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"Advocates of the mortgage-interest deduction, for instance, claim that it increases homeownership..."

Thu, 19 Nov 2009 07:02:52 -0500

“Advocates of the mortgage-interest deduction, for instance, claim that it increases homeownership rates. But it doesn’t: in countries where mortgage deductions have been eliminated, homeownership rates haven’t dropped. Instead, the deduction simply inflates house prices.”

- How the tax code encourages debt : The New Yorker

Correct. If you use the tax code to reduce the effective price of an asset, the price of that asset simply rises to offset the benefit. The only real beneficiaries are sellers.

"Let’s start with the credit card rate freeze. The rising rates charged by issuing banks that..."

Fri, 13 Nov 2009 11:20:05 -0500

“Let’s start with the credit card rate freeze. The rising rates charged by issuing banks that inspired Mr. Dodd’s legislation are themselves the unintended consequence of an earlier attempt to assist the consumer. Back in May, Congress passed a law requiring banks to give customers a 45-day notification before raising rates. To give banks time to adjust to the new rules, Congress decided not to put that provision into effect until February. So what happened next? Banks rushed to raise rates before the law takes effect. Many customers who may not have had their rates raised until 2010 — or perhaps not at all, if the economy continues to improve — found themselves paying higher rates even though they had not missed any payments. How could Mr. Dodd and his fellow lawmakers not realize that banks would pre-emptively raise rates?”

- Op-Ed Contributor - Where Credit Isn’t Due - NYTimes.com

I don’t know how many times I can say this before it gets annoying - by and large the people in our legislature simply aren’t smart enough. Chris Dodd? Which if you would actually hire Chris Dodd to do something important for your company or organization? I wouldn’t.

"Congress delivered an early Christmas present to the real-estate industry yesterday. Local real..."

Sun, 08 Nov 2009 08:11:22 -0500

““Congress delivered an early Christmas present to the real-estate industry yesterday. Local real estate agents said the congressional action could lead to a busier-than-normal winter for home sales in Massachusetts. ‘I know it sounds self-serving, but I truly see this as a great stimulus (for the economy),’ said Gary Rogers, president of the Massachusetts Association of Realtors.””

- The Housing Bubble Blog

Houseowner A sells their house to Houseowner B (who gets money from taxpayers to do it). Houseowner A then goes and buys a house from Houseowner C (and gets money from taxpayers to do it). Can someone please explain to me these transfers of housing from one person to another stimulates the economy?

"Last fall, as the financial system was teetering and the biggest banks were tightening credit, Karen..."

Thu, 05 Nov 2009 07:56:39 -0500

“Last fall, as the financial system was teetering and the biggest banks were tightening credit, Karen DeForte couldn’t find a lender to refinance the two mortgages on her New York home, until she received a phone call from Lend America. Most banks rejected Ms. DeForte because her debt level was too high and her credit score too low. But Lend America put Ms. DeForte into a $402,000 loan backed by the Federal Housing Administration, a New Deal-era agency that Washington and Wall Street were relying upon to pick up the slack in the mortgage market as private lenders pulled back. Ms. DeForte fell behind on payments six months later and is seeking a loan modification. Taking the loan was “a stupid mistake,” the 46-year-old office manager said.”

- FHA Digging Out After Loans Sour - WSJ.com

So, an office manager (let’s say she makes $65k) borrows $402,000 (~6.5x her income). The public subsidizes this loan via the FHA. But of course she can’t make the payments, because the loan is for too high a multiple of her income. So she seeks a mortgage modification, also subsidized by taxpayers, which presumably she’ll get. And that will be fine for a few months until (for any number of reasons) she re-defaults. Then what? How will the taxpayers continue to pay for this woman to be a home “owner” (quotation marks because her loan probably exceeds the value of her house)? A second modification? Principal reduction? More tax credits?

It continues to be mindblowing that we as a taxpayer base will spend tens of thousands of dollars to keep this individual woman in her mortgage. Not her house - that’s secondary. In her mortgage. And because that mortgage is likely larger than the value of the house, all of this rolls up to taxpayers basically paying up so this woman can remain a debt slave.

And you have to ask … why the hell are we doing this? And the answer is simple - it’s good for the banks.

"The Senate and House are poised to agree on a compromise measure to extend unemployment benefits..."

Wed, 04 Nov 2009 09:03:31 -0500

“The Senate and House are poised to agree on a compromise measure to extend unemployment benefits that also would expand a popular $8,000 tax credit for homebuyers, despite a recent government report on extensive mistakes and suspected fraud in the program.”

- Congress Poised to Keep Homebuyers’ Tax Credit - NYTimes.com

What a huge shock…

Congress is crap at its job.

Breaking news hits social networks in 3 mins; mainstream news sites in 20 mins.

Mon, 02 Nov 2009 16:58:53 -0500

Breaking news hits social networks in 3 mins; mainstream news sites in 20 mins.:

mikehudack:

soupsoup:

(via @RachelSterne)

I’d like to better understand what percentage of that “breaking news” that hits social nets is incorrect. Is the 17 minute delta the price we pay for accuracy and actionability?

Also - for what percentage of “breaking news” does 17 minutes genuinely matter? Unless it’s “A tidal wave is heading toward Manhattan” I’m generally fine with waiting 17 extra minutes to get something that’s been fact-checked.

"The trouble is that those GDP and productivity growth figures could be significantly..."

Sun, 01 Nov 2009 08:45:55 -0500

“The trouble is that those GDP and productivity growth figures could be significantly overestimated—perhaps by one percentage point or even more. That’s because the official statistics are not designed to pick up cutbacks in “intangible investments” such as business spending on research and development, product design, and worker training. There’s ample evidence to suggest that companies, to reduce costs and boost short-term profits, are slashing this kind of spending, which is essential for innovation. Without investment in intangibles, the U.S. can’t compete in a knowledge-based global economy. Yet you won’t see that plunge reflected in the GDP and productivity statistics, which are still too focused on more traditional sectors, such as motor vehicles and construction.”

- The GDP Mirage - BusinessWeek

My ongoing fear is that we are recklessly behaving in a way that prioritizes short-term results (“There will be no more Lehman’s) at the expense of much longer-term consequences. Whether those are consequences to our currency, to innovation spending as referenced above, or to the overall financial health of consumers (“BUY A HOUSE (you can’t really afford) NOW! HERE’S SOME MONEY TO GO DO IT!”), we are pushing ahead with near-term measures to convince ourselves that the problem is past. I don’t think it is, and solutions like the one above are worse than the problems they purport to solve.

"Whenever the tax credit finally expires, Las Vegas and every other city will have to confront the..."

Thu, 29 Oct 2009 06:27:10 -0400

“Whenever the tax credit finally expires, Las Vegas and every other city will have to confront the inevitable question after all such stimulus packages: what will motivate the buyers of tomorrow? “In my office, people were buying homes left and right because of that tax credit,” said Kitty Berberick, who works for an insurance company in Las Vegas. “That credit was a godsend.””

- Fears of a New Chill, Just as Home Sales Had Begun to Thaw - NYTimes.com

No, Kitty Berberick, a “godsend” would be housing priced affordably, so that people could buy them without having to be given taxpayer money.

"What happens when you artificially prop up housing prices? Imagine the credit were expanded to all..."

Wed, 28 Oct 2009 06:47:45 -0400

“What happens when you artificially prop up housing prices? Imagine the credit were expanded to all home buyers and made permanent. This would simply boost housing prices at the low end of the market by close to $8,000, since all buyers would be willing to pay $8,000 more. (Prices would rise by a little less than $8,000 because at higher prices, more people would be willing to sell.) Whom does this benefit? Not first-time home buyers. It benefits people who already own houses (and their real estate agents) because it’s a one-time boost in housing values. This would be just the latest chapter in a long history of government policies to boost housing prices — the mortgage interest tax deduction, the capital gains exclusion on houses, the extension of the mortgage interest tax deduction to second houses, etc. Each of these policies pushes up prices just once; if you want to keep pushing up housing prices, you have to keep adding sweeteners. A temporary tax credit has a similar effect, but for a shorter period of time. It boosts the price of a transaction that would have happened anyway. It may create additional transactions, but is that a good thing? If someone could not have afforded a house without the tax credit, then what is he or she going to do when the tax credit goes away and the price of the house falls? In effect, the tax credit is a way of making houses temporarily affordable that would not otherwise be affordable, and we know where that leads.”

- Simon Johnson and James Kwak - The home-buyer tax credit: Throwing good money after bad - washingtonpost.com

"The main argument for the tax credit is that it stimulates the economy and stabilizes the housing..."

Tue, 27 Oct 2009 09:41:23 -0400

“

The main argument for the tax credit is that it stimulates the economy and stabilizes the housing market. Seen purely as a stimulus, the tax credit is highly inefficient. The National Association of Realtors claims that the credit created 350,000 new sales; the Calculated Risk blog calculates that this means the government is paying $43,000 for every extra house sold (since most sales would have happened anyway). According to the Wall Street Journal, Goldman Sachs estimates 200,000 new sales, implying a cost of $80,000 per marginal sale.

Even at a price of $43,000, what are we getting? Given that these are first-time home buyers, and given the glut of homes on the market, most of these are financial transactions where a house changes hands in exchange for cash (and additional transaction costs). The $43,000 is not being invested; it isn’t buying anything for the public, like a new road. It’s just cash going into people’s pockets.

”

- Simon Johnson and James Kwak - The home-buyer tax credit: Throwing good money after bad - washingtonpost.com

It is continually baffling to me that anyone that thinks goosing the transfers of real estate from one party to another has a stimulating effect on the economy. It’s just a wealth transfer, and an inefficient one.

What we got for a few trillion dollars

Mon, 26 Oct 2009 14:47:22 -0400

Uncle Sam’s interventions in the housing market have pushed home prices 5% higher on a national average than they would have been otherwise, Goldman Sachs estimates in a report released late Friday.
…

But these artificial props won’t last forever and may have created a false bottom in the market. “The risk of renewed home-price declines remains significant,” Goldman economist Alec Phillips writes in the report, “and our working assumption is a further 5% to 10% decline by mid-2010.”

So what did we get for several trillion dollars of public debt? We got a national peak-to-trough decline of 36% instead of 41% (so far)?

Mammoth purchases of mortgage securities by the Federal Reserve appear to have held home mortgage rates about 0.30 percentage point lower than they would have been, Goldman says. Those purchases are due to be phased out in next year’s first quarter.

And 30 basis points of lower rates.

The argument that I’ve heard is that without the government running up (even larger) debts and robbing Peter to pay Paul on housing, we’d have a “really bad housing crash”. To my eyes, it doesn’t seem like the taxpayers got a very good deal here.

"The phone is fine. I make and receive calls, but I certainly don’t think of the iPhone as a..."

Mon, 26 Oct 2009 12:29:56 -0400

“The phone is fine. I make and receive calls, but I certainly don’t think of the iPhone as a “phone.” I have no idea whether the iPhone’s phone is better or worse than a BlackBerry’s, and I don’t care.”

- The Truth About The iPhone, Week 13

Certainly.

"Assertions made without evidence can be dismissed without evidence."

Sun, 25 Oct 2009 09:44:53 -0400

“Assertions made without evidence can be dismissed without evidence.”

- Christopher Hitchens (via savagemike) (via atheistramblings) (via asprettyasasong)

This sounds good, but it’s wrong. If I assert that the Earth revolves around the sun, Christopher Hitchens cannot legitimately dismiss that assertion if I’m unable to reproduce the mathematical observations that underlie that universally agreed-upon truth.

This statement, like most of what Hitchens writes, is sophistry.

"As an inefficient use of taxpayer money, clunker cash pales besides the homebuyer handout. With..."

Thu, 22 Oct 2009 08:57:57 -0400

“As an inefficient use of taxpayer money, clunker cash pales besides the homebuyer handout. With housing affordability currently the best it’s been in most of our lifetimes, with marked-down home prices and mortgage money in the 5% range, you wouldn’t think homebuyers would need a subsidy. But there it is, and it’s a lot more expensive than you think. According to estimates by Ted Gayer at the Brookings Institution, each additional home sale generated by the $8,000 first-time homebuyers’ tax credit actually costs the government $43,000. How’s that possible? Gayer figures that of the 1.9 million homebuyers that will get the $8,000 tax credit, 85% would have bought a house anyway. The price tag of $15 billion — about twice what Congress had intended — he reckons will result in approximately 350,000 additional home sales, at a price tag of $43,000 for each additional sale. That’s nothing compared to the tab for a possible one-year, $15,000 tax credit for all home buyers (except those with high incomes.) Gayer figured that would cost the Treasury $73.9 billion, which he estimated would increase house sales by a total of 253,000. Each of those extra home sales would cost the Treasury $292,000 ($73.9 billion divided by 253,000.) The National Association of Home Builders, not exactly a disinterested bunch, figures the subsidy would boost house sales considerably more, by 700,000 homes. That implies each of those additional sales would cost American taxpayers only $133,000 — still “a very expensive and poorly targeted subsidy,” writes Gayer.”

- Homebuyers’ Handout — Worse Than Cash for Clunkers - Up and Down Wall Street Daily - R. Forsyth - Barrons.com

"If you thought home prices were bottoming out, you may be wrong. They’re expected to head a..."

Wed, 21 Oct 2009 07:06:01 -0400

“If you thought home prices were bottoming out, you may be wrong. They’re expected to head a lot lower. Home values are predicted to drop in 342 out of 381 markets during the next year, according to a new forecast of real estate prices. Overall, the national median home price is predicted to drop 11.3% by June 30, 2010, according to Fiserv, a financial information and analysis firm. For the following year, the firm anticipates some stabilization with prices rising 3.6%. In the past, Fiserv anticipated the rapid decline in home-sale prices over the past few years — though it underestimated the scope. Mark Zandi, chief economist with Moody’s Economy.com, agreed with Fiserv’s current assessments. “I think more price declines are coming because the foreclosure crisis is not over,” he said. In fact, those areas with high concentrations of foreclosure sales will experience the steepest drops, according to Fiserv. Miami, for example, is expected to be the biggest loser. Prices are forecast to plunge 29.9% by next June — after having already fallen a whopping 48% during the past three years.”

- Homes: About to get much cheaper - Yahoo! Finance

Just to put this in perspective: A condo that cost $1M in 2006 now costs $520,000. If Fiserv’s number is correct, this condo will cost $364,000 a year from now. $1M to $364k is a 63.6% drop, peak to trough. And Fiserv has historically underestimated these movements.

Hard to believe I actually had people telling me to buy Florida real estate in 2006, and chuckling with disbelief at what a fool I was not to be “playing the game” with them.

"Specifically, the Treasury program is targeted at subprime borrowers hit with ballooning mortgage..."

Tue, 20 Oct 2009 08:47:30 -0400

“Specifically, the Treasury program is targeted at subprime borrowers hit with ballooning mortgage payments vs. prime borrowers hit by job losses. As for the “morality question” of whether the government should be bailing out homeowners, Warren says “I’m passed that,” noting “there’s plenty of unfairness to go around.””

- Warren Housing Market Getting Worse: Tech Ticker, Yahoo! Finance

Wow. I kind of like Elizabeth Warren, but I’m a little surprised that she’s the first to explicitly say, “fairness is out the window”. I disagree, and not just for moral reasons. These types of unwarranted bailouts create very real moral hazards (the results of which are already being seen) that beget more crises. What a mess.

"As of Aug. 31, there were 3.3 million homeowners 60 days or more late on mortgage payments, said..."

Mon, 19 Oct 2009 08:55:49 -0400

“As of Aug. 31, there were 3.3 million homeowners 60 days or more late on mortgage payments, said Faith Schwartz, who runs the Hope Now Alliance, a mortgage-industry trade group working on foreclosure prevention. A hotline for troubled homeowners run by the alliance fields 5,000 calls a day, she said”

- Keeping up with an avalanche of troubled mortgages - MarketWatch

There are about 150 million households in the US. About 67% of these are owned, rather than rented. So 100 million owned houses and apartments. 3.3% of all “owners” are delinquent by 60 days or more. 1 in 30 if you prefer.

A big proportion of these borrowers are going to default. This has significant consequences for housing inventory, which is artificially depressed right now because of moratoria and bank backlogs. But when I argue that we’re looking at another leg down in housing in 2010, this is why.

As always, the wildcard is the government. There appears to be no limit to what they will try when it comes to propping up the residential real estate market. So if the fed just prints money and buys every house at 2007 prices to “stimulate the economy”, I would expect prices to rise. If market forces are even partially playing out, I expect prices to continue to fall through next year, possibly further.

The U.S. Mint Sucks.

Sun, 18 Oct 2009 18:38:50 -0400

squashed:

I’m serious. It has one important job—making money—and it does a terrible job at it. As any Ron Paulite will happily tell you, the Federal Reserve prints paper money (which raises a few issues that nobody cares about except people who miss the gold standard). The mint just does coins. Coins have three uses. 1) You can put them in old parking meters, 2) you can give them to street musicians who aren’t good enough to make you break stride to open your wallet, and 3) you can let them pile up for a few years, take them to the bank, and turn them into real money. So the mint missed the boat on that whole paper money thing.

Of course, paper money is getting less useful by the year. Most of us only use cash to pay for things that are either very small or very illegal. Generally, anything over a few dollars goes on a card. Most of our purchases are done electronically. Even checks are generally converted to some digital form—because it’s a hassle flying millions of tiny pieces of paper all over the country to make sure they clear in time. And if your card is lost or stolen, you’re in a much better spot than if you lose a wallet full of cash.

Of course, there’s a problem. Many, many people get in serious financial trouble because they’re bad at handling credit cards. If you’re good with with finances and are a bit careful, you can come out even or a bit ahead with the credit card company. (Of course, the businesses you’re patronizing are paying a hefty portion of their sales to subsidize this). And, for the most part, we’re willing to accept that the convenience of plastic money outweighs the significant societal cost.

Except, we don’t have to have a significant societal cost. Why can’t we have government backed, electronic currency? The infrastructure is mostly there. At least in Michigan, food stamps are currently done in some sort of card form. Would it be terribly difficult to open the system to everybody, particularly if merchants would not have to pay the credit card fees?

No, it wouldn’t be terribly difficult. At least one company (Revolution Money) already built all the technology to do this without resorting to the expense of traditional payment supply chains.

"A white Louisiana justice of the peace said he refused to issue a marriage license to an interracial..."

Fri, 16 Oct 2009 15:00:31 -0400

“

A white Louisiana justice of the peace said he refused to issue a marriage license to an interracial couple out of concern for any children the couple might have. Keith Bardwell, justice of the peace in Tangipahoa Parish, says it is his experience that most interracial marriages do not last long.

“I’m not a racist. I just don’t believe in mixing the races that way,” Bardwell told the Associated Press on Thursday. “I have piles and piles of black friends. They come to my home, I marry them, they use my bathroom. I treat them just like everyone else.”

”

- Interracial couple denied marriage license in La.

Tell me again how we’re in a post-racial America. Also, tell me again that having shrieking maniacs egging on the worst parts of our national pathos isn’t making things worse.

"Despite concerted government-led and lender-supported efforts to prevent foreclosures, the number of..."

Fri, 16 Oct 2009 05:31:01 -0400

“Despite concerted government-led and lender-supported efforts to prevent foreclosures, the number of filings hit a record high in the third quarter, according to a report issued Thursday. “They were the worst three months of all time,” said Rick Sharga, spokesman for RealtyTrac, an online marketer of foreclosed homes. During that time, 937,840 homes received a foreclosure letter — whether a default notice, auction notice or bank repossession, the RealtyTrac report said. That means one in every 136 U.S. homes were in foreclosure, which is a 5% increase from the second quarter and a 23% jump over the third quarter of 2008.”

- Foreclosures hit record in third quarter 2009 - Oct. 15, 2009

How ‘bout them green shoots?

Seriously, what would this number be if the government wasn’t spending trillions of dollars trying to prevent foreclosures?