(no subject)

[vicarz]

Let's do some big-people talk here.

A decent conversation from Cramer though he whines at the end for being mocked for being wrong about some of his predictions. Um, dood, your entire income is based on your accuracy and arrogance in predictions - if you fail, you can hardly complain about having that failure shoved back at your when your schtick is selling your predictive abilities. He says that the intervention will stave off a bank crisis, as all investment is related to the banking industry - and the mortgage crisis had the potential to topple that as their base is made up of residential mortgages.

Fannie/Freddie have mission statements of "making mortgages cheaper." Well, there is an argument that they have failed in that mission - not that they failed to make mortgages available, or even create a stable financial market (which is the issue now, but not their mission), but by making the mortgages so cheap that everyone could get one they made the actual mortgage amounts more expensive. In basic economic theory, when prices go down there is higher demand for those low-priced mortgages, and Fannie/Freddie made supply more abundant. The number of homes was relatively constant (inelastic demand) so the price of those homes went up. So while mortgages were cheaper to get PER AMOUNT, they became far more expensive overall because the price of housing skyrocketed. Fannie/Freddie failed at their stated mission through too much success at a sub-goal. Cheaper mortgages != cheaper housing.

Ran into some really neat arguments this weekend about whether mortgages should be tax-deductible or not. My interpretation and take-aways:
Yes - ingrained in our culture; a built-in investment/retirement plan; stable communities tend to have less crime, encourage participation in the community (a big deal with democracy), and foster investment as housing and people are secure investments (similar to issues of well defined property rights inspiring greater capital investment and long-term growth)
No - penalizes renters making it harder to cross socio-economic classes until you enter the realm of home ownership, reduces freedom of movement that is so heavily relied upon in economic theory (less abuse of workers if people in Detroit can just up and move to Chicago), culture not that related to stability of the community, artificially inflates cost of renting vs. owning, home ownership makes you essentially an indentured servant with ill-defined master,

Around there I lose track - I don't claim to be an expert. I think this intervention is probably more a good idea in the short term to ensure (or assure, but not insure you grammar word-usage bastards) some level of economic stability in the markets in general. I am not so convinced that government intervention of this form is a good idea in the long-term. Rather, this problem was exasperated through government intervention already (with I will say the most admirable of intentions) and this intervention will put burden back on the taxpayers. Because the mortgage-bond holders seem to be majority in China, with whom we also have a trade deficit, the taxpayer is essentially insuring China's investments; or, the US is further taxing the taxpayers to solidify China's investment in US debt which is partially being used to purchase Chinese products. Further, this intervention in the market already has increased the cost of the housing it was supposed to lower - so overall this only continues to make housing less accessible to the public.

Questions I have are: what has happened to the per capita % of home ownership since Freddie/Fannie? Has there been an income bracket shift in ownership? What effects would come from moving away from government intervention in the mortgage business (many times deregulation has led to disaster - such as the related S&L crisis)? What effects might come from a slow change of not allowing for the deduction of mortgage interest?

Comments

[vicar.livejournal.com]

I tend to agree. I rather like the idea of that cheaper housing - I'd be ska-rewed, but I think it's a government-conspiracist's nightmare today because everyone is a slave. How do you get unpoor when it takes two incomes just to maintain basic household rent? I mean if you wanted to plot subservience, high priced housing, then expensive transportation which gets longer with lower cost (urban vs. rural, metro vs. bus) ... You wind up with people working all the time to pay rent and the less they have to pay for rent, the more additional time they spend commuting to the worksite. The poorer you are, the less energy you have for anything but survival BUT you can survive, just barely, so you don't rise up in revolution.

Maybe...

Japan is a good comparison. I still think it would be better for everyone if we had reasonably priced housing. I had no problem with the prior model that a fair price for housing would be 2-3 years of your full salary. That made mortgages reasonable at 30 year mark, and of course it made rent a similar price to that 30 year mortgage based on that price.

[samaritan1975.livejournal.com]

Oh, I'd love that. What prompted the explosion was that everybody and their mother qualified for a loan (this wasn't just the sub-prime issue; it's sad that they both hit around the same time). Then came the 10/1 ARMS, and there was a decade or so of rejoicing (other economic downturns notwithstanding), and more buyers than available property, and the belief that things would only get better. Then... crash of housing value, leaving those still paying with a house worth a large chuck less than what they paid.

The nastiness here is that the those who make less don't really benefit from the lowered rates because of the hard-nosed credit standards (partly based on income).

If I knew more about other markets, I might take a crack trying to come up with scenarios to help the situation just for shits and giggles.

[vicar.livejournal.com]

See I've always had problems with these things - I loathe living paycheck to paycheck. I used to make $12 / hr, and I saved up over 10k living with roommates, driving a crap car, and eating beans and rice. I've always lived beneath my means and think that anyone who doesn't is being irresponsible. I've heard too many stories about "Everything was fine before the
car crash
sickness / cancer
lost job
kid / divorce
family crisis

I mean...one of those things happens to everyone at least once every ten years - what's the surprise? So it's irresponsible to live paycheck to paycheck, irresponsible to pay for a house without putting down 20% on equity...now when the house falls 30-40% I see a major problem sure...

Interesting point about the lower credit folks - BUT if they start with high interest and make the payemnts, then they'll be elligible for a good rate if they refinance with their improved credit.