns the American public should have about the banking, securities, bond, and rating agencies. The government’s role should be to enforce the law, at this point.

    No more government stimulus, no more government guarantees, and no more Fed policy to try to correct, or direct, the stock market.

    Chips fall where they may, I’m prepared, are you?

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  57. Ira Sacharoff

    RE: One Eyed Man @ 53
    If I recall correctly, any amount earned over 90,000 dollars is not subject to social security tax.
    There’s also no requirement that you are limited to a certain income when you collect.
    If they want either more revenue coming in or less expenditure going out, doesn’t it make sense to not cap the limit at 90,000, and maybe reduce the amount of social security you receive if you already have an an income of 200,000 dollars or more?
    I remember back in the 70’s when Nelson Rockefeller turned 65 he proudly showed off his first social security check. The guy was a zillionaire, and certainly didn’t need the money. But hey, it was only taxpayer money, and maybe allowed him a little bit extra to buy his girlfriend some jewelry.

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  58. David Losh

    RE: Sniglet @ 52

    Great, I’ll be there. Thanks

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  59. One Eyed Man

    RE: Sniglet @ 52

    That’s a huge list of RSVP’s Sniglet. Nice work. And thanks for helping so many people try to move their careers and businesses forward. You make this a better world and help restore my faith in humanity.

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  60. Kary L. Krismer

    By One Eyed Man @ 54:

    RE: Kary L. Krismer @ 34

    If I recall correctly, the size of the loan that FHA would do was so low prior to 2006 that it became a low income program on a defacto basis as primarily low income people bought homes in a price range low enough to qualify.

    That’s true, but Fannie and Freddie also have loan limitations.

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  61. One Eyed Man

    RE: Ira Sacharoff @ 56

    I just looked it up Ira and they collect FICA on the first $106,800 for 2009 and 2010. People making over 106,800 get a 6.2% increase in their take home pay once they hit that number for gross wages. Medicare tax has no limit and is about 1.45%.

    http://www.payrollexperts.com/BlogRetrieve.aspx?BlogID=3486&PostID=92248

    And taxation of SSI benefits is phased in starting at 25K in income for a single person and 32K in income for a maried couple.

    http://www.wwwebtax.com/income/social_security_benefits.htm

    As I recall Nelson had an active social life. I’m sure it must have been his good looks and great personality that made him so popular with all those young women. Unfortunately in my case, they’ll just be after my social security. After all, I’m no lutfisk eating champion. ;-)

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  62. wreckingbull

    By pfft @ 50:

    I learned my lesson that during the 2002-2008 bull market that you need to be flexible. nobody can know everything especially about the stock market. smart people have been learning this since march of 2009.

    I am glad you are just now discovering this. It’s called “diversification” and it is one of the oldest concepts in investing. Instead of buying 20 yaks, one bought buy 5 yaks, 5 chickens, 5 goats, and kept the rest in gold coins. No different today.

    You don’t have to be “all in” or “all out” as you endlessly imply. Did you ever bother to think that those of us who see through Krugie’s self-serving antics didn’t still capitalize on the recent bubble?

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  63. Sniglet

    RE: One Eyed Man @ 58

    You make this a better world and help restore my faith in humanity.

    Ummm… What can I say? I am just doing my little bit. It’s not like I’m The Tim (spreading the word on prudent home purchasing) or anything. :)

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  64. Ira Sacharoff

    RE: One Eyed Man @ 60
    Yes, Nelson Rockefeller died of a heart attack at age 73? while engaged in sexual intercourse with his 28 year old secretary.
    Even lutefisk eating champions need tens of millions of dollars to have that kind of appeal.
    ‘What’s that odor of masculinity I’m smelling?”
    ” That’s not masculinity, that’s lutefisk.”

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  65. pfft

    By wreckingbull @ 61:

    By pfft @ 50:

    I learned my lesson that during the 2002-2008 bull market that you need to be flexible. nobody can know everything especially about the stock market. smart people have been learning this since march of 2009.

    I am glad you are just now discovering this. It’s called “diversification” and it is one of the oldest concepts in investing. Instead of buying 20 yaks, one bought buy 5 yaks, 5 chickens, 5 goats, and kept the rest in gold coins. No different today.

    You don’t have to be “all in” or “all out” as you endlessly imply. Did you ever bother to think that those of us who see through Krugie’s self-serving antics didn’t still capitalize on the recent bubble?

    when I talk about the market did what I didn’t think it would do it was more metal capital than actual capital that was lost. the actual capital wasn’t lost until resource stocks tanked…

    “id you ever bother to think that those of us who see through Krugie’s self-serving antics didn’t still capitalize on the recent bubble?”

    I don’t really know what you’re getting at. what does that mean? as far as I know krugman never weighed in on the stock market. he did on the housing market though.

    That Hissing Sound
    By PAUL KRUGMAN
    Published: August 8, 2005
    This is the way the bubble ends: not with a pop, but with a hiss.
    http://www.nytimes.com/2005/08/08/opinion/08krugman.html?_r=2

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  66. Sniglet

    I am glad you are just now discovering this. It’s called “diversification” and it is one of the oldest concepts in investing. Instead of buying 20 yaks, one bought buy 5 yaks, 5 chickens, 5 goats, and kept the rest in gold coins. No different today.

    Not quite. Markets have become INCREDIBLY synchronized in recent years. When stocks were tanking in 2008 so were precious metals, commodities, real-estate, oil, etc. When stocks rallies in 2009 so did oil, gold, real-estate, commodities, etc.

    Likewise, virtually all asset classes in the 2002 through 2008 rally.

    I suspect that the very mantra of diversification, and hedging through an explosion of new financial instruments, has wound up linking everything together in a way that wasn’t previously possible.

    This is why I believe that pretty much the ONLY asset that will appreciate as the next leg of the bear market bites is cash.

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  67. wreckingbull

    RE: Sniglet @ 65 – Yes, given the asset classes you mention, you would not be well-diversified. Also, I can’t say I agree that real estate rallied in 2009. Perhaps in a few select areas of the country.

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  68. David Losh

    RE: Sniglet @ 65

    I disagree about “cash.” Do you mean dollars? Euros, Yuan, Drachmas?

    Even though I’ve never really explored currencies, there is, in the back of my mind, a caution about cash.

    Your own predictions about deflation would make me think my cash should be in a country that is already bottomed out, and in the currency with the best trading potential. Do you think that will be dollars, given all that you have said here in these comments over the years?

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  69. Sniglet

    RE: David Losh @ 67

    I disagree about “cash.” Do you mean dollars? Euros, Yuan, Drachmas?

    Cash will be king in any country with it’s OWN domestic currency, and in which the vast majority of both public and private debts are in it’s own currency. Nations that are part of currency unions are toast, because the unions themselves will most likely come apart under severe economic stress. Also, nations where a lot of borrowing is done in foreign currencies are in for BIG trouble. In Iceland, for example, it was common for consumers to get loans for houses and consumer goods (e.g. cars) in foreign currencies. This made their economy extremely vulnerable to changes in exchange rates. Unfortunately, there are lots of countries that make a habit of borrowing in foreign currencies. Heck, even Indian companies issue Eurobonds.

    Ironically, countries with the largest private (i.e. corporate and personal) indebtedness (like the US) might see the most severe cases of deflation. The rush to pay off debt acts like a huge vaccuum sucking up all the extra money the Fed and US government can possibly print.

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  70. David Losh

    RE: Sniglet @ 69

    The conclusion I came to is that a cash position in the United States will only follow what the markets do in either deflation, or inflation. In other words the dollar won’t change, it will buy the same amount of goods based on the value of the currency.

    If you take dollars to South America, and buy Sols in Peru, you may come out ahead, in cash. However if you invest in Panama, or El Salvador, even Mexico, you would be fighting the same changes in currency.

    It would take a trade to a stable currency for, as they say, cash to be king.

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  71. Hugh Dominic

    RE: One Eyed Man @ 61 – have we at least settled this nonsense about SSI being an income tax? Chris is right, SSI is a mandatory insurance and pension plan that is imposed upon wagearners. Over time the premiums have become skewed so that high-earners pay a higher premium than low-earners. If you max the SSI cap for 20 years you’d have to live to be 150 to break even. And if you don’t earn any wages, you don’t pay in, and you don’t collect SSI.

    Medicare – same. New health care rules seem to follow this prniciple.

    Reframing these mandatory insurance programs as general entitlements, and thereby dissociating their premiums into income tax, is inaccurate and purposely biased to serve your agenda.

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  72. One Eyed Man

    RE: Hugh Dominic @ 71

    I’m not sure that I have any agenda Hugh, other than to point out that I thought Chris’ statement about taxes in the weekend open thread was to some degree misleading. I don’t share all of Pfft’s or Krugman’s opinions. But I think some of those who challenge Pfft’s comments overstate their case and should also be challenged as to the accuracy of their assertions. This is the statement that Chris made in comment 11 of the weekend open thread that I objected to:

    “24. Tax the rich: The top 5% already pays 60% of the taxes. The top 25% already 86% of taxes and the top 50% pays 96.93%. The bottom 50% pays 3% of taxes.
    Source:
    http://www.taxfoundation.org/press/show/22652.html
    Do you think these numbers are cooked? . . . .”

    This was my response at comment 33:

    “Chris, I’d just like to respond to your statement that the top 5% pay 60% of the taxes and the bottom 50% pay 3% of the taxes. As you probably know, those figures include only the “federal income taxes,” and leave out the fica, medicare and payroll taxes that are also calculated based upon income. The income tax accounts for about 1 Trillion of the 2.2 Trillion in federal tax revenue. The fica medicare and payroll taxes account for about 900 Billion. Leaving out the payroll taxes is misleading just as it would be misleading to leave out medicare and social security if we were talking about the federal budget expenditures. . . . .
    If you say the payroll tax isn’t an income tax you are exalting form over substance. They may not call it an “income tax” but its a tax calculated based upon the employee’s income and its nearly a Trillion dollars in tax revenue.”

    As to the argument that FICA is more of an insurance premium and not a tax, I think that is also to some degree misleading for various reasons, among them the following:

    “The amount that one pays in payroll taxes throughout one’s working career is indirectly tied to the social security benefits annuity that one receives as a retiree.[citation needed] This has led some to claim that the payroll tax is not a tax because its collection is tied to a benefit.[3] The United States Supreme Court decided in Flemming v. Nestor (1960) that no one has an accrued property right to benefits from Social Security.”

    http://en.wikipedia.org/wiki/Federal_Insurance_Contributions_Act_tax

    To the extent that my position on tax reform might be considered an agenda, I’m in favor of investigating a modified VAT which would be more or less a federal sales tax to replace most of the current tax system. My reason for this is that the regressive nature of a sales tax may be outweighed by the benefit a sales tax would have with regard to global competition and our economy as a whole. In the interim, I am somewhere between neutral and moderately in favor of extending the Bush tax cuts for 2 yrs as a form of stimulus. Ironically a lot of people who dislike stimulus seem to be in favor of extending the Bush tax cuts. I think that’s probably a little hypocritical. After 2 years, I am in favor of letting most of the Bush tax cuts expire, with perhaps an adjustment to the rate of tax on dividends. Dividends are generally subject to tax at both the corporate and the individual level and some adjustment is needed to eliminate double taxation.

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  73. softwarengineer

    RE: One Eyed Man @ 52

    Multicare and Medicaid

    I can say for sure that the Multicare Clinic in Covington is turning down Medicaid patients, they use wrong kind of Medicaid as an excuse [LOL]. Also the doctors are leaving Multicare for better pay like stampeding cattle, ask a receptionist there, if you don’t believe me.

    Now, if the Medicaid [or Medicare] patient has “other insurance” too….they welcome you with open arms. LOL

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  74. Kary L. Krismer

    By Hugh Dominic @ 71:

    have we at least settled this nonsense about SSI being an income tax? Chris is right, SSI is a mandatory insurance and pension plan that is imposed upon wagearners. Over time the premiums have become skewed so that high-earners pay a higher premium than low-earners. If you max the SSI cap for 20 years you’d have to live to be 150 to break even.

    Yet again I’m going to question the history lesson attempted here. I’m not sure that SSI has ever been any different. I’m sure the ratios have changed over time, but SSI benefits were never directly correlated to the amount paid in. Early participants in the system received high multiples of what they paid in. And I think the system always was skewed to benefit lower income people because it’s not designed to be a retirement program that stands on its own, without any other program. Unfortunately I think over time it may have had that effect in that people didn’t prepare as well for retirement because they had social security.

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