Weekend Open Thread (2010-01-29)

Here is your open thread for the weekend beginning Friday January 29th, 2010. You may post random links and off-topic discussions here. Also, if you have an idea or a topic you’d like to see covered in an article, please make it known.

Be sure to also check out the forums, and get your word in the user-driven discussions there!

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About 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. Tim also hosts the weekly improv comedy sci-fi podcast Dispatches from the Multiverse.

150 comments:

  1. 1
    Scotsman says:

    Zillow emailed to let me know my home’s value has dropped $14,000 in the last thirty days. Now how did they know the furnace just died and we’re heating with wood?

  2. 2

    RE: Scotsman @ 1
    Zillow knows everything about you, your sexual peculiarities and all. Good thing they’re only in the automated home valuation business.

  3. 3
    Trigger says:

    Wow. Look at this:
    http://finance.yahoo.com/news/Economy-grows-at-57-pct-pace-apf-3028347842.html?x=0&sec=topStories&pos=main&asset=&ccode=

    The economy is steaming like a lunatic. What happened to the deflation? It is growing more than expected!

    How can we all capitalize on this great growth?

  4. 4
    David Losh says:

    I guess I fall into the Polly Anna camp about the economy.

    We can have deflation and a growing economy. Using housing as an example, if you lower the price far enough, to where most people can afford to buy, the housing market would heat up. Let’s leave the problems with that aside, it’s just an example.

    In my opinion the cheaper things are, more dollars can chase those goods. That can be considered an expansion by velocity.

    However, a growing economy isn’t all that great if you are depleting resources. If we’re consuming everything in our path that’s not such a great thing. The new term is sustainability. That’s where the future is.

  5. 5
    AMS says:

    “We cannot afford to buy a house,” he suggested while holding his child, “but if you went by that, people like us would never have any children.”

  6. 6
    Trigger says:

    What is important in the GDP report is that the GDP growth is not entirely due to govt spending.

  7. 7

    RE: Trigger @ 3

    LOL Trigger

    2/3s of the GDP increase was just inventory re-stocking as they predict 1st Qtr 2010 will see GDP drop that much, because now the toilet paper, glue, etc is restocked again for back to slow recession/depression level sales with no re-stocking to put off.

    Even the 2.2%+ left they say GDP went up after restocking inventory is totally eaten up by uncontrolled population density corporate planning….so we’re back to square one, 0.0% with increased population density factored in and the unemployed will have to compete with more and more looking for work, looking at GDP honestly.

    If population was held flat table, you’d have a point, but with uncontrolled corporate growth planning, you need a 2% GDP growth each quarter, just to keep your nose above water.

    You need to read “Five Short Blasts” by Pete Murphy…LOL

  8. 8
    Flying Ape says:

    a

  9. 9
    Scotsman says:

    RE: Trigger @ 3

    Yup, sorry- like softy says- there’s nothing real there. After you take out the inventory adjustment you’re left with just over 2% for the quarter. And after you take out the spending paid for by debt you get a big zero. And after the adjustment down that invariably follows (previous quarter cut by 40%) it’s negative.

    These numbers are only for political impact and MSM/consumers. Wall Street, however, understands the truth. the Dow dropped another 50 points. Oops- I guess you can’t fool all of the people all of the time.

  10. 10

    The Exploding Pinto Gas Tank Toyota Gas Pedals

    The article in part:

    “…Toyota has halted production and sales of the models, including the best-selling Camry sedan.

    Lyons said Toyota did not send the parts to dealers because it has not decided whether to have the systems in the recalled vehicles repaired or replaced.

    The company on Thursday presented a remedy to the National Highway Traffic Safety Administration, and it is awaiting a decision before proceeding….”

    http://finance.yahoo.com/news/Toyota-sends-gas-pedals-to-apf-1508338387.html?x=0&sec=topStories&pos=4&asset=&ccode=

    This delay tactic to ever fix your 2009/2010 Toyota/Lexus makes me wonder:

    Is the acceleration control mechanism installed too tight to tolerance and any control part they use likely to fail [jam up from pedal to engine]?

    They need to test the part before they declare a fix?

    Also, its slamdunk they knew about the sticky control mechaism for almost a half a year per article in part:

    “…Legal news for California automobile accident attorneys. A Lexus’ accelerator sticks and causes horrific accident.

    California Highway Patrol alerts California automobile accident lawyers- A loaner Lexus ES 350 gas petal got stuck and causes fatal crash….”

    http://www.newyorkinjurynews.com/2009/09/02/California-automobile-accident-attorneys-news-Runaway-Lexus-kills-4_20090902877.html

    Again I demand as a concerned citizen: Why isn’t the Lexus under the Safety Recall too when its obviously the same anomaly!

    Shame on you Toyota/Lexus.

  11. 11
    Groundhogday says:

    After 7 years of obsessive bubble watching (started in Bozeman where the bubble was already going full speed in 2002), I closed on a house this morning. Price to annual rent = 14.4. Cash purchase (saved as a renter for this time period with $15k in the bank back in 2002). House was vacant for two years and price dropped 38% from initial listing. $93/sq ft for early 2000’s construction by the top builder in town. Our preferred neighborhood. I realize that Pullman isn’t Seattle, but the salaries are quite a bit lower as well. Good things do come to those who wait.

    For those who said that bubble watchers don’t want to own… nonsense. I have always wanted to buy a house, just wasn’t willing to sell myself into slavery to get it. Could we have done better by waiting? Yes. This house will still probably depreciate another 5-10% and then flat line for years. But the configuration and location were ideal for us and we will be here for a long time. This isn’t about calling the bottom: it is about buying when it makes sense to do so.

  12. 12
    AMS says:

    RE: Groundhogday @ 11 – “This isn’t about calling the bottom: it is about buying when it makes sense to do so.”

    Absolutely right!

  13. 13
    The Tim says:

    By Groundhogday @ 11:

    After 7 years of obsessive bubble watching (started in Bozeman where the bubble was already going full speed in 2002), I closed on a house this morning.

    You couldn’t wait four more days? I mean, come on…

    Seriously though, congrats!

  14. 14
    Flying Ape says:

    RE: Flying Ape @ 8

    Guess i messed up on that post…

    So did the econ bulls actually look at the report and not the headline numbers? As everyone states private inventory investment goes down from -$139 to -$33 billion so its still negative, just less contraction than Q3. This accounts for about 60% of total GDP “growth.” You can make your own opinions but IMO it just states that the economy isn’t as bad as last quarter with all the monetary/fiscal stimulus. Nothing special and seems like the bond/equity market treated it as such today.

  15. 15
    The Tim says:

    One month into 2010 and Washington has already seen three bank failures. #3 today was American Marine Bank on Bainbridge: http://www.fdic.gov/news/news/press/2010/pr10027.html

  16. 16
    Scotsman says:

    Paul Krugman is an idiot.

    “We’re in the aftermath of a severe financial crisis, which has led to mass job destruction. The only thing that’s keeping us from sliding into a second Great Depression is deficit spending. And right now we need more of that deficit spending because millions of American lives are being blighted by high unemployment, and the government should be doing everything it can to bring unemployment down.”

    Right. So what he’s saying is we need more big projects like Obama’s high speed rail in FL. for several billion dollars. You know, where we borrow the money from the Chinese… to pay the Japanese… to build a train that no one will ride, one that becomes nothing more than an ongoing subsidized drain on the economy.

    It doesn’t work- you can’t borrow your way out of debt. You can’t load an economy up with debt and interest expense then expect it to grow. We’ll end up like a dead fish that slowly floats to the bottom.

    http://www.nytimes.com/2010/01/29/opinion/29krugman.html

  17. 17
    David Losh says:

    In the aftermath of the Housing Bubble there are millions of housing units that need repair. It’s sad the number of people who bought property with no plan on maintaining it.

    As the years go on and those cheap remuddles start to fall apart we see more dollars that need to be spent to preserve a property. Forget the home improvements, unless they actually add value. Lot’s of the old redos of the kitchen and bath are just hideous.

    More simply put, a lot of the flash has faded from the economy. If you do build a better mouse trap, for a reasonable cost, in my opinion, the market place is very rich.

    Just as an example, I have a Tonka toy truck in the garage that my nephew plays with. We have had that thing for over ten years. There is a great value there, that reminds me, we can make stuff, do stuff, and build stuff here in this country that has value.

  18. 18
    AMS says:

    RE: Scotsman @ 16 – IF the investment had a positive NPV, then fine. IF the investment had some real good to the future of the country, then ok.

    It seems like the borrowed money is being spent on beer, since that’s what seems to make the hangover go away.

    We are so desperate to fix this problem that we are willing to dump $$$$ on any project.

    High speed rail? Sounds great, but what’s the economic value? What’s the life expectancy?

    I’ll be honest, I expect that the debt related to the CFC program will linger long after all the cars are crushed. Long after whatever economic gain is gone. All that will remain is debt.

    Along with increased maintenance cost, we’re also getting to diminishing economic returns on the highway projects.

    What this country needs is capital investment that will actually provide lasting future benefit.

    When we wake up in the morning, nothing will have changed, but the debt.

  19. 19
    zippygc says:

    Sea change is occurring. 30% of my Redfin favs have recently sold and of the Top Ten I held dear — all of them gone.

  20. 20
    AMS says:

    RE: zippygc @ 19 – Time to look at the newer listings. Find even better quality homes at lower prices to stuff your top ten. Given enough time, all homes sell.

  21. 21
    ARDELL says:

    RE: AMS @ 18

    “I’ll be honest, I expect that the debt related to the CFC program will linger long after all the cars are crushed. Long after whatever economic gain is gone. All that will remain is debt.”

    Kinda like the cost of the wedding and honeymoon…after the divorce :)

  22. 22
    corncob says:

    RE: Scotsman @ 16 – Have you ever heard the phrase “you have to spend money to make money”? You need to stop thinking of the national economy as like a household and starting thinking of it more like a business. Taking on debt to save your business if you believe it is going to produce returns that exceed the debt cost significantly in the long run is how things work. I am getting really tired of all the shrill whining about our debt burden, in absolute numbers it sure sounds scary but if you put it against our GDP it is really not bad (I believe we are around 60th in the world by this metric). The current trendline is not sustainable if you extrapolate it out another 20+ years, but very few trendlines ever are. If you looked at debt growth in the 80’s you would say that by 2000 the entire country would be an apocalyptic wasteland because a stupidly long trend line tends to be unable to predict stuff like the internet revolution.

  23. 23
    AMS says:

    RE: corncob @ 22 – Remember the days. Remember the days when principal balances didn’t matter?

    “Taking on debt to save your business if you believe it is going to produce returns that exceed the debt cost significantly in the long run is how things work.”

    “I am getting really tired of all the shrill whining about our debt burden, in absolute numbers it sure sounds scary but if you put it against our GDP it is really not bad (I believe we are around 60th in the world by this metric).”

    Please allow me translate this to housing:

    ‘Taking on debt to buy a home is great if you believe it is going to produce returns that exceed the debt costs significantly in the long run is how things work.’

    ‘Look if you can make the payments, why worry about principal balances. Your debt burden is not really that bad, even if homes are selling for 25% less today.’

  24. 24
    AMS says:

    “Italy’s mafia crime syndicates bucked the recession in 2009 to raise ‘profits’ by almost 8 percent with the financial crisis making companies and even the stock market even more vulnerable to cash-flush mobsters.”

    “Experts had predicted when the crisis began that Calabria’s ‘Ndrangheta, with its huge slice of the global drugs trade, Sicily’s Cosa Nostra, Naples’ violent Camorra and Puglia’s Sacra Corona Unita would see more demand for loan-sharking.

    But the report said mobsters had also been able to launder their earnings by buying up cheap assets and had found a cheap and willing workforce among the newly unemployed.

    “In times of crisis the Mafia’s money, even though it is dirty, makes people’s mouth water,” the report says.”

    http://news.yahoo.com/s/nm/20100127/od_nm/us_mafia_profits

    Legitimate business is down; organized crime is making more cash.

  25. 25
    David Losh says:

    RE: corncob @ 22

    “If you looked at debt growth in the 80’s you would say that by 2000 the entire country would be an apocalyptic wasteland because a stupidly long trend line tends to be unable to predict stuff like the internet revolution.”

    We are an economic waste land due to the government spending of the 1980s.

    Ronald Reagan was a great man who did the most to bring about a global economy, peace, and prosperity. His military spending developed, and pushed to the fore front, things like the internet. You can debate me about Ronnie any time, but the point is still the same.

    Republicans look at the spending as a holy grail because they were also paying lip service to reducing government spending, and getting the government out of people’s lives. We were having trickle down. Twenty years later, it didn’t work.

    Now we have the debt from the 1980s along with the Bush era debt of running two wars worth of military spending. The big difference with Ronnie was that no one in the world questioned that he would not hesitite to go to war to win it. No one questioned that Ronnie was an old guy with no qualm about blowing the planet to bits.

    What we have today is spending with no purpose. Obama has presented no cohesive plan other than to spend.

    My point is that Ronnie’s spending paid a peace dividend that Clinton used. Today we just have the spending, no plan, no purpose.

  26. 26

    RE: AMS @ 24
    Now that sounds like a good investment.

  27. 27
    David Losh says:

    RE: AMS @ 24

    Mafia? Number one is there is no such thing as the mafia. There are only desperate people in the world trying to have a life without some of the government interference.

    Drugs, gambling, and prostitution are rise in times of desperation and governments the world over get tax payers to pay for enforcing laws, building prisons, and increasing pay rolls.

    It’s not even worth my time to find out how many billions of dollars are spent globally persecuting people who are just trying to cope with the pain of desperation.

    What I know is that for the amounts of money governments spend on vices they could develop economic prosperity.

  28. 28
    Trigger says:

    RE: AMS @ 23 – The only thing is the govt can print. So can we print our way out of this recession? So basically using printing presses.

  29. 29
    AMS says:

    RE: softwarengineer @ 10 – ” Why are mechanically similar Lexus and Scion vehicles not affected by this recall?

    The recall affected pedal is confined to one of Toyota’s suppliers. That supplier’s pedals are not used on Lexus and Scion vehicles.”

    http://pressroom.toyota.com/pr/tms/xxxxx-153289.aspx

  30. 30

    “Mafia? Number one is there is no such thing as the mafia’

    Funny, John Gotti said the same thing.

  31. 31
    pfft says:

    By softwarengineer @ 7:

    RE: Trigger @ 3

    LOL Trigger

    2/3s of the GDP increase was just inventory re-stocking as they predict 1st Qtr 2010 will see GDP drop that much, because now the toilet paper, glue, etc is restocked again for back to slow recession/depression level sales with no re-stocking to put off.

    Even the 2.2%+ left they say GDP went up after restocking inventory is totally eaten up by uncontrolled population density corporate planning….so we’re back to square one, 0.0% with increased population density factored in and the unemployed will have to compete with more and more looking for work, looking at GDP honestly.

    If population was held flat table, you’d have a point, but with uncontrolled corporate growth planning, you need a 2% GDP growth each quarter, just to keep your nose above water.

    You need to read “Five Short Blasts” by Pete Murphy…LOL

    it is amazing all the excuses the bears give. the last 3 quarters we’ve heard about restocking. consumer spending is recovering. deal with it people.

  32. 32
    pfft says:

    By Scotsman @ 9:

    RE: Trigger @ 3

    Yup, sorry- like softy says- there’s nothing real there. After you take out the inventory adjustment you’re left with just over 2% for the quarter. And after you take out the spending paid for by debt you get a big zero. And after the adjustment down that invariably follows (previous quarter cut by 40%) it’s negative.

    These numbers are only for political impact and MSM/consumers. Wall Street, however, understands the truth. the Dow dropped another 50 points. Oops- I guess you can’t fool all of the people all of the time.

    another person making excuses. when gdp was 2.2% last quarter people said it wasn’t a big deal. now that it’s 5.7% it’s again no big deal, just the gov’t. will it be the same old story if gdp is 7% or 10%?

  33. 33
    pfft says:

    By Scotsman @ 16:

    Paul Krugman is an idiot.

    Right. So what he’s saying is we need more big projects like Obama’s high speed rail in FL. for several billion dollars. You know, where we borrow the money from the Chinese… to pay the Japanese… to build a train that no one will ride, one that becomes nothing more than an ongoing subsidized drain on the economy.

    It doesn’t work- you can’t borrow your way out of debt. You can’t load an economy up with debt and interest expense then expect it to grow. We’ll end up like a dead fish that slowly floats to the bottom.

    http://www.nytimes.com/2010/01/29/opinion/29krugman.html

    the US’ total debt burden has actually decreased. private sector borrowing plunged MORE than public sector borrowing. goverment debt isn’t that high actually. other countries have run up higher debts without a disaster or hyperinflation(which is so popular these days).

  34. 34
    pfft says:

    By David Losh @ 25:

    RE: corncob @ 22

    Now we have the debt from the 1980s along with the Bush era debt of running two wars worth of military spending. The big difference with Ronnie was that no one in the world questioned that he would not hesitite to go to war to win it. No one questioned that Ronnie was an old guy with no qualm about blowing the planet to bits.

    What we have today is spending with no purpose. Obama has presented no cohesive plan other than to spend.

    My point is that Ronnie’s spending paid a peace dividend that Clinton used. Today we just have the spending, no plan, no purpose.

    you really think it has no purpose? green jobs. better infrastructure. new technologies. aid to state and local governments so we don’t have teachers and cops out of work.

    41% of the budget deficit is bush spending. we are still spending for Iraq and Afghanistan. we are still spending for two bush tax cuts for the rich. still spending for bush’s unfunded entitlement program medicare part d.

    you are really complaining obama is spending on nothing? bush ran up $5 trillion on his watch. he doubled the national debt for the rich and entitlement programs that are suddenly socialist.

  35. 35
    ownersRlosers says:

    What’s a guy gotta do to get a 500Realty t-shirt around here?

  36. 36
    Scotsman says:

    RE: corncob @ 22
    It doesn’t matter if you look at it as a business or a home budget. Both cover all of their fixed expenses and hopefully have a bit of money left over- the business has a profit, the family some extra available for savings or new purchases. But when you get to the point where we are, where you are borrowing to pay the interest, the interest expense grows exponentially and will quickly overwhelm the ability to pay.

    The entire U.S, has already done the “spend money to make money” part of this equation over the prior 40 years. Now we are finally at the point where each new borrowed dollar costs more than it produces in additional revenue. Some countries, like Japan, have been able to push themselves a bit further down the curve because they actually make things that produce value, like steel, electronics, cars, heavy equipment, etc. The U.S. is consumption based, not manufacturing based- we buy big screens and coffee- so our point of no return has come earlier.

    You can stick your head in the sand and pretend everything is OK, or you can take some time to try and learn a bit about economics that goes beyond what the media feeds you. Take 12 minutes to listen to the retired controller of the U.S on 60 Minutes. Keep in mind this is 2 year old…

    http://video.google.com/videoplay?docid=-7461407498377956300#docid=5410152526739373909

  37. 37
    Scotsman says:

    RE: pfft @ 32

    Sorry, not excuses, facts.I f you can’t understand the statistics it’s probably best to ignore them, as the true information they contain escapes you. Keep sing’n that song as you walk off the cliff…

  38. 38
    AMS says:

    RE: pfft @ 34 – “you really think it has no purpose? green jobs. better infrastructure. new technologies. aid to state and local governments so we don’t have teachers and cops out of work.”

    Net Present Value computations please.

  39. 39
    AMS says:

    RE: ownersRlosers @ 35 – Hang around Claim Jumpers in Tukwila, maybe?

  40. 40

    By AMS @ 39:

    RE: ownersRlosers @ 35 – Hang around Claim Jumpers in Tukwila, maybe?

    The guy running to the bathroom moaning…he’s the one with the t-shirts.

  41. 41
    pfft says:

    By Scotsman @ 36:

    RE: corncob @ 22
    It doesn’t matter if you look at it as a business or a home budget. Both cover all of their fixed expenses and hopefully have a bit of money left over- the business has a profit, the family some extra available for savings or new purchases. But when you get to the point where we are, where you are borrowing to pay the interest, the interest expense grows exponentially and will quickly overwhelm the ability to pay.

    The entire U.S, has already done the “spend money to make money” part of this equation over the prior 40 years. Now we are finally at the point where each new borrowed dollar costs more than it produces in additional revenue. Some countries, like Japan, have been able to push themselves a bit further down the curve because they actually make things that produce value, like steel, electronics, cars, heavy equipment, etc. The U.S. is consumption based, not manufacturing based- we buy big screens and coffee- so our point of no return has come earlier.

    You can stick your head in the sand and pretend everything is OK, or you can take some time to try and learn a bit about economics that goes beyond what the media feeds you. Take 12 minutes to listen to the retired controller of the U.S on 60 Minutes. Keep in mind this is 2 year old…

    http://video.google.com/videoplay?docid=-7461407498377956300#docid=5410152526739373909

    The US debt isn’t very high compared to other developed nations. it is not a burden yet.

    Joke Europeans
    http://krugman.blogs.nytimes.com/2009/11/22/joke-europeans/

    Another myth is that we don’t produce anything. that is flat-out wrong. the US is one of the largest exporters in the world. in fact, we export more than $100 billion dollar of goods a month and have for years.

    via calculated risk
    http://www.calculatedriskblog.com/2010/01/trade-deficit-increases-in-november.html

    “You can stick your head in the sand and pretend everything is OK, or you can take some time to try and learn a bit about economics that goes beyond what the media feeds you.”

    I read plenty. I read all viewpoints. ron paul, peter schiff, austrian economics(like economics in one lesson), mises.org, paul krugman, robert reich and others.

  42. 42
    pfft says:

    By Scotsman @ 37:

    RE: pfft @ 32

    Sorry, not excuses, facts.I f you can’t understand the statistics it’s probably best to ignore them, as the true information they contain escapes you. Keep sing’n that song as you walk off the cliff…

    I am just telling you what the market is telling me. you’re telling the market what to do and seeing only from the bearish side and your bearish bias. I didn’t believe the march bounce(remember roubini saying it was just a bear market bounce?) but once the market kept going up and the data was less bad I changed my tune.

    “A speculator(or anyone really) must concern himself with making money out of the market and not with insisting that the tape must agree with him. Never argue with it or ask for reasons or explanations.”

    -Jesse Livermore

  43. 43
    Scotsman says:

    RE: pfft @ 41

    You claim to read Schiff and the Austrians- here’s Schiff- what is he missing?

    “In 2003, Greenspan had a choice:

    1 – Take a hard recession now
    2 – Take a depression later

    Greenspan chose the latter.

    All stimulus did back then was create housing and debt bubbles. Then it crashed anyway. Now supposedly the cure is more spending?

    This is what we face now: As soon as stimulus is taken away, the downslide begins. How many times can you pave a road or grant cash-for-clunkers? Eventually what little pent-up-demand there was is exhausted, and the stimulus ceases to have an effect.

    This idea of Keynesian “priming the pump” is sheer nonsense. It has never worked and it never will work. Japan and its national debt to the extent of 200% of GDP should be proof enough.

    The only thing that can possibly work is the writeoff of bad debts, something both the administration and the Fed are reluctant to do. We can either do this now, or drag it out for two decades like Japan, only to end up deeper in debt.

    What ended the great depression, and let’s hope it does not come to that again, was WWII and the destruction of capacity everywhere but the US.

    Spending $5 trillion dollars would not do a damn thing now other than wreck the dollar and create another bubble. Look in the mirror and repeat after me “It is impossible to spend one’s way out of a debt bubble”.

    Given that it is impossible, it’s ridiculous to try.
    Thus the real lesson of 1937 is “don’t blow debt bubbles in the first place”.

    Mike “Mish” Shedlock
    http://globaleconomicanalysis.blogspot.com

    Japan is getting ready to implode. Hopefully they will go first so our politicians will see the end result of the path they’ve been pursuing and change course. I’m not a bear trying to tell the markets what to do. I’m an unusually well educated economist/mathematician who understands that we’ve worked our way into a corner in terms of political and economic policy, and that in doing so have put our future freedom and prosperity at great risk. I guess we’ll just have to agree to disagree until events play out over the next decade or so. With any luck you’ll be correct and I’ll be shown up as a fool. If that’s the case we’ll both win. But it might be a good idea to hedge your bets.

  44. 44
    corncob says:

    RE: Scotsman @ 36

    1) We are not “borrowing to pay interest”. Come back to me when tax income is less than interest income, then we are in a real trap.
    2) As others have stated, the US Debt:GDP is not bad comparatively and Japan shows we can baloon our debt far further before there are any real consequences. Note that I am NOT advocating that we do so, but hyperventilating about it now is really a waste of your time.
    3) I find it hilarious you think we don’t produce anything of value. Here is a hint: producing cheap and shitty plastic goods is not the end all be all of economies. Our GDP is enormous, even after we have removed the bubble excesses. And yet you believe we produce nothing?
    4) Insulting people whom you don’t know with “boy, you are just a dumbshit who is spoonfed from the media” is a great way to show you have no facts to back up your assertions.

    My point is and, has been, that freaking out over our current debt spending is a game that always happens when times are rough. The 90’s show you that when the American economic engine is running strong you can handle this debt and even reduce it. You proved the point yourself when you claimed we have been running around like this for 40 years. 40 YEARS! And we have plenty left to go before our debt:GDP approaches Japan levels! How long of a time horizon do you need to decide that something actually might be ok?

  45. 45
    corncob says:

    Maybe an analogy will help. Your friend has some debt and some long term financial commitments, but loses his job. Now, he can spend on his credit cards anything over his unemployment check and hope he gets a really good job in a year and can pay it back pretty quickly. Or maybe in a year he will get an OK job, and pay it back slowly. Or he will stay unemployed and go into bankruptcy after a few more years. Now, myself I would say he should take on that debt because it is most likely he will at least end up with an OK job within a year or two. Whereas you would advocate he immediately sell all of his stuff and go live in a homeless shelter, devoting all of his income to paying off the existing debt. Does that make sense?

    Now, I certainly think we waste a lot of government money and I believe that we need to cut spending in areas that are not helping the country (for example, the $250b/year we piss away in the desert). I also do not think we should just take on debt for the hell of it, as many politicians do, (especially the last President – $700b to GS, $1T for some wars, $400b for a pharmaceutical giveaway and on). But going ballistic over taking on debt during a period of economic problems seems strange to me, let’s deal with our economy right now and pay down our debt later. Structurally it is not a pressing problem and won’t be for another 15-20 years so why not focus on more immediate issues instead.

    Here is another one for you: your house is on fire and you are having trouble paying the mortgage. Do you put out the fire, or do you sit down and figure out how to cut your budget so you can make the mortgage payment? Note: the payment isn’t due for another month and the house is on fire right now.

  46. 46
    AMS says:

    RE: corncob @ 45 – “Now, myself I would say he should take on that debt because it is most likely he will at least end up with an OK job within a year or two. Whereas you would advocate he immediately sell all of his stuff and go live in a homeless shelter, devoting all of his income to paying off the existing debt. Does that make sense?”

    Note the discount rates!

    Right or wrong, you’d choose to consume today at the future expense. Some people go the other way around, choosing to save today for future gain.

  47. 47
  48. 48
    AMS says:

    RE: corncob @ 44 – “1) We are not “borrowing to pay interest”. Come back to me when tax income is less than interest income, then we are in a real trap.”

    Uh, doesn’t the problem start with total income less than total expenses?

    You are right, however, if total income is less than total interest, that’s beyond recovery.

    That said, to pay back debt we need total income greater than total expenses.

  49. 49
    corncob says:

    RE: AMS @ 47 – Correct, the problem does start there but it is not a trap that is impossible to escape in the slightest. But saying that because we currently have a deficit means we will always have a deficit is a fallacy that most people commonly make. If the economy can return to growth in 3-5 years and we raise taxes on corporations and put back our 1950’s levels rates on the rich, along with trimming out useless stuff like desert wars, it is easy to see we could be back to surpluses fairly quickly (where quick is measured on the nation timescale). That is my problem, this hyperventilating about our debt burden when the zero hour is quite a few years away and there is only a low probability we will remain stagnant for that long.

  50. 50
    AMS says:

    RE: corncob @ 48 – The trap is when we get to the point when expenses will always be greater than revenues. Interest is one part of the total expense.

  51. 51
    David Losh says:

    RE: pfft @ 34

    I’m a big Obama supporter. He has outlined ways to create jobs, that if ever implemented, could be a strong basis for economic stability. He has however fallen into a political trap by catering to the Republican Party.

    Obama needs to let the banking sector go. If we get the bail out money back it should be put toward the National Debt. In my opinion Obama got sucker punched and fell to the mat.

    Bush gave the first bail out money, and Obama should have stood firm by saying that was enough. He caved, gave banks, more cash, and now we see they never needed it, they were just playing the system for whatever they could get.

    More importantly Obama left Health Care Reform to play politics. In a year’s time all Obama has left is talking points. That’s what I mean about no plan, no purpose.

    The only thing Obama has left is to close out the Health Care Bill as another gift to the Health Insurance Industry. He’s cornered and has no choice. What he needs to do next, in 2011, is let the Bush tax cuts expire, raise taxes on the wealthy, and cut military spending.

    How do you think that’s all going to play out?

  52. 52
    David Losh says:

    RE: Ira Sacharoff @ 30

    John Gotti is the perfect example. The guy was a petty car thief elevated to some notoriety because he was too mentally ill to defend himself. Our government spent millions of dollars on prosecution so they could justify more millions of dollars in an Organized Crime Task Force spending bill.

    They called him the Teflon Don because they couldn’t get bogus charges to stick.

  53. 53
    pfft says:

    By Scotsman @ 43:

    RE: pfft @ 41

    You claim to read Schiff and the Austrians- here’s Schiff- what is he missing?

    “In 2003, Greenspan had a choice:

    1 – Take a hard recession now
    2 – Take a depression later

    Greenspan chose the latter.

    All stimulus did back then was create housing and debt bubbles. Then it crashed anyway. Now supposedly the cure is more spending?

    This is what we face now: As soon as stimulus is taken away, the downslide begins. How many times can you pave a road or grant cash-for-clunkers? Eventually what little pent-up-demand there was is exhausted, and the stimulus ceases to have an effect.

    This idea of Keynesian “priming the pump” is sheer nonsense. It has never worked and it never will work. Japan and its national debt to the extent of 200% of GDP should be proof enough.

    The only thing that can possibly work is the writeoff of bad debts, something both the administration and the Fed are reluctant to do. We can either do this now, or drag it out for two decades like Japan, only to end up deeper in debt.

    What ended the great depression, and let’s hope it does not come to that again, was WWII and the destruction of capacity everywhere but the US.

    Spending $5 trillion dollars would not do a “golly” thing now other than wreck the dollar and create another bubble. Look in the mirror and repeat after me “It is impossible to spend one’s way out of a debt bubble”.

    Given that it is impossible, it’s ridiculous to try.
    Thus the real lesson of 1937 is “don’t blow debt bubbles in the first place”.

    Mike “Mish” Shedlock
    http://globaleconomicanalysis.blogspot.com

    Japan is getting ready to implode. Hopefully they will go first so our politicians will see the end result of the path they’ve been pursuing and change course. I’m not a bear trying to tell the markets what to do. I’m an unusually well educated economist/mathematician who understands that we’ve worked our way into a corner in terms of political and economic policy, and that in doing so have put our future freedom and prosperity at great risk. I guess we’ll just have to agree to disagree until events play out over the next decade or so. With any luck you’ll be correct and I’ll be shown up as a fool. If that’s the case we’ll both win. But it might be a good idea to hedge your bets.

    peter schiff is not god. besides housing and the US stock market he was completely wrong in 2008 and part of 09 as anyone else. all his investments tanked right a long with the market too. I read some of peter schiffs commentary from 02 and 03. he never became bullish even after the bottom. he is just a permabear with slightly better analysis than the average bullish analyst. he probably remain a permabear right through this recovery and until the next bust. btw I don’t think that is schiff’s commentary I think that is mish’s.

  54. 54
    pfft says:

    By corncob @ 44:

    RE: Scotsman @ 36

    1) We are not “borrowing to pay interest”. Come back to me when tax income is less than interest income, then we are in a real trap.
    2) As others have stated, the US Debt:GDP is not bad comparatively and Japan shows we can baloon our debt far further before there are any real consequences. Note that I am NOT advocating that we do so, but hyperventilating about it now is really a waste of your time.
    3) I find it hilarious you think we don’t produce anything of value. Here is a hint: producing cheap and “chocolatey” plastic goods is not the end all be all of economies. Our GDP is enormous, even after we have removed the bubble excesses. And yet you believe we produce nothing?
    4) Insulting people whom you don’t know with “boy, you are just a dumb”chocolate” who is spoonfed from the media” is a great way to show you have no facts to back up your assertions.

    My point is and, has been, that freaking out over our current debt spending is a game that always happens when times are rough. The 90’s show you that when the American economic engine is running strong you can handle this debt and even reduce it. You proved the point yourself when you claimed we have been running around like this for 40 years. 40 YEARS! And we have plenty left to go before our debt:GDP approaches Japan levels! How long of a time horizon do you need to decide that something actually might be ok?

    excellent commentary. one thing to remember is that our debt is also in dollars. no borrowing in dollars and paying back in a different currency which has sunk many economies. think iceland and argentina. hyperinflation hasn’t occured in a major economy/world power since Germany. if you look it up you’ll find that hyperinflation most of the time happens in states racked by a war lost. the hyperinflation of the continental was deliberate. the confederate dollar was probably deliberate.

  55. 55
    Scotsman says:

    RE: corncob @ 44

    A picture’s worth a thousand words. Pop up the link and take a look at what has happened since 1981. We have borrowed our way to “prosperity” for the last 30 years. Keep in mind the data presented is a couple of years old. Since this graphic was put together the income line has flattened and the debt line has gone almost vertical. Sure, folks always talk about how bad the debt is, blah, blah, blah. But now it is different- the only thing keeping us alive is artificially low interest rates. If total national debt (not including future obligations) has grown to $60T and national income is $14T if interest rates were to reach a more normal (non-manipulated) market average of 8% then fully 1/3 of national income would be devoted to interest-only payments. If you don’t see that as an unsustainable problem there’s nothing to say. Japan’s central bank rate is one tenth of one percent. There is talk of lowering it. Seriously- give me a break- they are dead, they just haven’t been buried yet. The U.S. central bank rate is one quarter on one percent. But we’re OK?

    There is no way we can ever pay this off. Sooner or later the world will run out of capital for us to borrow at artificially low rates and the bond market will break. Rates will head back up to long term norms and the U.S. will face a major political and financial restructuring. They can print and destroy the dollar and trust, they can default and restate, they can start out slowly inflating and then lose control of it over time and go hyper inflationary, but they can’t get the devil back in the box. If you really think they can, show me the math, don’t just toss out generalities about growing our way out, etc. it’s over.

    http://mwhodges.home.att.net/nat-debt/natdebt-vs-natincome.gif

  56. 56
    pfft says:

    another good sign.

    Skiers Buy Vacation Homes as Prices Fall

    “OVER the holiday season all was snowy and bright at ski areas across the country, with a festive jingle in the air. It wasn’t sleigh bells — it was the sound of money. Vacation-home seekers who saw recessionary opportunities were looking to buy.

    Many were ready to pay in cash, and they wanted great deals, like a $900,000 slope-side condominium for $500,000 or a studio in town for half the asking price. They were getting what they wanted because it is the best buyers’ market in 20 years, real estate agents said, with inventory at levels not seen since 2001.

    http://www.nytimes.com/2010/01/29/greathomesanddestinations/29skicondo.html?scp=1&sq=ski%20condo&st=cse

    paying cash for homes! that is the missing link in the recovery. banks aren’t as lose with credit but there are still people with cash. the stock market has also risen and probably caused some wealth effect. corporations also have record amounts of cash.

    don’t fight the tape.

    don’t assume you know more than the market.

    if the market is doing something you don’t understand, maybe you don’t know as much as you thought you did?

  57. 57
    pfft says:

    By Scotsman @ 53:

    RE: corncob @ 44

    A picture’s worth a thousand words. Pop up the link and take a look at what has happened since 1981. We have borrowed our way to “prosperity” for the last 30 years. Keep in mind the data presented is a couple of years old. Since this graphic was put together the income line has flattened and the debt line has gone almost vertical. Sure, folks always talk about how bad the debt is, blah, blah, blah. But now it is different- the only thing keeping us alive is artificially low interest rates. If total national debt (not including future obligations) has grown to $60T and national income is $14T if interest rates were to reach a more normal (non-manipulated) market average of 8% then fully 1/3 of national income would be devoted to interest-only payments. If you don’t see that as an unsustainable problem there’s nothing to say. Japan’s central bank rate is one tenth of one percent. There is talk of lowering it. Seriously- give me a break- they are dead, they just haven’t been buried yet. The U.S. central bank rate is one quarter on one percent. But we’re OK?

    There is no way we can ever pay this off. Sooner or later the world will run out of capital for us to borrow at artificially low rates and the bond market will break. Rates will head back up to long term norms and the U.S. will face a major political and financial restructuring. They can print and destroy the dollar and trust, they can default and restate, they can start out slowly inflating and then lose control of it over time and go hyper inflationary, but they can’t get the devil back in the box. If you really think they can, show me the math, don’t just toss out generalities about growing our way out, etc. it’s over.

    http://mwhodges.home.att.net/nat-debt/natdebt-vs-natincome.gif

    again, the debt really isn’t that high. other countries like belgium, italy and japan all have survived much higher debt levels. the deficit will shrink faster than most people think as the economy grows and we bring in more tax revenue.

    “But now it is different- the only thing keeping us alive is artificially low interest rates.”

    interest rates in the US usually come down during a recession as people flee to the quality of government bonds and out of the stock market.

    “If total national debt (not including future obligations) has grown to $60T and national income is $14T if interest rates were to reach a more normal (non-manipulated) market average of 8% then fully 1/3 of national income would be devoted to interest-only payments.”

    where do you get $60 trillion? the US debt is like $12 trillion. how do you know what the interest rate should be at? what is the gdp level when we pay this supposed $14 trillion in interest?

  58. 58
    Scotsman says:

    RE: pfft @ 54

    This is good news? Give me a break. Think. For every $900K home that sells for $500K someone’s (the seller) net worth just dropped $400K- the loss. It may have been a “paper loss” where the only impact is non-realized appreciation, i.e. future retirement income or a kid’s college fund. But if purchased during the peak years it’s a real hit to a personal or bank balance sheet, or maybe a retirement fund’s portfolio. But there is no way when looking at the big picture to see it as a positive. You really need to slow down and think this stuff through.

  59. 59
    Scotsman says:

    RE: pfft @ 55

    “the deficit will shrink faster than most people think as the economy grows and we bring in more tax revenue”

    Show me the math. Virtually everyone who has looked at this says it’s impossible without crippling taxes and heavy cuts to entitlements, both of which will further kill the economy, not help us to grow our way out.

    “where do you get $60 trillion? the US debt is like $12 trillion”

    Read the graph- “total federal, state, city, personal, mortgage, etc. debt. In short, all of the debt that must be paid out of national income- all the income earned at all levels- personal, corporate, etc.

  60. 60
    The Tim says:

    Went and looked at an attractive bank-owned property today. Currently priced about 20% over the max I think I’d pay, but the bank is knocking $10k off the price every other week and they’re already a good $35k under what they were owed when they foreclosed.

    Anybody got any experiencing low-balling bank-owned properties, and have any advice to offer?

  61. 61
    Sniglet says:

    the debt really isn’t that high. other countries like belgium, italy and japan all have survived much higher debt levels. the deficit will shrink faster than most people think as the economy grows and we bring in more tax revenue.

    interest rates in the US usually come down during a recession as people flee to the quality of government bonds and out of the stock market.

    I actually agree with all of this. I have never been terribly concerned by the US government debt. What concerns me is the amount of private leverage there is, and the percentage of it which is “performing” (i.e. cash positive).

    Despite the fact that I believe we are entering a depression, I expect interest rates to continue to stay low, but that won’t do anyone much good. Low interest rates won’t help if no one will lend to those who want to borrow and where those with means are hoarding cash, refusing to take on leverage for purchases or investments. Ironically, the Fed should be RAISING interest rates if they want to help the economy. Low interest rates make it hard for lenders to make any money. What we really need is to have mortgage interest rates up at 15% or 20%, making it attractive for people to lend money even in a market where they expect asset values to keep dropping.

    M3 went negative for the first time in recorded history in the second half of 2009 (i.e. the total supply of money and credit is contracting) and nothing has been done to revive the private credit markets. Governments all over the world have become the lender of first and last resort for many forms of credit. In Canada and the US, for example, government owned mortgages agencies now fund virtually the entire residential real-estate markets. The commercial real-estate marketplace is virtually dead.

    The “recovery” we’ve seen in 2009 was nothing more than a bear market rally. Similar things have happened before. There was a massive rally in 1930, which recovered much of the losses from 1929, only to have the whole thing unravel into new lows in 1932. Likewise, Japan has experienced periodic massive rallies that would last for up to two years at a stretch during it’s odyssey into 20-plus years of deflation.

    What is happening to the credit markets in Greece, Portugal, and Spain (i.e. in which investors are driving up default swap insurance rates) is a taste of what lies in store. The Euro is unlikely to survive the next few years as unbelievable strains make it impossible for the major economies to bail out all of the struggling ones. Has anyone noticed how the dollar has begun it’s next big rally phase?

    The fun is really only getting started… For what it’s worth, I believe that 2010 will be one for the history books. I predict that stocks (around the world) will hit substantially lower lows than seen in 2008/2009 by year-end. Commodities will also get creamed. Real-estate, of course, won’t be immune.

    I still stand by my prediction of a greater than 80% drop (from the 2007 peak) in average Seattle area real-estate prices by the end of 2015. :)

    By the way, you can check out the archived episodes of my live internet economics radio show to hear more of the deflationist view.

    http://surkanstance.blogspot.com/2009/11/introducing-optimistic-bear-weekly.html

  62. 62
    Scotsman says:

    RE: corncob @ 44

    “1) We are not “borrowing to pay interest”. Come back to me when tax income is less than interest income, then we are in a real trap.”

    Really? Let’s see, federal tax collections are running at about $1.5T and we’re borrowing (or planning to borrow) somewhere around $2.0T to come up with total budgeted (not counting wars, etc.) expenditures for 2010 of around $3.5T. Of that, I think it’s about $.6T that’s interest.

    Are you seriously trying to say that the interest is being paid out of tax collections, not the borrowed funds? Is there any difference in the long run? The short run? We sure don’t have the interest in a savings account, do we? If this isn’t a clear case of getting a cash advance on the old Mastercard to make the minimum payment on the Visa, I don’t know what is. Only a politicized accountant in the pocket of a politician could see it any other way.

    You don’t happen to think there’s real money in the social security trust fund, do you?

  63. 63
    Scotsman says:

    RE: Sniglet @ 61

    ” Low interest rates make it hard for lenders to make any money. What we really need is to have mortgage interest rates up at 15% or 20%, making it attractive for people to lend money even in a market where they expect asset values to keep dropping.”

    What? I give up. Who would borrow money at 15% to purchase a declining asset? And what good would this kind of a distorting transfer do for the economy? Yeah, let’s continue the rape of the home owner to support poorly run banks and excessive greed. That will help normalize things, eh?

    What the H#ll is going on? Did everyone head out for the happy hour at Claim Jumper or something? Are you all posting between trips from the bar to the rest rooms?

    I give up. Have a great life, everyone- hope you find the homes of your dreams at great prices! ;-)

  64. 64
    corncob says:

    RE: Scotsman @ 62

    It is easy to show a dire pictures when you make up numbers. Look at FY2008 actual, income was ~2.5T and net interest was ~$250B (note that this is roughly what we spend yearly in Iraq+Afghanistan). We are spending ~10% of our income to finance our debt right now. It does not seem that radical to me that with spending cuts and increasing income we could close the deficit in the budget and overcome the interest we are currently paying. It is not insurmountable by a long shot yet. We were nearly there in the 90’s, all it takes is a little political will and a healthy economy…

  65. 65
    Scotsman says:

    RE: corncob @ 64

    The 2010 budget numbers and actual tax collections are available. Let’s use them. Things have deteriorated a bit since 2008…

    And as I said above, show me the math on growing our way out, don’t just repeat phases that may have had meaning back in 1990, but are invalid now.

  66. 66
    David Losh says:

    RE: The Tim @ 60

    Submit the offer with your pre approval at a price you want. You probably have the 20% down and strong financials, along with being a first time home buyer. You will need to commit to the purchase and pay up front costs.

    In my case I do my own inspections and am willing to pay for the appraisal to have a closable loan, then for get about it. In other words the closer your loan, your offer, is to cash the better.

    Be stupid and take the risk.

  67. 67

    RE: The Tim @ 60
    I’ve done a few. Be prepared to have a lowball offer rejected or ignored. If it’s low enough you likely won’t get a counteroffer. You can come back a month later and resubmit the same offer. I’ve warned other people to remain detached, but I don’t think that’s a concern with you. If you really really really want the house ? I don’t know. Count to 12,000 and take a long walk. if that doesn’t work and you still really really really want the house? Then I guess you make an offer that’s much closer to the asking price. Just be patient.
    You’ve waited a long time already, what’s a few more months? ( asks the guy who gets a free lunch if you don’t buy a house by March 24th:)

  68. 68
    Scotsman says:

    RE: corncob @ 64

    And please keep in mind we don’t have the “political will”, but a system that rewards pork and shifts the costs of today’s decisions forward to the next election cycle. There are no adults in the room, as they say. And the economy is not healthy, but trapped in a slow downward spiral with no readily apparent exit strategy in place. So much for your qualifiers.

  69. 69
    corncob says:

    RE: Scotsman @ 65 – The FY2009 numbers are the closest you will get, ending in Sept 30 of last year. Income = 2.1T, Net interest = 202B. Looks like about the same ratio to me (a little lower now actually, interest costs dropped quicker than income).

  70. 70
    corncob says:

    RE: Scotsman @ 68 – Nope, we definitely do not have the political will at all right now. I agree with that. However, we don’t need it right now, we need it during the next economic expansion X years from now. Maybe we will have it, maybe not, but it certainly isn’t an impossibility.

  71. 71

    RE: corncob @ 70
    Isn’t political will one of those contradictions in terms like jumbo shrimp or military intelligence?

  72. 72
    David Losh says:

    RE: Scotsman @ 65

    Unfortunately corn cob has outlined “with spending cuts and increasing income” as the formula. Then goes on to say “it takes is a little political will” as the means.

    It’s a simple solution to let the Bush tax cuts expire and increase the capital gains rate to 20% from 15%. We can also follow the Oregon lead and tax the wealthiest 1% to 5% of the population.

    There are so many ways to raise the revenue and cut the budget that it would be a quick and practically painless fix for the United States.

    As sniglet pointed out we can raise interest rates to generate more lending.

    Then we have the pit falls of the political will.

    You’ve brought up both Social Security and Medicare as being bankrupt. Fannie Mae, Freddie Mac, FDIC, are all on life support. It’s just been that way for so long, I’m numb to it. Congress has done absolutely nothing in all of these twenty years to address any of the budget issues that we have.

    You, or any one, myself included talks about how the President did this that or whatever, but it’s Congress that makes the budget. Congress has had the ability to balance the budget. Reagan pointed that out. Reagan hammered on that point and then it’s like we all forgot.

    Congress can fix the mess we are in, twenty years worth of mess, in a few years. Tax more, spend less, and we could be done. The means and income are there.

  73. 73
    Sniglet says:

    Who would borrow money at 15% to purchase a declining asset? And what good would this kind of a distorting transfer do for the economy? Yeah, let’s continue the rape of the home owner to support poorly run banks and excessive greed. That will help normalize things, eh?

    Certainly, I would doubt there would be a lot of borrowers at 15% interest. However, the few that would be buying would have pretty good business cases, or just wouldn’t mind paying the costs for the privilege of “owning” a home. In any event, we would see housing prices come down substantially which would be a very good thing.

    The important point is that financial institutions would actually be able to make money from lending if the government wasn’t artificially depressing interest rates to a point where it doesn’t make sense to lend. It would be far better to have a significantly shrunken lending market, making prudent loans to people who can actually afford it, for assets that have realistic prices, rather than to have an artificially goosed lending system that gives money to people who can barely afford the payments on grossly overpriced assets.

  74. 74
    Scotsman says:

    RE: corncob @ 69

    I’m not 100% sure, but I think that interest number doesn’t include the interest on inter-agency transfers, such as the social security trust fund, etc. There is a good deal of creative accounting going on. It’s like looking at Clinton’s “surplus” and balanced budget back in the day. If the budget was balanced with a surplus, how come the total outstanding amount of treasuries went up each year for the last 53 years? There’s accounting by government standards, and then there’s cash flow and reality. $.5-.6T is closer to the actual cost.

  75. 75
    whatsmyname says:

    Sniglet at 61: You have many interesting things to say, however, this one’s not so good “Ironically, the Fed should be RAISING interest rates if they want to help the economy. Low interest rates make it hard for lenders to make any money. What we really need is to have mortgage interest rates up at 15% or 20%, making it attractive for people to lend money even in a market where they expect asset values to keep dropping.”

    Lenders make money on the spread. There is nothing to stop them from charging 15% except the auction in the marketplace. The Fed actions only set the floor on how low the lender can go and still maintain margin.

  76. 76
    Sniglet says:

    There is nothing to stop them from charging 15% except the auction in the marketplace.

    The “spread” would be far more substantial if private lenders didn’t have to compete with government agencies (e.g. Fannie Mae, FHA, etc). If the government wasn’t providing cheap credit then private lenders might well be able to charge MUCH higher rates.

    It is absolutely clear that private lenders don’t view the current spread to be worth the risk (i.e. which is why none of them are lending).

  77. 77
    whatsmyname says:

    Sniglet at 76: If mortgage demand elasticity exceeded what what is available under agency programs, demand would be there for the higher rates regardless. This is all a bit removed from the Fed rates anyway, (I was responding to raising Fed rates) unless you think that the Fed should be providing cover for mortgage usury.

    I remember reading on Bloomberg 5 or 6 years ago that bond buyers were unhappy with yields, and talking “strike”. If this is it, f*ck ’em. This is a big time recession. If people think that “safe” lending returns should exceed returns for enterprise and risk, they’ll be striking a long time. On the other hand, there are plenty of potential policy options to provide incentive for nonproductive cash hoarding to end – at least once people realize how small the hard core right wing really is. P.S: London is not committing suicide.

  78. 78
    Scotsman says:

    I worked in banking for years and the average spread was 2%, more than enough to cover operating costs and provide a decent return on the bank’s equity. But the spread has to match the risk profile- and we all know what happened there. Let the whole mess fail- smaller regional banks can handle the lending and will never grow “too big to fail.”

  79. 79
    mukoh says:

    RE: The Tim @ 60 – Bring cash, quick close, offer for agents to cut their fees.

  80. 80
    BillE says:

    Holy smokes! TheTim is considering making an offer on a house? Must be one heck of a deal. I’ve seen some tempting houses too, but I’m a tightwad and have a hard time making big decisions.
    I’m such a tightwad I changed my user name trying to get a free shirt out of Ray Pepper.

  81. 81
    BillE says:

    By Sniglet @ 73:

    In any event, we would see housing prices come down substantially which would be a very good thing.

    Obama disagrees.
    “That’s why we’re working to lift the value of a family’s single largest investment – their home. The steps we took last year to shore up the housing market have allowed millions of Americans to take out new loans and save an average of $1,500 on mortgage payments.”
    http://gregfielding.housingstorm.com/2010/01/27/why-obama-wants-high-home-prices/?source=patrick.net
    That first line could read “we’re working to making housing way too expensive again.”
    In one breath he says he wants to make housing more expensive AND save people money on mortgage payments. Amazing.

  82. 82
    Gilly says:

    RE: The Tim @ 60
    Banks often reject lowball offers initially, but like Ira says you can keep resubmitting the same offer, which might put you first in line when the bank finally decides to drop the price and take the next offer on the table. (And, no, they rarely call up the people who put in a low offer last month, they just wait for the next one). I put in a seriously lowball offer for a client last week, because the owner bank is asking a ridiculous amount; we’re expecting it to be rejected and my buyers are prepared to resubmit the offer every month till the bank accepts or someone else offers more. But you do have to practise detachment to do that strategy.

    It also depends on which bank it is, loss mit departments all have their own quirks and rules. Most are more likely to accept low offers for all cash or a high percentage of cash plus loan in hand. REO brokers themselves also often have offer rules and simply throw out offers which don’t conform, e.g. requiring pre-approval from a direct lender not a loan broker, or filling out offer forms a certain way, etc. (Before someone says that’s illegal, REO brokers who do a lot of repeat business with a number of banks negotiate the rules with them all in advance to make it easy to do volume business, so legally they are applying the seller’s rules). You really need to get the specifics, you have a better chance of success if your offer is tailored the way the selling bank likes.

  83. 83
    David Losh says:

    RE: BillE @ 81

    The Obama speech was a disappointment. The article you linked to though came to some conclusions that are only half right because high home prices are bad for business. Cram downs, or debt reduction, would only work if it’s between the borrower and the lender depending on circumstance.

    Anyway sniglet is extremely correct that if the Fed was serious about helping the economy they would raise rates.

    It’s Sunday morning so I have some time today to tell the story of Harold Harvey Chase, not related to Chase Bank.

    Harold Harvey was a chicken rancher in Lynnwood, which was in the middle of nowhere until they built the freeway. He had 25 acres and the freeway took 5 of them, paid Harold Harvey in tax free money, and that could have been the end of it. Harold took the money, went into town, and built his first apartment building.

    Remember that Lynnwood was kind of close to Everett and Boeing was laying people off in the 1970s. Harold stopped building and bought people out of homes and property. Harold was not a big player, he had an eighth grade education, and his free time was consumed by square dancing with his wife. He did have a menagerie of property. He had a parcel of land with three houses he had bought for a dollar a piece and moved to the lot for storage. He had another 20 acres out in Maltby, closer in at Bothell he had another 5 acres, he had some houses in Everett and more land. All owned free and clear.

    Where Harold made his money was in the 1980s. Harold sold off the properties he was accumulating further out and started lending money at 16%. Harold never lent on a property he didn’t want to own. He used the income to set those houses he bought for a dollar onto foundations, he started developing his chicken ranch in Lynnwood, and began winding down the lending because he had a substantial borrower in default.

    The lending got him a half interest in a house on Queen Anne, the Odd Fellows Hall on Capital Hill, which the Poly Clinic bought out, and some houses in Shoreline, and North Seattle. By this time Harold’s kids took over the business and kind of cleaned up the assets. They sold off the last of the dead wood in, 2007.

    The point is that small investors can keep an economy growing and we don’t really need big banks, as a matter of fact they can become a problem.

    Oh, and the guy Harold foreclosed on, owned Club Broadway. Club Broadway ended up in Everett. Harold really wanted the club because it was all cash, all night long, but he ended up with the problem properties instead.

  84. 84
    AMS says:

    RE: The Tim @ 60 – What the lender was owed is of no consequence. If the seller is dropping the price consistently, hope you are first in line when it hits your price. Also your price point should be no higher than the min between what you value the place and $1 more than what someone else is willing and able to pay.

  85. 85
    AMS says:

    RE: Scotsman @ 63 – “Who would borrow money at 15% to purchase a declining asset?”

    Just adjust the purchase price enough, and 15% will look low.

    (The technical computation will depend on duration, but if the duration is 1 year, and 5% is a good rate, then just knock the purchase price down by ~10%. No, this is not exactly the correct way to compute the price discount, but close enough.)

  86. 86
    AMS says:

    RE: BillE @ 81 – You know, all that fancy finance just makes the debt easier to pay back… Everyone wins! lol

  87. 87
    Snigliastic says:

    RE: David Losh @ 83 – Was there a point to this?

  88. 88
    David Losh says:

    RE: Snigliastic @ 87

    Yes, if interest rates remain low people borrow to lend. If interest rates go up, way up, there is more incentive to put cash into the economic system. Harold Harvey was lending cash at 2% less than the bank rate, at the time, and was making more than almost any other investment he could at the time.

    in addition he helped a business owner who had cash paid daily. They both made money.

    Higher interest rates are an attractive incentive to get some cash into the community.

  89. 89
    AMS says:

    To David Losh:

    Do you think that the return of simple assumptions would help sellers? Should there be some restrictions?

  90. 90
    TheHulk says:

    My friend (seriously not me :) ) has the following strategy. She is actively looking to buy in this year. She does all the research herself and hence is ok with redfin, except they dont do short sales. If the house is listed as a short sale, she contacts the seller’s agent and gets him/her to show the house.

    Because she is doing the above, the seller’s agent and the buyer’s agent will be the same person in the transaction. She is fooling herself if she thinks she is saving the 3% buyers agent commission. The agent that shows you the house, unless you went to an open house is “your” agent. Am I right or wrong?

  91. 91
    softwarengineer says:

    RE: Scotsman @ 16

    Exactly

    Even the Cash for Clunker tax credit went to mostly to foreign corporations so they could lie to America about their safety defects.

  92. 92
    Gilly says:

    @90

    Wrong. If the seller’s agent (aka “listing agent”) shows a buyer the house they are still representing the seller, whether it’s an open house or not. WA law allows an agent to also represent the buyer in making an offer (called “dual agency”) but only with consent of both sides. The buyer is not saving buyer’s agent commission unless she negotiates it – otherwise the listing agent/broker is likely to get all the commission. Some listing agents will act as dual agent for a reduced fee, but few will do it for nothing – it’s more work, and there’s no other real estate agent in the loop to help resolve problems or chase up closing issues.

    It’s also wrong to assume every listing agent will automatically agree to write up offers for buyers. Many agents (myself included) dislike dual agency unless all conditions including price are solidly agreed up front because it can cause conflict of interest in negotiations; the ethical headaches are often not worth the extra fee. Some listing agents will point a buyer with no agent to another agent to represent them in making an offer rather than agreeing to dual agency.

  93. 93
  94. 94
    softwarengineer says:

    RE: AMS @ 29

    What difference does it make?

    The Lexus sticks too.

  95. 95
    softwarengineer says:

    RE: pfft @ 34

    Green Jobs LOL

    The ones that pay $12/hr with no union and only replace a small percentage of Detroit’s losses alone, assuming it even happens or gets all outsourced anyway.

  96. 96
    softwarengineer says:

    RE: pfft @ 56

    Some People Think the Economy is Booming

    When only half of us have halfway decent jobs….LOL

    BTW, the half us that do are mostly not in the real estate market, we already bought in.

    That leaves hamburger flippers for Pffft’s booming economy.

  97. 97
    softwarengineer says:

    RE: Scotsman @ 63

    Well, at Least Their Party Sounds Fun

    Hey, why wasn’t I invited…LOL

  98. 98
    softwarengineer says:

    RE: corncob @ 64

    Yes Corncob

    Everything will be fine if we cut all American pay and retirement like we all said was good for Detroit….why should any of us be immune from salary butcher axing to become more world competitive?

    Include house prices too.

  99. 99
    softwarengineer says:

    RE: David Losh @ 72

    Exactly Dave

    The brainless/selfish attitude in America today is cut everyones salary/retirement/benefits but mine.

    Its very simple math, cut our industrial tax base salaries and everyone goes down the toilet, very soon IMO too.

  100. 100
  101. 101

    RE: Gilly @ 92
    I agree with Gilly here. Dual agency is done but discouraged. I won’t do it, it’s too fraught with problems. If your friend is going to buy a short sale, she’d be much better off having her own agent. Short sales are complicated enough. Redfin won’t do short sales, but a lot of other agents/brokerages will.

  102. 102
    softwarengineer says:

    RE: Sniglet @ 73

    I Beg to Differ

    California homes were selling like hotcakes in the early eighties at 15% interest….sure, it took one income to pay the mortgage and one income to pay the other bills, but who said owning a home increased your standard of living….LOL

  103. 103
    softwarengineer says:

    RE: Gilly @ 82

    Butter Your Offer With Enough Cash

    And even the lowest offer will get approved now-a-days.

  104. 104
    AMS says:

    RE: softwarengineer @ 94 – Different problems.

    “The sticking accelerator pedal recall is separate from the on-going recall of Toyota and Lexus vehicles to reduce the risk of pedal entrapment by incorrect or out of place accessory floor mats.”

    http://pressroom.toyota.com/pr/tms/toyota/toyota-temporarily-suspends-sales-153126.aspx

  105. 105
    softwarengineer says:

    RE: AMS @ 104

    And You Believe News Coming From Toyota Mafia?

    LOL

    IMO [I’m experienced in automotive control systems engineering, so qualified to have this opinion], a control cable from a gas pedal sticking on a Toyota/Lexus is the same problem. Slipshot Toyota/Lexus systems engineering that doesn’t take into account the loose tolerance limits of engine movements after a 100K miles [the rubber engine mounts flatten by then]. Replacing the cable won’t always fix it if it sticks after heavy use. If it was such a simple problem for the Lexus, why didn’t they put a safety defect on it and fix it?

    If it was impossible to fix, perhaps they lied and now blame the car mats?

    At least get an American news reference that represents American voters.

  106. 106

    RE: softwarengineer @ 103
    Not in my experience. Maybe that will change and banks will start accepting ” the lowest” offer, but at this point they’re still doing a lot of rejecting offers. But yes, cash talks. An offer I made on behalf of a client was rejected in favor of a lower, all cash offer. Unfortunately for the bank( who was the seller), the buyer backed out after the inspection, and the listing agent called a couple of weeks later asking if my clients still wanted the place. Too late!

  107. 107
    David Losh says:

    RE: AMS @ 89

    Yes people should do simple assumptions, and no there should be no restrictions.

  108. 108
    David Losh says:

    RE: Snigliastic @ 87

    You’re correct again, my comment at #83 was more directed at comment #75 by whatsmyname who was commenting on sniglets comment at #61.

    I read all the comments and some times get caught up in the flow.

  109. 109
    softwarengineer says:

    RE: Ira Sacharoff @ 106

    Interesting Ira

    I was using macro American sales philosophy and Seattle is apparently catching up with California on Cash is King, per your observations.

    It does appear IMO that as wage deterioration continues, those who save the most rubles will get the best deals.

    Another aspect is sellers [like banks] waiting with their masses of unsold units for the price to go up and then in groves, all giving up before the mildew, rats and vacrants destroy their properties at once….some gems in the future is likely for this reason IMO.

    It may be why the cash buyer pulled out you mentioned….too much maintenance piling up over time.

    I hear the same phenomena is occurring with private planes too, the banks won’t sell ’em cheap [they’re waiting for the prices to go up], but paying airport storage and maintenance is eating them alive and there is a limit to the wait, even to banks.

  110. 110
    AMS says:

    RE: David Losh @ 107 – Ignoring any potential macro problems, do you think that would be good for both sellers and buyers?

    At this point, I don’t see how lenders can be much worse off. What are the other options? Foreclose and sell for 50%? My guess is that it might be too late in some markets, such as Vegas. Who wants to assume a mortgage that’s twice the fair market value?

  111. 111
    softwarengineer says:

    I Smell a Big Trade War With Asia Soon

    http://www.breitbart.com/article.php?id=CNG.eba0f1f44dc56eaae2cdf53db03b2f4e.661&show_article=1

    http://www.dailymail.co.uk/news/worldnews/article-1247281/Thousands-protest-Tokyo-U-S-military-presence-Japan.html

    I hope I’m wrong, but the kettle’s already boiling over and this chronic debt/unemployment is no fix, its a curse for America. China and Japan know it too.

  112. 112
    whatsmyname says:

    David Losh @108

    Thank you for directing your post at mine, but I don’t get your point either. Are you saying that so long as anecdotal hard money lenders do well for themselves, society doesn’t need retail credit?

  113. 113
    David Losh says:

    RE: whatsmyname @ 112

    I like the Harold Harvey Chase story. Chicken Rancher, eighth grade education, made millions in Real Estate, but lending money put him over the top to retirement.

    He was lending at a rate less than banks. He could take the risk on a night club, secured by other assets. A lot of people have cash today that is sitting in safe investments. More importantly people are borrowing money to lend money.

    The spread you are talking about can not compete with banks. In my opinion these artificially low Fed rates are another gift we give to large corporate banking. I don’t see the benefit at a community level.

    In my opinion sniglet is right. If the Fed were to raise rates there would be more profit in lending. I don’t really think any one wants to tie up a bunch of money at 5% for 30 years. If I get a return I want at least 10%. What would be great is if I could get that 10% without inflation.

    More to your point is “society doesn’t need retail credit.”

  114. 114

    RE: Gilly @ 92 – Your answer needs a bit of clarification. If a buyer makes an offer through the listing agent, then chances are the agent is only representing the seller, and is not a dual agent. Dual agency in Washington typically only exists when the agent has a signed buyers’ agency agreement with the buyer prior and then shows them a property that they have listed. While it would technically be possible to convert to dual agency after an unrepresented buyer is shown property, I don’t know why any agent would want to do that, or why any seller would ever agree to it. So in such cases the transaction should be drawn up indicating that the listing agent represents the seller and the selling agent represents the seller. This is the reason the term selling agent is used–their may not be a buyer’s agent.

    Open houses are another complete level up in complexity because pursuant to the NWMLS listing agreement forms if the agent holding the open house is not the listing agent, it’s up to the broker to determine whether the agent represents the buyer or seller, and many/most brokers don’t have a policy on that, and there’s no default provision if there is no policy.

    Finally, I do agree that the buyer is fooling themselves if they think they are saving money by not having an agent. If they want to save money, they should consider a rebate agent. When we were looking on our own account, the only time we took our own commission off the table was when the seller was also the agent and the agent had the power to waive all commissions (including their firm’s share).

  115. 115
    David Losh says:

    RE: Kary L. Krismer @ 114

    Kary, she’s holding a cat. I trust her.

  116. 116
    nondescript says:

    Realtors: Is an offer without a financing contingency considered as good as cash?

    Also, another strategy I’ve heard is to contact the short sale selling agent and get them to hook you up with another agent in their office, rather than attempting dual agency. This way you avoid dual agency, but may have an upper hand in negotiations when there are multiple offers, assuming that the 2 agents actually like each other. Any thoughts on this?

  117. 117

    RE: nondescript @ 116 – A cash offer sometimes isn’t as good as cash. They’ll often want verification of funds. A number of agents have gotten caught up in situations where the purchase was really contingent on the sale of another property, or some other event. Assuming you need financing, but don’t have a financing contingency, that just means they’ll be more likely to share your earnest money with their agent. Not really what they’re interested in, unless it’s a large earnest money.

    As to the second question, I don’t see what the advantage would be of having the two agents in the same firm–that it would be any different at all. But again, as I noted in #114 above, you’re not likely to have dual agency in any event. You’ll just be unrepresented.

  118. 118

    RE: nondescript @ 116
    An offer without financing contingency is not considered as good as cash because it doesn’t provide evidence that you have the cash. Just as when you’re making an offer with financing it’s always a good idea to enclose the pre approval letter from a lender, when making an all cash offer it’s a good idea to enclose a copy of your bank or brokerage statement to show that you’ve got the cash. You can black out the account number if you have security concerns.

  119. 119
    whatsmyname says:

    David Losh @ 115

    “The spread you are talking about can not compete with banks. ” I can not decipher this statement.

    “In my opinion these artificially low Fed rates are another gift we give to large corporate banking. I don’t see the benefit at a community level.” If the bank takes an x% spread, it really doesn’t matter to the bank’s profit if the nominal rate is 5% or 15% – except to the degree that you ordinarily expect less business and more defaults at the higher rate. The gift to the banks is that the consumer and business clients are less likely to default, and that businesses can find adequate margins to borrow for expansion (more business activity). That seems to me a benefit at the community level.

    Your idea of community benefit seems to be reducing feasible economic activity while regularizing rates to support loan shark amateurs. I don’t see how this industry could support an entire economy.

  120. 120
    anonymous says:

    Looks like the Escala condo development is having a bit of trouble.
    http://seattletimes.nwsource.com/html/businesstechnology/2010931488_sundaybuzz31.html

  121. 121
    Scotsman says:

    Heh. Proof that Obama is four times better than Bush!!

    WASHINGTON (Reuters) – The White House will predict a record budget deficit in the current fiscal year and more big shortfalls for the next decade in its upcoming budget proposal, a congressional source told Reuters on Sunday…
    …In its budget proposal to be released on Monday, the White House predicts a record $1.6 trillion budget deficit for the fiscal year that ends September 30, the Capitol Hill source said.
    According to the estimate, deficits will narrow to $700 billion by fiscal 2013 before gradually rising back to $1.0 trillion by the end of the decade, the source said.”

    Yep, he’s blowing that cracker outa the water!

  122. 122
    Gilly says:

    By David Losh @ 115:

    RE: Kary L. Krismer @ 114

    Kary, she’s holding a cat. I trust her.

    Yes, but be careful of the cat, she has her own agenda :-)

    Kary, you’re right, I was simplifying. It’s not in a seller’s interest to convert to dual agency (usually), but I do find unrepresented buyers ask without even thinking that there might be any complications.

    Anyway, I’m with Ira @101 – of all the purchases for buyers to attempt without a buyer agent short sales may be the worst.

  123. 123
  124. 124
    Ross Jordan says:

    By Sniglet @ 73:

    Who would borrow money at 15% to purchase a declining asset? And what good would this kind of a distorting transfer do for the economy? Yeah, let�s continue the rape of the home owner to support poorly run banks and excessive greed. That will help normalize things, eh?

    Certainly, I would doubt there would be a lot of borrowers at 15% interest. However, the few that would be buying would have pretty good business cases, or just wouldn’t mind paying the costs for the privilege of “owning” a home. In any event, we would see housing prices come down substantially which would be a very good thing.

    The important point is that financial institutions would actually be able to make money from lending if the government wasn’t artificially depressing interest rates to a point where it doesn’t make sense to lend. It would be far better to have a significantly shrunken lending market, making prudent loans to people who can actually afford it, for assets that have realistic prices, rather than to have an artificially goosed lending system that gives money to people who can barely afford the payments on grossly overpriced assets.

    We had >10% interest in the 80s and many mortgages were at 15%. There was still a lot of mortgage takers. When interest rates go that high, there’s typically a high inflation rate and your real interest rate isn’t really 15%. So people begin to price in yearly cost of living raises in 5-10%, (or some similar strategy, like switching companies to get a 5-10% raise every 12 months).

  125. 125
    David Losh says:

    RE: whatsmyname @ 119

    Banks have done a pretty good job of loan sharking and it will take at least a decade to unwind that. Just as you would have to be brain dead to buy a property today you would have to be equally impaired to be borrowing money.

    The game has changed radically. There is no need to loan money when you can borrow money to play the stock market, buy currencies, buy gold, or oil futures. Large institutional banks and financiers, in my opinion, are simply playing with cheap Fed dollars.

    You, me, the person down the street don’t stand a chance of getting the crumby loans that banks will be making in the next decade. Number one the asset, houses, will be over priced. Number two, you need to be golden to get a loan.

    The closer the Fed gets to normalizing rates the sooner we can expect some rational business practices.

  126. 126
    Ross Jordan says:

    By Scotsman @ 121:

    Heh. Proof that Obama is four times better than Bush!!

    WASHINGTON (Reuters) – The White House will predict a record budget deficit in the current fiscal year and more big shortfalls for the next decade in its upcoming budget proposal, a congressional source told Reuters on Sunday…
    …In its budget proposal to be released on Monday, the White House predicts a record $1.6 trillion budget deficit for the fiscal year that ends September 30, the Capitol Hill source said.
    According to the estimate, deficits will narrow to $700 billion by fiscal 2013 before gradually rising back to $1.0 trillion by the end of the decade, the source said.”

    Yep, he’s blowing that cracker outa the water!

    We’re quickly approaching a major debt trap, unlesss we can pump up GDP even faster than debt (which seems unlikely).

  127. 127
    David Losh says:

    RE: Gilly @ 122

    We have had an inside joke about Real Estate people who take pictures with dogs. I find cats more trustworthy, as does Kary. No offense meant.

  128. 128
    David Losh says:

    RE: Scotsman @ 121

    This budget may be the Waterloo for Obama. It should have been the corner stone of his State of the Union address. This comes as a surprise on a Sunday afternoon.

    We’ll see what the market does in the morning.

  129. 129
    pfft says:

    By softwarengineer @ 96:

    RE: pfft @ 56

    Some People Think the Economy is Booming

    When only half of us have halfway decent jobs….LOL

    BTW, the half us that do are mostly not in the real estate market, we already bought in.

    That leaves hamburger flippers for Pffft’s booming economy.

    I never said that, I said we were recovering. the data clearly shows that. it may not agree with the bearish view, but that’s the data.

  130. 130
    pfft says:

    By Ross Jordan @ 126:

    By Scotsman @ 121:

    Heh. Proof that Obama is four times better than Bush!!

    WASHINGTON (Reuters) – The White House will predict a record budget deficit in the current fiscal year and more big shortfalls for the next decade in its upcoming budget proposal, a congressional source told Reuters on Sunday…
    …In its budget proposal to be released on Monday, the White House predicts a record $1.6 trillion budget deficit for the fiscal year that ends September 30, the Capitol Hill source said.
    According to the estimate, deficits will narrow to $700 billion by fiscal 2013 before gradually rising back to $1.0 trillion by the end of the decade, the source said.”

    Yep, he’s blowing that cracker outa the water!

    We’re quickly approaching a major debt trap, unlesss we can pump up GDP even faster than debt (which seems unlikely).

    GDP is just starting to ramp up. companies cut to the bone, workers will probably be added very soon. probably faster than people realize because they are caught up in all the doom and gloom.

  131. 131
    Scotsman says:

    RE: pfft @ 130

    You’re right- we’ll grow our way out of it. Let’s see, $1.6 trillion deficit, we can cover that by doubling all federal taxes, assuming the economy is static and won’t make any adjustments in response to the new tax rates. Doubling FICA alone will probably lead to some Lay-offs as employer’s costs increase by 7% per worker while take home pay drops by a similar amount… OK, that won’t work.

    But we can grow the economy! If we generously assume that taxe revenue will be 20% of any new growth all we have to do is grow the economy by $5 trillion, or about 1/3 of what it is now. Yeah, that should be possible- over 7 or 8 years if everything was ideal. Yup, we’re turning that corner- and walking right into disaster.

    Polish up those rose-colored glasses, people, we’re going to need them. And let’s get a fresh coat of paint on those pink ponies- we don’t want to appear gloomy around here. After all, this is Seattle Bubble!

  132. 132
    AMS says:

    RE: Gilly @ 122 – I’m waiting for the handle:

    MustBuyHomeForCat

  133. 133
    pfft says:

    By Scotsman @ 58:

    RE: pfft @ 54

    This is good news? Give me a break. Think. For every $900K home that sells for $500K someone’s (the seller) net worth just dropped $400K- the loss. It may have been a “paper loss” where the only impact is non-realized appreciation, i.e. future retirement income or a kid’s college fund. But if purchased during the peak years it’s a real hit to a personal or bank balance sheet, or maybe a retirement fund’s portfolio. But there is no way when looking at the big picture to see it as a positive. You really need to slow down and think this stuff through.

    it means the market is getting to a bottom. that’s how the housing market bottoms, cash deals and good discounts.

    at the height of the market people were buying those homes highly leveraged. now, not so much.

  134. 134
    Scotsman says:

    RE: pfft @ 133

    OK, you’re right. I’m way too gloomy. I’m going to take a couple weeks off so that everyone can get their happy faces back on, butter up their butts and point them toward the sun while they put their heads back in the sand. I’m officially deputizing you, Phht, as the Seattle Bubble Happy Guy, charged with spreading the good news that there is a light at the end of the tunnel.

    Life is good, especially when you have the right drugs…

  135. 135
    whatsmyname says:

    David Losh

    First you want higher rates in order to lend more profitably, then you say it is not prudent for anyone to borrow.

    First you want to lend at rates higher than bank rates, then you complain the banks are loansharking.

    First you complain that you can’t compete with bank loans, they you complain that no one can get a bank loan.

    How can you make a coherent theory if your assumptions negate each other?

    If lending is not feasible, (or less attractive than the stock market), how does raising the cost of money to the end consumer (but not the amount you make – remember the margin) make it more feasible? The issue with the bank investment speculation is one of regulatory oversight, not Fed rates.

    Raising rates in a recession will cause more loans to go bad. This will actually cause a decline in lending as regulated banks need to adjust their liquidity.

    Your Harold story seemingly illustrates your aspiration to get rich off the wealth destruction of others, and a rate rise would play into your book nicely. That’s nice for you. It doesn’t in any way support the case that society or the economy would be improved.

  136. 136
    ARDELL says:

    RE: TheHulk @ 90

    If she agrees to represent herself with no agent at all, she may be successful. But she has to ask the agent in advance of seeing the house if they will go along with her plan. I sometimes write into the listing contract that if the buyer is unrepresented, the buyer agent fee goes toward the buyer’s closing costs or is a price reduction after the price is set between the buyer and seller negotiation.

    The hard part is buyers like that often “think” the agent is “their” agent no matter how many times you remind them that you are the agent for the seller only. I also have to be very sure that the buyer never saw the house before with an agent and/or never signed a buyer agency agreement with another agent, or I could end up owing an agent that 3% after the money is “given” to the buyer at closing.

    It can be done, and I’ve done it a few times when it was one of the best and almost only way to get a listing sold. But you have to stay on your toes and know what you’re doing to pull it off successfully.

  137. 137
    David Losh says:

    RE: whatsmyname @ 135

    sniglet made the point about interest rates which is a very good point. He also has introduced deflation as a very real possibility. I’m agreeing with him.

    What does this extremely low Fed rate do for anybody today?

  138. 138

    By David Losh @ 127:

    RE: Gilly @ 122

    We have had an inside joke about Real Estate people who take pictures with dogs. I find cats more trustworthy, as does Kary. No offense meant.

    One of the benefits of being a real estate agent is you get to meet a lot of really nice dogs and cats. One of my favorites was this big bad ass looking dog named Lazy, who was really a big marshmallow. The worst one was actually a psychotic cat that would jump at your legs and attack them as you walked by.

  139. 139
    Jbeans says:

    RE: TheHulk @ 90

    I have the name of a good agent who has done a lot of short sales and rebates part of the commission like Redfin does. Let me know if you want his name and number for your friend.

  140. 140

    RE: Gilly @ 122
    What is the saying? “Dogs have masters, cats have servants?”

  141. 141
    whatsmyname says:

    David Losh @137

    “sniglet made the point about interest rates which is a very good point.”
    I see an assertion that higher rates would be good for the economy. This is supported by reasoning that higher rates would increase economic activity by encouraging people who are sitting on their cash to lend. This is false reasoning for the reason that if there were demand for loans in excess of current supply and at the higher price, you could supply those loans regardless of Fed rates. Then there are also the reasons (posted above) why higher rates would not be good for the economy. I would distinguish between an unsupported assertion and a very good point.

    “He also has introduced deflation as a very real possibility. I’m agreeing with him.” Your policy recommendation of higher rates is exactly the thing to exacerbate it. This is kind of like predicting the reservoir will run dry, and recommending we drain it.

    “What does this extremely low Fed rate do for anybody today?” Are you playing with me? I’ve answered this twice. I will rephrase and elaborate one more time.
    1. The masses of people with credit card and other personal debt pay less interest and have more cashflow remaining to purchase goods in the economy.
    2. Businesses pay less interest and have more cashflow to purchase goods in the economy.
    3. Businesses can expand into enterprises carrying a lower margin thus creating more profits to spend (and jobs).
    4. Fewer people and businesses are pushed into delinquency and default, preserving jobs and consumption.

  142. 142

    By Jbeans @ 139:

    RE: TheHulk @ 90

    I have the name of a good agent who has done a lot of short sales and rebates part of the commission like Redfin does. Let me know if you want his name and number for your friend.

    Hey! Try to keep up. Does this agent own a cat? ;-)

  143. 143
    Jbeans says:

    RE: Kary L. Krismer @ 142

    I don’t know, I’ll have to ask him!

  144. 144
    David Losh says:

    RE: whatsmyname @ 141

    sniglet opened up a new line of thinking with the idea of increasing the fed rate. For me his insistence on deflation was a new line of thinking.

    The reality is that banks are cutting credit limits and pushing interest rates on unsecured debt as high as is allowed by law.

    Businesses should be concentrating on paying off debt. Commercial lending is the next shoe to drop.

    Any expansion is being done on a cash on cash basis. The only ones taking risk are banks because they can borrow cheap, invest, and repay. Banks are only betting on sure things, as are most businesses.

    Now you don’t really want to get me started on defaults and delinquencies. Those are more and more a matter of over priced assets.

    We need to drive down the cost of goods and increase the return on lending.

  145. 145
    whatsmyname says:

    David Losh

    Thank you for your new paradigm. It made me realize that we can easily solve unemployment in this country as well. All we need do is my new 6 and 6 plan. Each job will now pay six figures, and will feature six months of paid vacation. That way all the unemployed people sitting on the sidelines will have incentive to go out and get a job. Employers will need to hire more people because their current employees will now be gone half the time. Not only that, but everyone will have more money to spend. Why it’s just win-win all the way round.

  146. 146
    AMS says:

    RE: whatsmyname @ 145 – I propose the new 666 plan — same as above, but all home loans are 6% (also you only pay 6 months of the year).

    How could any of this go wrong?

  147. 147
    David Losh says:

    RE: whatsmyname @ 145

    It’s not my paradigm.

    We have an economic problem that is dragging on. Raising the Fed rate is a great solution. As much as the cost of housing units is discussed no one wants to say that the asset value is lower than what millions of people paid, and millions more have refinanced into. If inflation is even kept in check, which it most assuredly will be, those housing unit prices will remain higher than the value. It’s a slow drain on resources for every body. We just need to get business moving again, here.

    Corporations aren’t lending here, they aren’t investing here. Volatility gives greater returns, China gives greater returns. Would you bet against the Euro? I would. I would lend money in Peru. My bank account in Peru pays conservatively 9%. I can lend money in Peru at 24% and have the balance paid back in 6 months. Why would I lend here in the United Sates? Because it’s safe?

    What banks do is take the cheap money from here, and invest in foreign currencies, precious metals, Chinese linen, and Indian phone centers. We have a lame system of finance that just ain’t trickling down. If we want foreign investment we need to show a return.

    It’s a good idea. It’s new idea, and a new way of thinking. What we need is innovation, because what we have isn’t working for us.

  148. 148
    whatsmyname says:

    RE: AMS @ 146

    That is an excellent plan – and the name really can’t be beat. It truly illustrates what can happen when we get more people on to the new line of thinking.

    We Can Do It!

  149. 149
    David Losh says:

    RE: whatsmyname @ 148RE: AMS @ 146RE: whatsmyname @ 145

    So you’ve got nothing.

  150. 150
    whatsmyname says:

    DL@149

    Sir, I have capitulated totally. Do you not recognize your own arguments? Sure, I neglected the rambling half-true assertions in order to save time, but really, they’re only about style anyway.

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