WaPo: Three Part Series on the U.S. Housing Bust
Submitted by
CalculatedRisk on Sun, 06/15/2008 - 5:49am (112 comments)
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Is everyone still sleeping?
Firefox didn't like your link "available here". Couldna find.
Explorer doesn't like it either.
Link fixed.
Good morning all!
Good morning, teacher!
Perhaps I'm odd, but it gives me great pleasure to see a link to The Compleat UberNerd on the WaPo site directly under a link to some guys from the Fed.
Come on now, give me a big "Amen"
I find it odd that a professional journalist would make an attempt to learn something about a subject before writing about it.a nice change,but odd.
All articles about the present credit meltdown seem to point to subprime loans or low interest rates or a combination of the two as the instigator to the present problem. I can not help but wonder if maybe that is too easy and convenient an explanation. Might it not be that a fractional reserve banking system based on fiat currency which can be printed without limits is the real culprit? I think the only real long term solution to credit, (debt), problems is the elimination of the Federal Reserve, and a return to precious metal based money.
There was something very new about this particular housing boom. Much of it was driven by loans made to a new category of borrowers -- those with little savings, modest income or checkered credit histories. Such people did not qualify for the best interest rates; the riskiest of these borrowers were known as "subprime." With interest rates falling nationwide, most subprime loans gave borrowers a low "teaser" rate for the first two or three years, with the monthly payments ballooning after that.
It goes on to talk about immigrants... So far, it sounds like more of the "Just a subprime problem," meme, but maybe the next parts will get into the looming Alt-A and prime problems. If they're using Tanta as a resource there's hope.
Sarah,it is important to be able to blame "THEM".After all "THEY" are a threat to our Heimat.I mean Homeland.Dang,that rudy hess could coin a word!Don't worry Da Gubmint will save us and all will be well.
12th Percentile, if you read the Fed paper (at the WaPo link), search for "Calculated Risk" - Tanta gets a mention in that paper too!
Best Wishes.
There was something very new about this particular housing boom.
Where were these guys in 2005? Just sayi
If the guy was jailed for being in the illegal substances business, I suppose they had PLENTY of money to pay their mortgage bill.
The only documents I ever had sent to a jail were title clearance documents.
The thing was, while they were originating these incredibly stupid
products, they were still torturing the borrowers. No matter how low doc or no doc it was, just before the closing they'd want many more pieces of paper. It didn't matter if you were rich or poor, good or just barely acceptable credit, it was like a rite of passage. They had to torture you before they made the loan. It was like the powers that be just had to perform meaningless, robot like functions before they could hand the money out.
This is the way it always works with the media, take something that happened in the past and waste a bunch of fish wrap covering it old history and not have a clue about what is going on TODAY. The fraud is still raging but somehow they miss that story completely. As soon as I read the first paragraph and saw 2005 it had an feeling of stories AFTER the dot.con bust. Nice review but a waste of time.
The article presented Greenspan like an innocent grandpa like figure, who was surprised to find out that his grandsons were gambling. That, I believe, is a piece of crap. The asshole surely knew what is happening right before he made his speech promoting ARM.
Tanta/CR
I think it is great to be listed as a resource below two fed economists and above a fed governor.
Congrats for the well deserved recognition.
Calculated Risk deserves to be on top of the Fed people. Oh, well, you are the meat in the sandwich!!
I wouldn't rush to congratulate the Post. Though it's nice to see an analysis, it's far too little, way too late. The WP, and other media, failed to examine and expose the bubble when it could have done some good. While the industry was running wild, the press chose to behave like a lapdog, not a watchdog.
The first words in any "lookback" series the press does ought to begin with an apology--this was a great failure of journalism (maybe one of the greatest) which hurt readers and ultimately backfired on the media itself when the bubble popped.
But of course we won't see a WP analysis about the press's significant role in inflating the bubble and obscuring its risks.
For example, in 2006, while The Blogs (copyright Tanta) were telling it like it was, WP was still busy pumping the market with blowout special sections like this:
Housing Outlook 2006 (washingtonpost.com)
Program: (100%-SISAFJ) Stated income, stated assets, fake job. 100% (80/20 combo)
From Questionaire:
Citizen? yes
Permanant resident? no
Truth: Illegal immigrant.
Why: no paperwork needed by saying "yes" to citizen.
The list goes on and on of all the "crazy" shit that was (is still being) done.
Full doc is no match for "cut and paste".
These kind of things will never be covered by Tanta due to her love for Countrywide....
From Portfolio.com. Two U.S. senators, two former Cabinet members, and a former ambassador to the United Nations received loans from Countrywide Financial through a little-known program that waived points, lender fees, and company borrowing rules for prominent people.
Senators Christopher Dodd, chairman of the Banking Committee, and Kent Conrad, chairman of the Budget Committee and a member of the Finance Committee, refinanced properties through Countrywides V.I.P. program in 2003 and 2004, according to company documents and emails and a former employee familiar with the loans.
Other participants in the V.I.P. program included former Secretary of Housing and Urban Development Alphonso Jackson, former Secretary of Health and Human Services Donna Shalala, and former U.N. ambassador and assistant Secretary of State Richard Holbrooke.
James Johnson, who had been advising presidential candidate Barack Obama on the selection of a running mate, resigned from the Obama campaign Wednesday after the Wall Street Journal reported that he received Countrywide loans at below-market rates.
Most of the officials belonged to a group of V.I.P. loan recipients known in company documents and emails as F.O.A.s-Friends of Angelo, a reference to Countrywide chief executive Angelo Mozilo.
The V.I.P. loans to public officials in a position to advance Countrywides interests raise legal and ethical questions. Countrywides ethics code bars directors, officers and employees from improperly influencing the decisions of government employees or contractors by offering or promising to give money, gifts, loans, rewards, favors, or anything else of value.
Great story, and just like Fleckenstein's book in which he lays everything at the feet of Greenspan for easy money, this article completely ignores the tax law changes in 1997 that changed the rules for the exclusion of capital gains on sale of real estate.
pre-1997: one-time exclusion for over-55.
post-1997: exclude from gain 250k for single, 500k for MFJ.
these "encouragements to flipping," as I call them, laid dormant and hardly noticed while the stock market was in the middle of its frenzy.
stock bubble popped; hey, look over here, real estate.
no lookback can be considered valid unless these tax law changes get at least an honorable mention.
Well at least the Washington Post did print this one in 2005:
More than a third of the mortgages written in the Washington area this year are a risky new kind of loan that lets borrowers pay back only the interest, delaying for years repayment of any loan principal. Economists warn that the new loans are essentially a gamble that home prices will continue to rise at a brisk pace, allowing the borrower to either sell the home at a profit or refinance before the principal payments come due.
The loans are attractive because their initial monthly payments are tantalizingly low -- about $1,367 a month for a $320,000 mortgage, compared with about $1,842 a month for a traditional 30-year, fixed-rate loan. If home prices fall, though, borrowers could lose big.
"It's a game of musical chairs," said Allen J. Fishbein, director of housing and credit policy at the Consumer Federation of America. "Somebody is going to have the chair pulled out from under them when they find prices have leveled out and they try to sell, only to find they can't sell for what they paid for it."
Many Buyers Opt for Risky Mortgages - washingtonpost.com
I guess, depending on your business, a stint in jail really would qualify as a business trip.
All these 5-years-too-late know-it-all articles really piss me off. And the blame is focused on the symtoms which pisses me off even more.
This bust was strictly about greed (like that's something new), excess leverage, stupidity and most of all - a complete failure by the regulators.
OT - From Iowa floods... a little irony:
Parade of Homes...
Mozzilo, even "the Blessed One" (uncle Huss), was involved in a shady real estate deal. Can you believe that?
Dryfly: Fourth of July parades feature floats, so the sign is still correct!
I reads that article and came away with the impression that Osama bin Laden was the cause of the bubble, rather than Wall Street greed and Fed incompetence. It was a complete disappointment other than seeing Calculated Risk in the credits.
Well as the Mikado says "Let the punishment fit the crime." I hope the US is getting the punishment it deserves for its housing crimes. Yet to be punished of course: its war crimes, but that's another story, as they say.
Of course Osama is the cause of all of our miseries. He probably even managed to get Bush elected President twice. LOL.
dryfly
It will be advertised as water front property.
Loose lending, leverage and taxes. The evil triad.
"I was truly amazed that we were able to place these loans," Connelly said.
Getting paid upfront to light the fuse and pass the bomb. worse in my opinion is/was the ability to launder MBS into things that weren't called MBS anymore. Money Market deposit rates that were supported by short term commercial lending which turned out in my case to be Fidelity just infinitely rolling over a "commercial" line to that bastion of American manufacturing; Countrywide.
Let's be real clear. The housing bubble was just the expression of credit speculation and oppressive/regressive/counterproductive tax policies. The current commodities bubble is just the next place people are going seeking shelter from ruinous financial and political machinations.
And don't think it is going to stop. You can take your cash and deposit it in a savings account at Bank of America and get 1.5% interest that is taxed as regular income or you can buy BAC stock yielding 8.8% taxed at the 15% cap gains rate.
Hmm. After reading here for a few months, that article feels like the People Magazine version. Where are the charts? Where's the description of how an Option ARM loan works? Where are the spread sheets showing the loans going bad even before resets?
This was more of a "here's a bunch of anecdotes; wasn't all so weird?" kind of story.
Actually, I thought This American Life did a much better job of that kind of story.
Starbucks, yeah, they all published a warning story (or two) - but if you add up all the media noise (incuding in the WP) it was constant bullhorn for the RE bubble, occasional peep of warning.
If they had done a special blowout section(or expose series) on this kind of lending, I'd eat my bitter words. The could have spun off a whole section on that couple's anecdote that they wanted to buy, but in order to get a house they would have had to take out a risky loan.
One could argue that this article actually pushed the point that you have to take a risk to get the house you want. And it also mentions that, hey, the market is going up, after all.
You could have taken that couple's anecdote as a launch point to fill the newspaper with stories that explored price/income ratios, helocs, ARMs, Shoddy lending standards, Inflated appraisals, mortgage brokers pushing buyers into bad loans, stated income, lax bank regulation, speculating on loans, all the things the blogs were talking about back then. That's what should have been in the WP's "housing outlook" section.
re-1997: one-time exclusion for over-55.
post-1997: exclude from gain 250k for single, 500k for MFJ.
This tax change was even more perverse than it seems at first blush... true short term flippers didn't benefit because you had to live in the place for two years to claim the benefit (those two years could be spread over a five year period but you still needed to actual reside in the place a minimum of two years)...
What this did is encourage average folks to behave like flippers & engage in highly levered and risky practices (like Option ARMs & such)... amateurs playing a dangerous game even for professionals. And encouraged by the tax code.
Might as well give John & Jane Doe favorable tax treatment to go gamble at the casino.
No surprise it blew up on them & all of society.
"I hope the US is getting the punishment it deserves for its housing crimes."
This is by no means just a US problem. Housing is even more out of whack with income in Spain, UK, Australia and a few other places than in the US. And the bank with the biggest write-offs so far is that paragon of Swiss prudence, UBS.
Vader writes:
dryfly
It will be advertised as water front property.
Vader | 06.15.08 - 12:23 pm | #
LOL. I'll have to tell some of my buds down in Iowa that - make 'em feel better. They always said they wished they had lakes like Minnesota - now they do!
What this did is encourage average folks to behave like flippers & engage in highly levered and risky practices (like Option ARMs & such)... amateurs playing a dangerous game even for professionals. And encouraged by the tax code.
thank you.
dryfly
I thought the exclusion pre-97 required you to buy another house of equal or greater value. So you were taxed if you cashed out.
If the tax code is going to treat houses as investments rather than "homes", then you should be able to write off losses too, no?
Alo:
That's what should have been in the WP's "housing outlook" section.
I don't disagree with you.
I'm still reading, but my favorite part so far is this:
Seen in the best possible light, the housing bubble that began inflating in the mid-1990s was "a great national experiment," as one prominent economist put it -- a way to harness the inventiveness of the capitalist system to give low-income families, minorities and immigrants a chance to own their homes.
If it was really "a great national experiment," I guess the experiment failed. Like the Hindenberg.
The Washington Post is just a wee bit late to the prom. We've already crowned the Prom Queen (Tanta).
Best for the Post is that in 118 months they can rerun the story just find and replace "residential" with "commercial."
If the tax code is going to treat houses as investments rather than "homes", then you should be able to write off losses too, no?
Bugsy | 06.15.08 - 12:41 pm | #
What about the interest deduction they took all those years? Maybe only write off for losses IN EXCESS of NPV of the interest deduction they had claimed? Eh?
Bugsy - I think there should be lotsa reforms applied to cap gains of all sorts under the general concept of 'tax code harmonization' - treating all income sources (wages, interest & rents, cap gains, dividends) similarly from a tax perspective. The tax code should be neutral as to the source of the 'gain' and consistent across all assets as to what can and can not be written off, deducted or depreciated. Tends to discourage shenanigans.
But encouraging Ma & Pa Kettle to gamble with their home - the place they live - was folly on a huge scale. Bigger than some of the other dumb & unproductive things congress has done. Add one more dumb one under the list 'Unintended Consequences'.
Rob Dawg writes:
Best for the Post is that in 118 months they can rerun the story just find and replace "residential" with "commercial."
Rob Dawg | Homepage | 06.15.08 - 12:51 pm | #
Rob Dawg writes:
'scource that is eighteen (18) months... sorry.
Rob Dawg | Homepage | 06.15.08 - 12:52 pm | #
Synergy!
You can take your cash and deposit it in a savings account at Bank of America and get 1.5% interest that is taxed as regular income or you can buy BAC stock yielding 8.8% taxed at the 15% cap gains rate.
Higher return to compensate for the added risk? Since BofA is to big to fail, I guess that's the risk of buying CW?
dryfly-Agree on tax harmonization. Working for a living shouldn't get hit harder than collecting interest or dividends. Nor am I sure that holding a stock for 12 months is more pro-social than holding it for 11 months.
And I'm getting a little tired of all the "where were they" 1-5 years ago when this was brewing. What part of newspaper is so hard to grasp? They report car crashes, plane crashes, financial crashes,...all of them AFTER they happen.
Rob dawg, nice one - i snicker
John Stark, same to you.
Whassup with the "seen in the best possible light" nonsense. Engaging in flights of apologist fancy is not the way to balance a story.
Sdtfs, it's a lot cheaper to write up reactions to events rather than investigate them, I'll give you that.
But as starbucks pointed out, the media knew what was going on ahead of time, and I think they made a conscious decision to mostly play along. They leveraged, and speculated on, their reputation in the name of a pile of RE ad dollars. Another failed economic experiment.
OT, but interesting. Lehman is having weekend meetings and now AIG's CEO is done.
NEW YORK (Reuters) - The board of American International Group Inc. is meeting on Sunday to accept the possible resignation of Chief Executive Martin Sullivan, The Wall Street Journal reported on its website on Sunday, citing a person familiar with the matter.
The Wall Street Journal story said the resignation was not a "done deal" but was considered "highly likely."
Sdtfs? interest from savings account is not capital gain? do you pay social security tax from that as well?
i mean in my country we have no flat tax but also beforethat we always payed just tax from the interest never ss tax
Alo writes: "the media knew what was going on ahead of time, and I think they made a conscious decision to mostly play along."
Perhaps you give them too much credit.
should be "we have now flat tax"
Laura captures the national sentiment very well here..
Yahoo! Personal Finance: Calculators,Money Advice,Guides,& More
I think people are on target in saying that the news media gets a share of blame for not sounding the alarm sooner.
In my own case, I wrote a "housing bubble" story in early 2005. But then and now, it was easy to find knowledgeable people with all kinds of reasons why the runup in home prices was firmly based on market fundamentals. Not being experts, most of us just passed these kinds of comments along to our readers.
We knew that low interest rates were helping to drive the market. But by the time we realized that lax lending standards, not just loan rates, were fueling an unsustainable speculative boom, the damage was done. We simply did not understand what was going on all around us.
In retrospect we (I) should have. Realtors were telling me they had sold houses to people who were willing to rent them out for less than the monthly mortgage payment. Speculation was fueling the bubble, and this always ends badly.
But like most reporters, even at much larger papers, I am not a specialist. I can't and don't spend all my time digging into one issue. When I write a story about the local housing market, I use the best information I can get in the limited time I have to do the job.
The people who did understand what was going on were benefiting from it, and they were not chatting about it with me. The prevailing wisdom was that easy credit was a good thing--the American Dream of homeownership and all that.
Back in about 2002, when I asked an assistant state attorney general why his boss was willing to make a deal with Household International after widespread predatory lending abuses, he said nobody wanted to do anything that would make it more difficult for lower-income people to borrow money.
Even today, I suspect that a majority of people would still reflexively agree that easy credit is good for the economy, despite all the evidence to the contrary. I do think that more contrary evidence is still on the way, and the psychology may be changing.
I'm with Sdtfs here .....
They are called the main stream media because they are reporting consensus views.
I can see getting worked up about the failures of so called 'risk management' at the investment banks, but newspapers are supposed to provide insightful forecasts regarding inflection points in economic cycles?
I am getting a whiff of resentment that CR and the MSM are not that far apart, and other then the gory details, everyone including the MSM finally gets it.
Another thing I thought article specifically failed to note was how many people moved from speculating in dot.com stock to speculating in real estate. I think in 2006 as many as 40% of purchases were for "second" homes or investment. Easy lending allowed many people to do this who otherwise could not have and these speculators were a key factor in driving demand and and ever higher prices. Naturally, during the bust this amplifies the downside effect.
revro writes:
should be "we have now flat tax"
revro | 06.15.08 - 1:27 pm | #
revro - there are a lot of ways to skin that cat. I'm not locked to a flat tax but I'm also not locked it a gazillion tax brackets, deductions & exclusion of the month, etc. The trouble with election year tax policy discussions is that both sides paint the other as if they were demons & extreme. I get tired of that real fast.
I like some progressivity since rich folks really can pay more than poor on a percentage basis without feeling as much pain.
The problem is the definitions & details...
progressivity
rich
pay more
percentage basis
poor
much pain
I'm open to about any policy suggestions from anyone that would generate more light than heat as long as they are simple, transparent & harmonized across asset classes & income sources. I don't think I'm asking for too much, do you?
Not being experts, most of us just passed these kinds of comments along to our readers
How hard is it to understand that 1 + 1 is not equal to 3? If the price of houses doubles, WHERE is the equivalent production in goods and services to match that money?
How HARD is that to understand?
What, free money just grows on tress and gosh, we couldn't figure that out?
Come on.
God damn. Do you at least have a college degree and take one or two math classes?
Mi, naw. I always come back to this upton sinclair quote:
'It is difficult to get a man to understand something when his salary depends on his not understanding it.'
There's a lot of pressure on news media (especially in uncertain times) to avoid negative business stories. (This is part of the reason media owners have cut back investigative stories). Trouble is when you base your business model on truth telling, (and you start to get a lot of competition from places like The Blogs -(c) Tanta -) this strategy is bound to backfire eventually.
Bugsy, I think that pre-'97 one-time exclusion was wholly free of tax. It was enacted for the WWII generation to use when the family was grown and gone, and time to pick a retirement spot.
It wasn't always used that way, but most undertook to apply it when selling what they estimated to be the most expensive house they expected to own.
There WERE warnings in the mainstream press about the dotcom bubble and the housing bubble too. But while the party is in full swing, nobody wants to listen. I can remember Allan Sloan warning about the dotcoms, and the syndicated personal finance columnist in our own paper repeatedly making fun of people who were firing their brokers because their stock portfolios were up only 20 percent.
Housing bubble? Same thing. Everybody knew somebody who had sold a house and made $100,000, $200,000. Some people who couldn't afford houses were grumbling, but others who couldn't afford houses were qualifying for mortgages anyhow. Those of us who weren't playing the market felt good about the runup in our own home value--a nest egg for retirement, or equity to spend! Good times! Keep dancing!
How hard is it to understand that 1 + 1 is not equal to 3?
Apparently harder than we think. We have huge classes of professions that can't see this point. Politicians, bankers, accountants, economists,...the list is longer than I can type.
John Stark, good comments.
Dry,
Don't you dare simplify the tax code! I don't want to have to learn how to work one of those fryolators.
On the other hand:
Year 2000 - approx 18,000 lobbyists or 35 for each member of Congress.
Year 2006 - approx 35,000 lobbyists or 70 for each member of Congress.
I like my odds.
Apparently harder than we think. We have huge classes of professions that can't see this point. Politicians, bankers, accountants, economists,...the list is longer than I can type.
sdtfs | 06.15.08 - 1:57 pm | #
They are still performing alchemy trying to turn 1+1 into 3... we'll be hearing about it all through the fall. Our heros!
There's a lot of pressure on news media (especially in uncertain times) to avoid negative business stories.
Speaking only for myself: this is simply not true. I've been writing negative business stories since 1973, on smaller newspapers where individual businesses have a lot more clout. Yes, some businesses have complained to my boss, and in EVERY case, the boss told them to scram. Politely.
In around 1974, when I was reporting in El Paso, Texas, I wrote a series of stories about the environmental damage caused by the ASARCO smelter there, one of the largest employers at that time. The board of directors of the Chamber of Commerce came to talk to the managing editor, urging him to show more "balance" and more civic pride. He listened politely and sent them on their way. Then he came out of his office to laugh about it with me, and we went on publishing stories.
Just one of many examples over the past 35 years.
dryfly,
I personally like Malcolm Forbes's old idea for taxes, i.e., i) add income from all sources, ii) move decimal point one integer to the left, iii) write check to IRS.
Much too easy. No work for accountants.
John Stark, appreciate your earlier mea culpa, but the press did not warn early, often or with enough investigative vigor to counter the pro-bubble stories in its very own pages/broadcasts.
Witness Time's 2005 "bubble" cover, and practically every RE section in the nation trumpeting the gold rush into housing. One or 2 warning stories in the biz section do not excuse this.
I like my odds.
lama | 06.15.08 - 1:58 pm | #
LOL - Ya, in a world where it takes fewer and fewer people to build an airplane or grow corn maybe tax shenanigans are the ultimate WPA project.
Personally I think I'd rather have you guys fixing the overlooks & lodges on Skyline Drive, Shenandoah NP as make work. But then maybe not.
Much too easy. No work for accountants.
burnside | 06.15.08 - 2:01 pm | #
Oh no - that one would save accounts... the lama's of the world would have no problem extracting a living just from this part alone: define 'income'.
John Stark, appreciate your earlier mea culpa, but the press did not warn early, often or with enough investigative vigor to counter the pro-bubble stories in its very own pages/broadcasts.
Witness Time's 2005 "bubble" cover, and practically every RE section in the nation trumpeting the gold rush into housing. One or 2 warning stories in the biz section do not excuse this.
I wish I could disagree. I would only observe that the press has no way of making anyone heed an unwelcome message. The warnings were there for those wise enough to heed them. We had front-page stories, and more than one or two, noting the disconnect between housing prices, incomes and rental rates. Don't forget: Some people WERE listening. Not everybody got an ARM, not everybody spent all their home equity. But a lot of people just kept on dancing. That gets back to your Upton Sinclair quote: People don't want to hear about problems with a system that seems to be making them rich.
Oy, I get so tired of this Blanche Dubois "why I never in all my days" and "it never happened to me" excusing from reporters. The press is never going to be able to fix what ails it without a reality check:
".. many of the journalists in the room -- and around the country -- were beginning to agree with the public. "In the newsroom we no longer talk about journalism," said Max King, then editor of the Philadelphia Inquirer. "We are consumed with business pressure and the bottom line," agreed another editor. News was becoming entertainment and entertainment news. Journalists' bonuses were increasingly tied to the company's profit margins, not the quality of their work. Finally, Columbia University professor James Carey offered what many recalled as a summation: "The problem is that you see journalism disappearing inside the larger world of communications. What you yearn to do is recover journalism from that larger world."
The Elements of Journalism: What Newspeople Should Know and the Public Should Expect - Introduction | Project for Excellence in Journalism (PEJ)
Journalists from Upton Sinclair, to George Seldes, to Ben Bagdikian have expounded on this problem incessantly.
Also John, open your own local newspaper (or online newspaper section tabs)- why do you think there are fluff sections like automotive, fashion, and, of course, Real Estate?
Whole parts of your paper have been delivered over to the ad dept. It's so tragic that many journalists still can't understand that as they've come for these sections, they will come for you.
John Start, I don't buy your excuses. At all. You were and are part of the problem, stop denying it.
You claim to be a business journalist but you don't know the first thing about economics. Study a little before you "educate" your readers with your articles. Here's a start: low interest rate create distortions in the market.
I have a scoop for you, Mr. Business Writer. Interest rates are still artificially low. This is sowing the seeds for the next bubble. This bubble will pop. If you have any journalistic integrity, you'll be investigating NOW, and not making excuses later. While you're at it, take a look at the non-borrowed reserves report that the Fed puts out. I don't want to hear you say in a few years' time: "Oh, I thought it was kind of odd that in a 10% fractional reserve banking system the banks had negative reserves, but the 'experts' told me not to worry, so I didn't".
Don't forget: Some people WERE listening. Not everybody got an ARM, not everybody spent all their home equity
Exactly. Now its time for me to grab a paint scrapper & go to work on my 'depreciating asset'. Not loading up on that crap makes it much harder to justify a 'walk away'. I guess I'm dumber than I appear in print... if that's possible.
CR wrote: "Tanta receives a nice mention in the resource section."
As someone who has been critical of Tanta I would like to say that she deserves the "hat tip" from the WaPo.
Her recent posts have been excellent both in terms of content and tone. She has reduced or eliminated the ad hominem attacks on individual (especially female) journalists and re-engaged her inner editor.
Congrats and keep up the good work.
dryfly,
That was awhile ago, but I think Forbes was pretty aggressive in defining income.
He proposed removing all incentives - depreciation, depletion allowances, the sacred mortgage interest deduction and much more. You will easily imagine the howls of protest.
Had the brass to suggest corporations and trusts must pay like everyone else. I don't hear much about Mr. Forbes these days.
Some people were reading the steady stream of data and largely unbiased info on the blogs, John. The press had absolutely nothing to do with my decision not to buy, and in fact,had I listened to the NYC press, I might have made a very bad decision.
well about taxes
the funny ting in my country is that a reformer joined the right wing party and they later implemented flat tax and then he joined the left party and after he left they make preparations to implement the pension, healthcare and other insurance reform xD but offcourse the populist cant say they make it after that guys plan, even tough they put to parlament exact copies of laws drafted by the opposition which were voted out 6 months ago but now under the left party initiative are passed xD
anyway, in uk you have two tax bracket as long as i know:
22% under 36k libras
40 over 36k libras
so basicaly when you get 37k you have less net income than when you get under 35k.
also not to forget the health insurance. no many old countries in eu a re saying that we have low taxes, while thats not the truth.
taxes are low 19% but we also pay health insurance in form of 14% so its actually a health tax. with pensions and unemployment insurance+disability insurance its 45% of total employee costs so i get 55% of what i cost my company.
i also loose another 9% through indirect taxes as VAT, so basicly i in reality earn cca 45% of my income even tough we have officialy 19% tax.
but if i created my own company and billed my employee for my services i would really have 19% tax + depreciation writeoffs on cars, equipment and other things. well maybe in 10-15 years
revro, it's Byzantine.
We all hate it, I think. I do.
I guess I'm dumber than I appear in print... if that's possible.
dryfly
at least after reading an article about how japanesse are one of the most financialy illiterate people on earth, since most of the population doesnot invest in stocks xD
i am also dumb and proud to be one
hoocoodanode
really they even made jokes about the japanesse, well i would gladly be a target of jokes if i had the average saving the japanesse have (200k$ per family)
since my both pensions fonds are all in bonds and mbs with just minimum in stocks since we dont have an active stock exchange in my country (too few companies, very low volume)
I think all the comments about the media not warning the innocent miss a larger point. Who reads or listens to the media these days? Of those solidly blue collar and no collar workers that I have worked amongst for the last 40 years - less than 5% read newspapers beyond the sports page, and when the TV news is on the news reader with the best tits gets their undivided attention.
They seem a happier bunch for it.
And friends wonder why I refuse O.T. and spend my off time working a strictly cash business. Just use the cash for everything but traceable expenses. I don't think I have spent a dime of my 1040 income on food/gas/vactions/used cars/remodeling/eating out in over 10 years...
Some people were reading the steady stream of data and largely unbiased info on the blogs, John.
But you had to be smart enough to distinguish between blogs! Not all of them are unbiased, it seems to me.
Now you're just picking at nits - here's something more productive:
Bottom-Line Pressures Now Hurting Coverage, Say Journalists: Commentary: A Crisis of Confidence - Pew Research Center for the People & the Press
kidbuck, I think fewer people are looking paying attention to the media (me included) in part because they don't trust it. For good reason.
This article does more to conceal than reveal the developments that led to the current housing crash.
Beat the Press Archive | The American Prospect
This article does more to conceal than reveal the developments that led to the current housing crash.
Beat the Press Archive | The American Prospect
John Start, I don't buy your excuses. At all. You were and are part of the problem, stop denying it.
Rupert, read my post. I'm not denying my share of the blame. I just don't want MORE than my share.
And no, I don't call myself a business reporter. Just a reporter.
How do you suggest I "investigate" low interest rates from my post at the Bellingham (WA) Herald?
from Alo:
Journalists from Upton Sinclair, to George Seldes, to Ben Bagdikian have expounded on this problem incessantly.
Also John, open your own local newspaper (or online newspaper section tabs)- why do you think there are fluff sections like automotive, fashion, and, of course, Real Estate?
Do you really think you or Upton Sinclair are telling me anything I don't already know? Newspaper advertising isn't a "problem." It's how we pay the bills. Nobody denies that. Who's got a different business model?
(A brief aside: I have seen ads for payday lenders and mortgage companies on this and other reputable blogs, put there by Google robots. Does that make the bloggers afraid to offend them?)
And yes, in times past and present, advertisers have affected the newsroom. Is that the norm? No. With all due respect to Columbia Journalism Review, an article in that publication is not going to convince me that my own personal experience is wrong. Who am I gonna believe, them or my lying eyes?
Advertisers don't advertise to support journalism. They advertise because they think it will pay off with increased sales.
Yes, newspapers and television newsrooms are facing new economic pressures today as the advertising base and the reader base decline in tandem. The result is fewer reporters to cover the news. Fewer every year. That puts more pressure on the surviving reporters to find stories that can be written quickly, to fill up the paper or the broadcast. (I think that is what the people in the CJR article are talking about.)
I've spent most of my own career working for Gannett newspapers. Gannett was and is a bottom-line oriented outfit. During those years, I never one time felt pressure to slant or change or eliminate a news story to benefit an advertiser. We DID feel pressure to crank out stories--any stories--because there were so few of us to fill up the paper 365 days a year.
The result of that pressure: a lot of in-depth journalism didn't get done because we didn't have the resources. Readers don't want to hear excuses like that, and I'm glad they don't. We like it even less than they do. If you think it's irritating to read space-filler journalism, try writing it!
I'm not making an excuse, just an explanation. This lack of resources explains probably 95 percent of what people hate about the press. People understandably interpret the third-rate journalism that results as reluctance to offend advertisers. Fact is, we still manage to offend them now and then, and they do complain to publishers and editors, and then they go back to buying advertising if they think it will pay off for their own bottom lines.
Dryfly
I live 20 minutes from skyline drive. Honestly the drive itself is doing well(in my little opinion) but Oh lord the bridge over the shenandoah to front royal is getting bad. third world bad. Im waiting for something bad to happen.
And now with revenues declining? Ha, they couldnt fix it in biggest revenue runup in a generation somehow i dont think it is going to get fixed on the downslope.
Forget mobility of the individual, or impact on marriages etc. I think one of the worst effects will be inftrastructure. lets face it even in the good times it gets neglected. Wait until a bridge collapse a month, then week, then day happens.
Here is an example of mortgage fraud in MI:
"The Roskam purchase was among 38 houses Hixon bought in a 22-month period, mostly in low-income neighborhoods in the Kalamazoo area, according to tax records examined by the Kalamazoo Gazette. He paid anywhere from 2 percent to 370 percent more than the properties' assessed values, the Gazette investigation found.
Within 15 months of his last purchase in January 2007, he lost all 38 homes, including his own residence, through foreclosure because he'd stopped making mortgage payments. The foreclosures saddled his lenders -- which were all out-of-state institutions -- with more than $3.5 million in unpaid mortgage debt, according to Kalamazoo County records.
FBI investigating Kalamazoo man for possible mortgage fraud | Kalamazoo News Archive - MLive.com
What were they thinking giving money to this guy? Corrupt appraisers, mortgage brokers and loan officers are the only explanation. It's just amazing.
He proposed removing all incentives - depreciation, depletion allowances, the sacred mortgage interest deduction and much more. You will easily imagine the howls of protest.
Oh I can imagine. Some of those howls would be justified...
Removing depreciation is like outlawing machinery... not shocking to see a proposal like that from a guy like Forbes who made his living 'producing and selling words'.
But you can't eat words. Likewise you can't make steel or grow corn with words either - takes lotsa big expensive machines which generally don't pay back for a long, long time.
Well maybe it would be so bad to eliminate depreciation - we'd have so much less pollution here and without the farms, there's be many more places to ride our ponies.
There are abuses in how you manage depreciation for sure but depreciation is REAL and not just an accounting gimmick. I mean it didn't get called the 'Rust Belt' for nothing.
Not really picking a fight with you or Forbes - just pointing out how damned tough the problem is and reminding my self of the adage:
"Behind every complex problem lies a simple solution. Invariably that solution is 'wrong'."
And now with revenues declining? Ha, they couldnt fix it in biggest revenue runup in a generation somehow i dont think it is going to get fixed on the downslope.
On the downslope it isn't an 'expense'... its 'job producing stimulus'. It'll git done...
Well maybe it would be so bad to eliminate depreciation - we'd have so much less pollution here and without the farms, there's be many more places to ride our ponies.
Blew the snarky punchline... should read:
Well maybe it wouldn't be so bad to eliminate depreciation - we'd have so much less pollution here and without the farms, there's be many more places to ride our ponies.
Nope.
You can blame the media, banks, Greenspan, Bernanke, aliens, whoever you want. Let's have a reality check. If you take the decade 2000-2010, the most likely scenario is that the average house wil be up 30-40%, about in sync with the long term average. YMMV, but that will be true in most markets. Joe and Jane Prudent who bought a house in 2000 or earlier and just left the equity sitting there have no problem. The foolish ones who overpaid in 2005 or sucked the equity out will have problems, but those are likely of their own making. In every market, someone buys at peak. It's unavoidable.
Same with the tech bubble. If you started a 401k in 1990, added to it regularly each month and put it in solid companies (not pets.com) even at the market bottom in 02/03, you still did OK.
Change the tax code as it pertains to homes- you guys are nuts. Get a grip. The tax code has a million things wrong with it-but- this is not one of them.
1. Prior to the most recent changes to the law you could still avoid paying tax on the sale of your home if you rolled the gain into a new home that had equal or greater value. So there was always the ability to defer tax.
2. The tax rate that was paid if you didn't qualify for deferral under the old law or exclusion under the new law, was the maximum capital gain rate (if it was held for more than one year- and LT cap gains rates maxed out at 28% for a few years but mostly at 20% or 15% for most of the other years). This compared to the maximum ordinary income tax rates in some years as high as 39.6%- So there wasn't much of a change in tax incentives in the past few years.
3. While mortgage interest paid to acquire your principal residence is fully deductible on acquisition debt up to $1 million is deductible, HELOC interest on your home is subject to AMT add back.
4. It's clear that people are motivated to purchase vs. rent because of the tax advantages but there is no incentive to flip. Further, its not a bad societal trade-off when its common knowledge that owners take better care of their property than renters.
...Just for starters.
The tax code incentivizes ownership over renting but wasn't the cause of the real estate bubble. It has plenty of problems that really need to be addressed(e.g. private equity guys paying 15% LTCG income tax rate in return for their services lower than what most everyone else pays, tax credits and deductions still available to oil and gas industry, accelerated depreciation deductions still available for SUV's, unnecesary complexity due to the uniform capitalization rules for inventories, domestic production activities deduction rules, etc, etc, etc)
This is a great blog - you want to change things? Don't damage your own credibility by subscribing to these area 51 type conspiracy theories. Focus upon issues that truly need changing- there's plenty of those out there.
"Define income" for those who didn't get the joke:
For my current client you simply have to memorize and apply: SOP 81-1, SOP 97-2, SOP 89-9, SAB 104, EITFs 99-19 and 00-21. Then there's the lawyers and case study. Awe, go ahead with the flat tax. What do I care?
Funny, after a day of that crap, I actually do get out on the mountain bike on the Tow Path in Maryland, which eventually go out to the Blue Ridge Parkway.
John, third rate journalism has been going into papers as long as they've been in existence -- due to advertiser pressure - Upton Sinclair and the other scribes I mentioned could teach you volumes about that-- as well as a perusal of said fluffy sections. The bottom-line uber alles mentality has just maed it worse. When there were only a few that could afford to own newspapers or radio-tv stations, it was easier to sell this tainted stuff to readers as news-- It's not so easy now, thanks to the watchful Internet. (which by the way --with automated ads-- doesn't have to worry about advertisers influencing content).
But of course the industry continues to try to sell its infoslop as trustworthy news, even though readers distrust the press more every year and circulation is tanking.
Another biz model, one that is finally getting some due, is the nonprofit model, which has served newsrooms that operate with it somewhat better in hard times than for-profit(eers). As far as I'm concerned it's just about the only way to eliminate the corrosive influence of the ad side.
Yes, I suppose I could learn a lot about my own business by reading books, articles and blog posts, and I do learn from those things.
But--to bring this non-dialog to its long-overdue conclusion--this "corrosive influence of the ad side" is not what you suppose. I KNOW THIS because I have worked in newsrooms for 35 years. We do have the corrosive influences I described in my own posts, but the world of newspapers is not what you think it is. You seem to find your opinion more attractive than mine. Fine. Done.
You can bet all of the DC based FDIC honchos who can read will read this.
we have the stats, prices, loan values, etc
"average" equity actually fell as house prices exploded up.
As we go down does anyone know/want the massive chore of what # is net zero?
John Stark,
Don't let the peanut gallery drive you away. Those of us who don't necessarily think we know more about businesses we've never worked in than do people who've worked in them for 35 years appreciate your comments.
Been There,
Alas, re "It's clear that people are motivated to purchase vs. rent because of the tax advantages but there is no incentive to flip,", at BankRate.com the word is that "... the property you're selling must be your principal residence ... [but you can] turn a rental house into your primary residence ... [if you] own and live in the home for two out of the five years before the sale. And your actual habitation of the home doesn't have to be sequential, ... [while] there's no limit on the number of homes ... each sale must be at least two years apart. .... Empty nesters who have a large suburban home could move into a vacation home at the beach and then ... sell both the homes and not have any taxable gains."
John Stark,
Re-read those rules for qualifying for excluding the gain on the sale of a home. It Must be your principal residence and you have to live there for at least two years. Means moving
there, living there, and depending upon thew state in which you live changing all of your contact information, driver's license, etc. The rules encourage you to commit to this property. Flippers have no interest in that. People who over-extended themselves and misrepresented their financial wherewithall when buying in didn't do it because of the tax bennies of selling a principal residence. More likely they did it because prices were increasing at an unsustainable pace and didn't want to be left behind.
I cannot understand why there is not more attention drawn to Dodd and others for VIP CountryWide loans. I have to admit I was furious when I read that.
John, that that you would rather offer preconceived notions about your experience vs. mine, rather than look at the linkage I sent (authored by your award-winning journalist peers) -- tells me all I need to know.
I wish you the best, and am truly sorry for the state of the profession. Sorrier still that it seems to run screaming from every idea that would save it. So that's what it'll be then. Death by 800 lb gorilla.
John Stark, do hang out. I found your defense of journalism to be plausible. Thanks for your patience.
Been there, I find it amusing that you refer to arguments against tax code subsidies for home purchases as 'Area 51' theories. The existence of the subsidy is not in question. Its a gigantic incentive for people to invest in housing vs, say, the stock market. Especially during the bubble.
I rent, and I cut my grass and try to prevent all the neighbors kids from getting run over by cars, not just mine. Where is my subsidy?
The Bubble
How homeowners' missed mortgage payments set off widespread problems and woke up the Fed.
The Bubble - washingtonpost.com
Most of these items panning the MSM performance on reporting this debacle miss the point: "journalism" is about providing filler around the advertising content, and the filler better not ruffle the feathers of the ad buyers too much or the paychecks run out very soon.
You may sometimes get something better than that, but as Stark notes, the writers of copy for the filler on not "specialists" and work under deadlines which make it strictly a matter of luck if they catch on to what's happening out there.
If you want accurate readings by knowledgeable observers, expect to pay for it, and leave the MSM to it's true role: steadily churning out entertaining chatter and images to attract eyeballs and ears to the ad copy. From the journalism school airheads I saw in my intro courses at the University of Minnesota, that's about all they were fit to produce anyway.
Vader: It will be advertised as water front property.
Waterfront and back property.