Weekend Topic Suggestions
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The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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Name:Ben Jones
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How much higher will thirty-year Treasury yields go up from here in the near future?
And btw, in the absence of extreme intervention, long-term Treasury yields are roughly about 99% correlated with 30-year mortgages. (I’ve run the numbers…)
30-yr T-bond yields
5/01/13 2.83
5/23/13 3.20
+ 37 bps increase over 22 days
It doesn’t look like a big deal until you run the numbers on how much somebody who bought a 30-year T-bond on 5/01/2013 had already lost by yesterday.
Answer: 7.1% and growing
Have you run the numbers to show the spread between the long term treasuries and 30-year mortgages?
Which long term treasury did you use? Did the 30 year mortgages have a higher correlation to the 10 year treasury or the 30 year treasury?
It would be interesting to see if there’s a difference in correlation to the 10yr or 30yr treasury. Even though many mortgages are amortized on a 30 year schedule, it’s rare that a mortgage will run its full term without being paid off due to a sale of the property or a refinance of the loan.
“Have you run the numbers to show the spread between the long term treasuries and 30-year mortgages?”
It’s been several years since I looked at this, and I looked at linear correlation, not spread. My recollection is that the correlation was as close to perfect as for any pair of time series I ever compared (i.e. high 90s), but this was years before the QE3 era.
“Which long term treasury did you use? Did the 30 year mortgages have a higher correlation to the 10 year treasury or the 30 year treasury?”
My recollection is foggy, but I don’t believe it would matter much. I’d guess that in the absence of market-distorting intervention, the 30-year mortgage would correlate more closely with the 10-year T-bond than the 30-year T-bond, as the durations are more similar (i.e. almost nobody hangs on to a 30-year mortgage for 30 years these days).
If you are interested, I might be able to throw in some stats to back up this discussion over the weekend. (I find it interesting.
)
Have you run the same correlations between the 30-year treasuries rates and the home price/income ratio?
“Have you run the same correlations between the 30-year treasuries rates and the home price/income ratio?”
No. But it is pretty clear there is a strong inverse relationship there, given the strong positive relationship between Treasurys and mortgage rates.
FNMA is up 892% and FMCC 822% over the last three months. Why now?
It’s pretty clear that the discussion has gone from how soon they would be shut down to “Gee look mom, these companies sure are profitable!”
Of _course_ they’re profitable, considering that they pay nothing for the government-backed insurance that they sell to others, and have an unlimited ZIRP credit-line to draw upon if losses ever come down the pipeline.
That’s like a license to
printsteal.Is it all over for global stock market investors if the QE3 punch bowl gets taken away?
Global shares steady but stimulus fears still present
By Richard Hubbard
LONDON | Fri May 24, 2013 6:58am EDT
Analysis & Opinion
Counterparties: Meaningless plunge
The many interpretations of Ben Bernanke
A visitor looks at his mobile phone in front of monitors displaying market indices at the Tokyo Stock Exchange in Tokyo July 13, 2012. REUTERS-Toru Hanai
Employees of the Tokyo Stock Exchange (TSE) work at the bourse in Tokyo May 20, 2013.
REUTERS-Toru Hanai
Traders work at their screens in front of the DAX board at the Frankfurt stock exchange May 7, 2013.
REUTERS-Remote-Lizza David
(Reuters) - World share markets looked vulnerable to further falls on Friday, with better economic news from Europe doing little to encourage investors who are worried that central bank stimulus may curtailed.
MSCI’s world equity index, which shed 1.4 percent for its second biggest daily loss of the year on Thursday, was virtually unchanged, with losses in Europe cancelling out a rise of nearly one percent in Japan’s turbulent Nikkei.
Activity in markets was also limited by the approach of a long weekend in Britain and the United States, with few investors willing to build fresh positions.
“I think people want to cash in, particularly in May of all months,” Alastair Winter, chief economist at Daniel Stewart.
Fears that Fed chairman Ben Bernanke was preparing the ground for an early tapering back of its $85 billion a month bond purchases sparked a sharp rise in volatility across the world’s financial markets on Thursday.
Equity markets have hit multi-year highs on the back of the inflows from the Fed and other central banks and investors have become increasingly sensitive to any signs the liquidity surge could slow.
Thursday’s sell-off was concentrated in Japan’s stock market which suffered its biggest one-day percentage drop in two years, but also rattled European and U.S. markets and sent the yen to near two-week highs against the dollar.
Japanese shares have gained nearly 70 percent in the last six months on the back of Japanese Prime Minister Shinzo Abe’s prescription of aggressive monetary and fiscal stimulus.
“The fact the market has had such a huge run over a relatively short period has left it incredibly vulnerable,” said Shane Oliver, strategist at AMP Capital.
…
Central bank stock bubble reflation plan:
1) Relate a bubble.
2) When it springs a leak and starts loudly hissing, patch it up and reflate some more.
3) IGNORE THE MAN BEHIND THE CURTAIN!
Did “the world” really shake off the Nikkei’s plunge, or was it just central bank intervention behind the curtain that did it?
MARKETS
Updated May 23, 2013, 7:03 p.m. ET
World Shakes Off Nikkei’s 7.3% Plunge
By JONATHAN CHENG
Shortly after the Nikkei Stock Average suffered one of its worst single-day declines in decades, a 7.3% drop, Japan’s economy minister moved quickly to soothe market fears.
Akira Amari said Japanese stocks in recent months had risen “faster than expected.” Weak Chinese manufacturing data in the morning had prompted sellers to “take profits all at the same time,” he said.
Muted stock declines in Europe and the U.S. show that investors around the globe for now are inclined to agree with Mr. Amari, wagering that Thursday’s selloff in Japan is an isolated case of market blues rather than a cause for broader concern.
Many investors continue to argue that global stocks are likely to continue rising, bolstered by improving economic growth, reasonable valuations and hefty support for financial markets from central banks like the Federal Reserve and the Bank of Japan.
But even some bulls warn that uneven economic data, the sharp rise in U.S. and Japanese stocks and increased interest by short-term investors including hedge funds could pave the way for more-volatile trading.
Japanese stocks are up more than 60% since late November, when Shinzo Abe, now Japan’s prime minister, hinted that his administration would sharply increase the money supply in a bid to restart a sputtering economy. The actual bond-buying program didn’t start until last month, however, and skeptics stress it is too early to declare victory.
“It’s far from certain that these policies are going to work,” says Larry Kantor, head of research for Barclays PLC. “It’s not like people have seen four quarters of strong growth in the Japanese economy so that they’re convinced of the efficacy of these big policy moves.”
…
Is housing really boosting the U.S. economy as advertised?
US new home sales rise 2.3 percent in April while median home prices hit record high
By Associated Press, Published: May 23
WASHINGTON — U.S. sales of new homes rose in April and nearly matched the fastest pace in five years, driving the median price to a record high. The gains suggest the housing recovery is strengthening.
New-home sales increased 2.3 percent in April from March to a seasonally adjusted annual rate of 454,000, the Commerce Department said Thursday. That’s only slightly below January’s pace of 458,000, which was the fastest since July 2008.
Steady job creation and near-record-low mortgage rates are spurring more Americans to buy homes. Sales are still below the 700,000 pace consistent with healthy markets, but they have risen 29 percent over the past year.
The median sales price jumped 8.3 percent in April from March to $271,600. That’s highest on records going back to 1993. The median sales price is not adjusted for inflation.
…
Best 10 markets for flipping homes: With U.S. home prices on the rise, flipping homes is back in vogue. Research firm RealtyTrac ranks the cities where flippers — who buy a home, renovate it and then sell it within six months — can get the most bang for their buck. Half of the areas are in the Sunshine State, which was one of the places hardest hit by the housing crisis.
…
Best 10 markets for flipping homes: With U.S. home prices on the rise, flipping homes is back in vogue. Research firm RealtyTrac ranks the cities where flippers — who buy a home, renovate it and then sell it within six months — can get the most bang for their buck. Half of the areas are in the Sunshine State, which was one of the places hardest hit by the housing crisis.
A couple of blocks away sits a flip attempt. It’s been on the market for oh, two months. And it doesn’t appear to be flying off the resale market. But a price cut has stomped into the picture…
Year Built:1948
Last Sold:Nov 2012 for $60,100
For Sale: $199,999
Have they staged the heck out of this or what?
Better have done something special, because no appraiser is going to sign off on a 300% increase in 6 months time.
Have they staged the heck out of this or what?
I think they did quite a bit of staging and cosmetic improvements to the interior. New kitchen and bathrooms and the like. And, since I live nearby and am a very observant little Slim, I have this to add:
I’ve been over here at the Arizona Slim Ranch for almost nine years. Up until late last year, this place was ABANDONED. To the point where I really thought it would be a tear-down.
There was quite a bit of reno work done, but I’d be interested in knowing if the place was re-wired and re-plumbed and if the electrical, water, and sewer service coming into the house were updated. I’m tempted to pedal over to an open house and ask those questions.
But they’re not having open houses as often as they did a few weeks ago. I can’t IMAGINE why. Methinks the people thought this would be an easy flip, and it’s turning out to be a long slog.
One might think the $60k was some sort of distressed transaction (which can explain a portion of the difference).
However, according to Trulia, there was nothing special about the sale, just an arms length transaction.
“I think they did quite a bit of staging and cosmetic improvements to the interior. New kitchen and bathrooms and the like.”
New kitchen and bathrooms is “cosmetic” improvements? If that’s cosmetic, what do you consider a major improvement?
“However, according to Trulia, there was nothing special about the sale, just an arms length transaction.”
The house I bought was a foreclosure. That sale doesn’t even show up on Zillow/Trulia or any other real estate sites. The last sale that does show up is $90K which was the original price paid for just the land that the previous owners bought many years ago. Just based on Zillow/Trulia you wouldn’t even know a house was built or sold twice on the property (sold once back to the lender and then sold to me from the lender at a hell of a lot more than $90K).
May 24, 2013
See how low inventories are juicing home prices
Weekly graphical look at economic indicators
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It’s Macro 101 — limited supplies plus rising demand equals higher price. And that’s just what is happening in the market for new homes. In April, the median price of a new home jumped 15% to $271,600 — a record high, according to the Commerce Department.
The demand side of the curve includes near-record low mortgage rates and an improving jobs market.
Why are inventories of new homes so low? Because builders aggressively cut back on production after the recession hit. Bob O’Shaughnessy, chief financial officer at PulteGroup, said this week “we’ve under-invested as an industry.”
See story on new home sales.
Text, charts by Steve Goldstein
With recovery right around the corner, it won’t be long now before the Fed takes away the QE3 punch bowl.
Durable Goods Point to Second-Half U.S. Rebound: Economy
By Alex Kowalski - May 24, 2013 1:09 PM PT
An employee works on the exterior of a wind turbine blade in Newton, Iowa. Photographer: Daniel Acker/Bloomberg
Enlarge image Orders for U.S. Durable Goods Rose More Than Forecast in April
Quickening activity in the housing and auto industries may ripple throughout manufacturing, rendering the economy better able to recover from a slowdown this quarter. Photographer: Spencer Platt/Getty Images
Bookings for equipment meant to last at least three years increased 3.3 percent last month after dropping 5.9 percent in March, the Commerce Department said today in Washington. The median forecast from 78 economists surveyed by Bloomberg projected a 1.5 percent increase.
Gains in residential construction, growing demand for autos and the need to update equipment will probably ripple throughout manufacturing, helping the economy recover from a slowdown this quarter. At the same time, government cutbacks and cooling exports are restraining demand, which means the rebound will be slow to develop.
“This report is consistent with the economy continuing to recover, but just at a moderate pace,” said Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida, and the second-best forecaster of capital goods orders over the past two years, according to data compiled by Bloomberg. “We’re not getting much demand from the rest of the world, but we are getting growth domestically.”
Stocks recovered from early losses as investors weighed prospects of improving economic growth against concern Federal Reserve policy makers will reduce record stimulus before the year is out. The Standard & Poor’s 500 Index fell less than 0.1 percent to 1,649.6 at the close in New York. It had been down as much as 0.8 percent.
…
What about a topic on debt/personal finance. Just what people are seeing around them. I read the on-line “chat” that the Washington post personal finance columnist did yesterday and there were some doozies. Think of her as sort of similar to Suzie but more generic because she only gets the info people tell her. And of course, there is the column which is at a very, very basic level. However, the stories people confess to (or tell about others) can be interesting. Here are two (one housing, one student debt):thinking? I kow you’ll keep fighting the good fight and just wanted to let you know you have some allies in your efforts.
Not really a question, but I need a shoulder to cry on. Back in the day, you were told to buy the most house you could possibly afford, to get the best return on your investment. My parents are a prime example of this; the Chevy Chase house they bought for $40,000 in 1970 is now worth something like $1.4 million. My sister’s Conn Ave condo has appreciated from $35,000 to atleast $400,000. Stories like this abound, but that was then, this is now. I’m a “mother hen” realtor who wants my clients to make sound financial decisions, not just make more money in commissions. But I can’t save them from themselves. It’s as if the recession and housing downturn never happened. Not only do twenty-somethings want top of the line everything, they are taking on far more debt than is realistic even with today’s low interest rates. Last week I was at a closing (my clients were the sellers) where, after all the papers were signed, the husband said, “We have $12 in our checking account.” To which I said the first thing that came into jmy head, :How are you going to pay the movers?” To which he replied, “We’ll put it on plastic” and looked pained when someone pointed out you’re supposed to tip in cash. They have three or four younhg children. What are they thinking? I kow you’ll keep fighting the good fight and just wanted to let you know you have some allies in your efforts.
My answer to this one is simple: Realtors don’t control the market, so anything this woman wants to tell clients will be fairly useless. You can’t make money telling people NOT to buy (unfortunately). She should perhaps look into a different career or else become an agent focusing on long-term rentals for government workers who only plan to be in DC for a few years. The last thing she should be doing is focusing on home _sales_.
“My parents are a prime example of this; the Chevy Chase house they bought for $40,000 in 1970 is now worth something like $1.4 million. My sister’s Conn Ave condo has appreciated from $35,000 to atleast $400,000.”
Remember…. this is a realtor talking. But I’m there are even a few deluded people here actually believes there is a house on the planet worth more than a couple hundred thousand dollars. The truth?
There isn’t.
It wouldn’t be hard to find homes in Chevy Chase ($$$) that sold for under 100k in 1980 but now sell for north of 1 MM.
It’s sad but true.
“There isn’t.”
To you, perhaps not. To the vast majority of the rest of the country, obviously yes. But, the fools, do they listen?
The world goes on around you, people die and are born, fortunes are made and lost while puppies frolic on grassy lawns. And you? You remain a lone voice in the wilderness, watching over all, crying out against our heedless folly, guarding the only Truth that transcends truth in your ceaseless quest for justice — The Housing Analyst! (rides again)
Vast majority? Hardly. To the 50 million or so deluded debtors holding onto rapidly depreciating houses? Of course. They got ripped off and don’t even know it still……Indeed fortunes are lost. Housing is a massive loss at current inflated asking prices.
3,000 acres of productive farm land might be worth $1M, but a house worth that would be a true mansion (or really special). A mansion is the house of a lord. The magic of a credit mania is that everyone pretends to be a lord. Actual lords and ladies do not spend their lives toiling under an unbearable burden of debt.
The truth is, HA, that your incomplete sentences and fallacious logic lead me to believe you truly should seek professional help. Classic case of envy and denial. Sad.
Poor RealtLiar…… desperately attempting to keep the lie going.
And here is the other one:
Hi Michelle, I am struggling with law school debt and I don’t know how to dig out of this hole. I’ve got about $130k in student loans, with 18k of outstanding interest. I’m on an IBR plan because my original career goal was to work in public interest and use public interest loan forgiveness in ten years. Well, when I graduated in 2009, the market for lawyers was so bad that even public interest jobs weren’t open. I got a corporate job, making $67k, bought a house, had a child, got divorced. So the good news is my student loan interest isn’t capitalizing, but at $800 in interest a month, I’m not even paying all of that off and it keeps accumulating. How do I get out of this? I’m starting to think about looking for a public interest job again, even though I don’t know how I would pay my bills, because in the long run perhaps the loan forgiveness is worth it. Those jobs pay approximately $40k. On the other hand, as long as I control my expenses an get annual raises, perhaps I’ll eventually be able to afford to pay off my loans. Any advice?
Polly-
Is this person in the DC area?
Even with no debt, I think it would be very difficult to live in the metro DC area making $67k, let alone shouldering the responsibility of a child, $130k in student loan debt, and possibly alimony.
No way to tell. I think a lot of the people who read/post on the Washington Post chats are local, but the columnist is nationally syndicated, so people who read her stuff in other papers may follow her to the Post to chat. Wash Po is still free, though you have to register to post, so the entry barrier is very, very low. You just have to find a topic you want to follow and be willing to sign up.
How do I get out of this?
Get yer tubes tied so no more kids ever….?????? That would be a good first step.
Since polly hates my idea of tuning in your degrees for debt forgiveness. She could always be a paralegal without her degrees….and make just as much $$$
Tune in, turn on, drop out? Maybe that explains your posts.
aNYCdj: Since polly hates my idea of tuning in your degrees for debt forgiveness.
Here’s why that model doesn’t really benefit anyone: A market consists of people who are trying to improve their financial position (except the government - but the government is unique because it can print money).
In any market, you have to consider, “How do the people doing the transactions - buyers and sellers - think it’s going to improve their situation?”
Turning in a degree does not provide the university anything of value. It’s not like an asset-backed loan, where you can turn the car or house back to the lender. They then have a valuable asset, and if the loan accurately reflected the value of the asset, they’re out little if any money.
A degree is not an asset like that. It’s just a certification that you’ve jumped through all the hoops required for that degree. The university already made its money. There’s nothing in it for the university that would make the university agree to this scheme. There’s nothing in it for the lender either. What is it they can have and resell? How can any of them make money off of this?
As far as the government goes - a turned-in (renounced) degree doesn’t provide them anything of value either.
Ultimately, a degree is just an acknowledgement, a certification, that you’ve jumped through all the hoops to get it.
If you sit through a day long class, and at the end, get a certificate. You think the class was useless and demand a refund. What benefit would it be to the teacher to give you a refund?
When thinking about any market, you have to think about how ALL the parties expect to benefit from the transaction. And how the parties are benefited is not always obvious, especially when government is involved.
You should tell her about NYDJ’s debt forgiveness “plan”.
Joe…and why not treat a college degree as an asset in BK/forgiveness.
But then employers can fire or not hire you for not having a valid degree to hang on the wall.
It would help those who got some medieval art degree and working at starbucks…..most people will probably not do this, knowing you wont be able to sue for wrongful termination or for discrimination.
Because, aside from a few degrees (and even then it’s because the degrees are a requirement to get a license, e.g. law license or medical license) the real value is in the knowledge and experiences, not the actual degree.
It’s also unenforceable, how are you going to police the fact that people aren’t using their degree? Most good jobs come from networking and being recommended as a result of your present job. What’s going to stop someone from returning their bachelor’s degree and then staying at their current job and eventually trading up?
Your idea is not a serious proposal. The fact you keep pushing it blows my mind.
Because, aside from a few degrees (and even then it’s because the degrees are a requirement to get a license, e.g. law license or medical license) the real value is in the knowledge and experiences, not the actual degree.
Exactly. You don’t need a degree to perform in most professions, just experience.
I could return my Computer Science degree tomorrow and it would make no difference in my career.
Joe Its about the debt…..It would be so wrong just to forgive the debt or wipe it out in BK without some serious penalties.
So get serious most of these people would never use their degree anyway….and in teaching, government jobs you need the degree to get the job or to get advanced training..
How would you enforce it? you would have to turn in your degrees and the college would have to stamp cancel them and provide written proof and copies before any forgiveness or BK can occur..
And employers can ask for proof before hiring and can call the colleges for more proof. Like i said it would mostly apply to people who spent insane money to get stupid degrees…
And only once in a lifetime…. its not as nutty as you think….I mean I paid my loans so maybe i’m biased.
The solution would be to go back to the pre-2005ish BK code which allowed discharge of student debt the same as any other debt. Of course, with the gov’t pushing the student debt bubble, this wouldn’t go over well. College/grad school have become a business here in the US, rather than being about educating the population.
But Joe would that lead to what we have today, people file BK or foreclosure and 2 years later they can buy another house? What penalties are there for being a serial student loan deadbeat?
My thinking is we get back to household formation problem, and people need money for that, eliminating some students loans would really make a difference……think how many people have an English degree working in retail, they will never get a job in their field and never pay off the debt,,,
So,she has 130K in debt and now is unmarrigable….I would never marry her with that debt load and not many other men would either, unless ….here it comes….she was built like dolly parton then men would accept anything.
I could return my Computer Science degree tomorrow and it would make no difference in my career.
I bet it mattered for getting your first professional level job, though. Once you’re in the system and people know you and your work, then yeah…
But NO ONE is answering the question what penalties should there be for student loan BK……I provided 1 answer you didn’t like….or how about No pell grants of fed insured loans for 10 years? If a college or bank wants to loan you money they are on the hook for all of the repayment, not uncle sam…..that could work too.
There don’t have to be any special penalties. If you make the loans dischargeable in bankruptcy, the banks would stop offering them. Then the federally backed loans would be the only ones available and the ability of a person to go into debt $200K for a BA would disappear. The schools would have to figure out a way to make the degrees lots cheaper or accept that only rich kids can afford to go (except for the extremely well funded schools who already support all their less well off students).
Done.
I bet it mattered for getting your first professional level job, though.
Nope. Back in the day I worked with a lot of self taught “software engineers” who didn’t have degrees.
I knew one of those guys at STK back in the late 90s, but I haven’t seen one since.
NYCdj’s return-your-degrees plan makes about as much sense as discharging your medical bills by having the doctor put back the tumor or turn off your blood .
I can just see the contract: “I hereby swear never again to use anything I learned at university upon penalty of law.”
It still wont prevent uncle sam for giving out more and more loans to deadbeats…..
Just like more and more mortgage relief to deadbeat homeowners wont haven’t paid the mortgage in years….
Thats why there need to be some long lasting penalties for filing student loan BK….
My answer to this woman would be:
- Forget the nonprofit thing, maybe you can do that when your child(ren) have graduated school and are not dependent on you.
- Stop paying your student loans, stop paying all debt, consider settling the debts for a lump sum or declaring Ch. 7 BK. She’s still young enough that she can recover from this. And she likely has few assets to lose. We have BK in this country for a reason, she needs a fresh start. As far as the student debt, that can’t be discharged in BK but it can be settled through an agreement or a payoff.
- She has a corporate job paying 65k (or whatever), she needs to leverage that into a better paying job or a move to a less expensive city at a similar salary. There is no reason you can’t live in 65k, just that suburban MD or DC are not the best places. She doesn’t even have to move far, if she moved to White Marsh or Bel Air, MD or somewhere similar she would be fine. It shouldn’t interfere with child custody, either - it’s a 1 hr drive if you’re not doing it during rush hour.
- She needs to write down a list of “stuff that makes me happy” and “experiences/advantages that I want to give to my child”. Figure out how to achieve most (if not all) the things on that list without overspending. IMHO, most of the things that actually make someone happy don’t require a ton of money. What is really required is planning and some diligence, a willingness to identify and make trade-offs between time/money/opportunities/experiences.
Two words………boob job. Or gym membership.
If she plays it right, she can use her medical savings account, and get the boob job done interest free:
-Start the MSA on January 1…..set enough aside for 1/2 the cost of the boob job.
-Have one side done on before December 31
-Do the other side after January 1 of the next year.
-Continue the MSA…..they will pay for the post-January 1 procedure in advance, then she basically has a year to pay with no interest.
With any luck at all, she will have snagged a new hubby/sugar daddy a long time before then.
Of course, a cynic would say that thinking like this is the reason my ex is my ex………
I’m actually surprised that I don’t see more boob jobs. Almost all of the women I know who have them look good (not going to lie) and the ROI is probably tremendous, but they are still rare.
I think we should ban breast reductions except in severe cases where the life of the woman is in danger…. talk about a politically correct high profit moneymaker for the medical industry.
And if you desire rhinoplasty?
“I’m actually surprised that I don’t see more boob jobs. Almost all of the women I know who have them look good (not going to lie) and the ROI is probably tremendous, but they are still rare.”
If done well, you don’t notice a boob job. The ones you notice are the ones that are over the top big or botched.
Polly is there a link to this column? I wonder what advice Michelle gave to this lawyer.
It isn’t from her column. Just the chat. But you can read the whole thing here:
http://live.washingtonpost.com/color-of-money-live-052213.html
this is interesting, read the money and finance subforum.
http://www.dcurbanmom.com/jforum/forums/list.page
Is that Michelle Singletary? I’ve long thought that her advice is a bit too simplistic.
Her advice is horrendously over simplified. Then again, there are a lot of people out there in the world who need simple advice or they won’t be able to understand it. I read her chat for the questions (sometimes amusing, sometimes just a relief that I’m not in that situation), not the answers.
Great weekend topic Polly.
I’ve noticed that more of my neighbours seem willing to discuss their bad financial situations over the last year. It used to be that people wouldn’t admit to this sort of thing. Maybe it’s becoming common place enough that it’s not taboo to discuss? We haven’t really seen a significant downturn in local housing markets in my part of Ontario, so I suspect there are a lot more stories of woe to come.
Suppose Asia went on a debt binge right around the time the Fed started to get serious about taking away the QE3 punch bowl.
Any thoughts on how that movie would play out?
ASIA NEWS
Updated May 24, 2013, 2:51 a.m. ET
Asia Goes on a Debt Binge as Much of World Sobers Up
By ALEX FRANGOS in Kuala Lumpur, Malaysia, and BOB DAVIS in Beijing
A debt-fueled building boom is under way in Kuala Lumpur, Malaysia, above. The country says investing in industry will result in faster economic growth.
In the heart of Kuala Lumpur lies the abandoned foundation of Plaza Rakyat, a never-built skyscraper and shopping mall. Rusty rebar jutting from concrete pilings and fetid green pools of rainwater serve as an unintended monument to the debt crisis that ravaged Asia in the late 1990s.
Today, less than a half mile from the abandoned project, the next boom is under way in the Malaysian metropolis. Construction has begun on a new subway line, and next to one station plans call for a 118-story zigzagging skyscraper that would be the third-tallest building in the world. Cheap credit is fueling the building spree.
“We need to have more iconic buildings,” says Kuala Lumpur’s mayor, Ahmad Phesal Talib. The planned office tower, called Warisan Merdeka, is part of a nationwide wave of development that will add new office buildings, train and subway lines, bridges and factories.
After eschewing credit for years following the 1990s financial crisis, Asia’s economies are once again amassing debt to fuel growth. The trend is a stark counterpoint to the debt reduction taking place in the U.S. and Europe. Some economists are growing concerned that the Asian debt revival could eventually trigger another crisis, or at least hinder growth in some of the world’s fastest-growing economies.
Few predict an imminent crisis in Asia, and sanguine observers note that rapid economic growth can make debt loads more manageable. Unlike in the 1990s, Asia has for the most part refrained from borrowing in foreign currencies, which can bring trouble if local currencies lose value.
Borrowing has increased all across the continent. State-owned companies and local governments in China are taking on more debt, as are motor-scooter buyers in Indonesia, washing-machine purchasers in Thailand and real-estate investors in Singapore and Hong Kong. Malaysia’s government has borrowed to fund the new subway and to pay for cash handouts to citizens.
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This bubble’s got legs.
Yes…so long as QE3 continues, that is.
Whac,
If you’re interested, reddit is doing an iAMA with the hosts of “Let’s Talk Bitcoin” right now. Ask them anything…
Thanks for the “heads up” ahansen, but I missed it.
But to be honest, I don’t think there is much else I need to know about Bitcoin to fully understand how badly it’s tale full of sound and fury will end. The trouble is that copy-cat cybercoinage will prove to be a close substitute, eventually driving the value of Bitcoin to zero unless they can somehow convince their participant base that Bitcoin is different.
Is there any reason to suspect near-term regime change lies in store at the Fed?
May 22, 2013, 12:02 a.m. EDT
Bernanke out by August, QE ends, rates up: Crash
Commentary: Prepare now because easy money will dry up
By Paul B. Farrell, MarketWatch
SAN LUIS OBISPO, Calif. (MarketWatch) — The “Dr. Boom” scenario: America is about to “unleash a spending spree. Years of self-denial give way to pent-up demand,” predicts UBS economist Maury Harris in USA Today’s bold lead story.
His clue? Consumer sentiment: “Harris estimates that in the next five years, catch-up consumption will boost annual consumer spending growth by a half point to above 3% from about 2%.”
Reassuring? No, wishful thinking. Be very skeptical. As Robert Kuttner, author of the new “Debtors’ Prison: The Politics of Austerity Versus Prosperity” once wrote in BusinessWeek, “What do you call an economist with a prediction? Wrong.”
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It almost appears the market is trying to price in a Bernanke exit?
Has the sequester had any measurable effect yet on the economy?
The beat of the sequester furloughs marches on
Justin Sullivan/Getty Images
As a result of sequester, the IRS, HUD, the EPA and Office of Management and Budget become part of the biggest wave of government office closures since 1995.
by Sally Herships
Marketplace Morning Report for Friday, May 24, 2013
If you happen to have a burning question for the IRS, HUD or the EPA, it’ll have to wait until next week. As a result of sequester, some government offices are closed today as part of the largest wave of government closures since the mid-nineties.
Linda Bilmes, a professor of public policy at Harvard’s Kennedy School of Government, thinks the sequester, is, to put it quite simply, “dumb”.
“Because it treats everything the same,” Bilmes says. “It cuts cancer research and air traffic controllers the same as it cuts the window shades at the regional office of the IRS in Cleveland,” she says.
The IRS is closed today. Bilmes says the government is thinking short term and forgetting about long term costs. She notes that if a taxpayer makes a mistake during one of the IRS’s furloughed days, it means more work for the revenue service in the end.
“Over the long term, it will require more government intervention to sort out the tax form and return it to the tax payer, or audit it, than we’re saving in the short term of furlough,” she says.
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Polly
There is something sick about a government that will not allow forgiveness of student debt thru insolvency and yet backstops it’s F&F.
Same here in Canada. I have often wondered why a Letter of Credit could not be provided to backstop student debt, then in the rare instances of default the student could clear thru an informal proposal at a discount.
You can settle your student debt, I often advise people to look into it. I think anyone around my age knows alot [sic] of people who took on student loans and then ended up with an entry level job that can’t pay them. The hard thing is to get people to realize that they’re better off defaulting and settling the debt in most cases instead of running on the debt treadmill for the next 10-20-30 years.
The hard thing is to get people to realize that they’re better off defaulting and settling the debt in most cases instead of running on the debt treadmill for the next 10-20-30 years.
Once people wake up and realize that, the college bubble will be OVER.
The sad thing is, there was a college/grad school bubble 10 yrs ago but rather than address it then, Congress just changed the bankruptcy code to treat one type of unsecured debt (student loans - even from PRIVATE lenders) differently than other types of loans.
Ridiculous.
so you are advocating being a DEADBEAT…..right?
DJ, you make no sense. Changing the BK code to treat student debt *differently* than other debt was ridiculous. It completely ignored the problem (soaring college costs because of readily-available loans) and did a bad job of treating the symptom (jobs not paying enough to justify the college costs).
As in virtually every case where Congress acts to protect a powerful special interest, what you get are distortions to the market.
Telling people to consider their options is not advocating being a deadbeat. It’s telling them, hey this is unsecured debt, you need to look at the terms of your agreement and how the law treats it and then figure out the best way to resolve the issue. Loans are a 2-way street. Bad lending drives up costs for EVERYONE. The solution isn’t to backstop the bad lenders, it’s to give them incentives to watch what they’re doing.
I can’t believe you could live through multiple financial crises and not figure this out.
Joe but did people run up $100K in student debt then file BK before? If so why was there so little news on it back then..
Maybe almost no one thought about doing it….so changing the code didn’t matter to most people until many years later?
No, dj, they didn’t. Because no one would lend them $100K. You know why they couldn’t get anyone to lend them $100K? Because it could be discharged in bankruptcy. You are dealing with a chicken and egg problem. You think people were more virtuous in the past because their loans were smaller. Wrong. They had smaller loans because no one would lend them much. And the reason they couldn’t borrow the money was because the lender didn’t want to risk it getting discharged in a bankruptcy.
Patrick,
I’m know you are from Canada, so you may not be aware of the complexity of the US student loan system. I’m afraid I am far enough out of it (my employer paid for the first half of my third degree, and paid for the rest of it with cash), that I am not an expert myself. My recollection is that most student loans include a small life insurance premium so that they are discharged on your death rather than getting first dibs on your estate.
Joe is really better equipped to explain. Also, my “federally” backed student loans were actually backed by my father’s employer. It was an employee benefit which resulted in microscopically smaller fees and slightly better processing times. So in a funny way, I never dealt with the real federally backed system. When I think back on it, I must have had some private loans for law school, but I don’t think it was all that much. The federal money covered a lot of it, and I earned in the vicinity of $17K during the summers after my first and second years.
Polly
I paid for my children’s university and professional accreditation costs and I only borrowed $117 once from Avco to pay off one of my credits. That was all I had to borrow for my degrees so I have little experience as well.
In Canada I think that once you borrow student loans you cannot discharge them thru bankruptcy - that they survive it. That is what I thought happens in the USA as well.
BTW, you blew me away on how much you made during the summer. I never made anything like that - but then I am realllllly old!
The high cost of university is made worse by housing costs. I know of two situations where housing costs are about $3,500 a month (five students) and they have to pay it for 12 months. I think the house in each case would normally only be $1,200 / month.
We were getting paid just a little less on a weekly basis than the first year associates. One of the ways the law firms “supported” the schools that provided them with billable hours robots was by paying us absurd summer salaries. They could have just given the money to the schools, but that doesn’t benefit them that much. Paying kids who had just finished second year more money than they were worth and getting them to sign on to be indentured servants once they graduated benefited the law firms (they got to claim the pieces of brain they wanted to use a year ahead of time) and benefited the schools (we paid all that salary to the school as tuition a few weeks after the summer was over).
Now, my first year summer was absurd. That was just luck. Very lucrative luck, but luck. Nobody is worth that sort of money after only one year of school.
Is QE3 the Darth Vader of monetary policy?
How’d it go from $85 bn to $89 bn?
What ‘Star Wars’ has to do with QE
MJ Kim/Getty Images
Star Wars character Darth Vader.
by David Weinberg
Marketplace for Friday, May 24, 2013
Is the end of quantitative easing near?
This week Ben Bernanke testified before the Joint Economic Committee in Washington. And you can’t talk to Bernanke these days without asking him about quantitative easing. Or to put it in English, the Fed’s strategy of purchasing assets from commercial banks to keep cash flowing into the economy.
QE is controversial. It’s even been called a “Jedi mind trick.” This weekend being the 30th anniversary of “Return of the Jedi,” we thought we’d look at that analogy.
After Luke Skywalker found out that Darth Vader is his father, he accused Obi-Wan Kenobi of lying to him. Obi-Wan said it wasn’t a lie from… a certain point of view.
“A certain point of view?” Luke asks.
“You’re going to find that many of the truths we cling to depend greatly on our own point of view,” Obi-Wan replies.
So is quantitative easing the Darth Vader of economic policy? Well, it depends on your point of view. You might say that QE has spurred lending, created jobs and has kept inflation below 2 percent. More like a young Anakin Skywlaker before he turned to the dark side.
“He was the best star pilot in the galaxy,” Obi-Wan says of Anakin.
Or, like many of its critics, you might say it’s only a matter of time before QE causes inflation, it’s creating artificial price bubbles, and it hasn’t had any noticeable impact on unemployment.
As Darth Vader says, “Give yourself to the dark side.”
Bernake says he has no plans of ending the Fed’s $89 billion a month spending on Treasuries and mortgage-backed securities.
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