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... Probably a book is the history of what happened. I thought the idea was to figure out what was happening at the time and then make money from it.
That's what The Big Short is about, viz.: several people who identified early on what was happening with the U.S. sub-prime/housing/derivatives situations and made a ton of money while "smarter" people walked the world into a recession.
"We hang the petty thieves and appoint the great ones to public office." - Aesop
"Only the dead have seen the end of war." - Plato
"If once a man indulges himself in murder, very soon he comes to think little of robbing; and from robbing he comes next to drinking and Sabbath-breaking, and from that to incivility and procrastination." - Thomas De Quincey
That's what The Big Short is about, viz.: several people who identified early on what was happening with the U.S. sub-prime/housing/derivatives situations and made a ton of money while "smarter" people walked the world into a recession.
I did OK with most of my picks, but not all. I still have several of them, although, I have traded in and out of some. I had oil shorted and that one did OK. It's easy with an ETF. I have Silver shorted now and haven't yet sold that ETF but probably should. Silver is a parasite which feeds on Gold. I don't recall where I read that but I love the comparison. I don't see the value of Silver in the type of low inflation environment we have now, but maybe I'm missing something.
It's interesting the U.S. and other nations are opening their storage and putting oil into the system. I suspect Iraq will be offline for some time and possibly infrastructure will have to be rebuilt as well. Just a wild guess on my part.
I'm not telling you theory. I'm telling you what was happening.
I'm not sure what I wrote that would lead to your comment on people getting married to be able to afford higher interest rates. I guess the topic has turned into a bit of a joke.
No it's not a joke but your comment that the sudden number of two income families went up made me think people decided to get married but I guess you meant that of those pre-existing couples where one was working only that the other spouse decided to find work as well. Sorry for the misunderstanding.
This is entirely circular, as the reason people can't pay 20% is because housing prices are double what they realistically should be.
If you tell most people they have to save up $60,000 before they are allowed to buy their first home... they probably never will.
Of course, if they simply required a 20% down payment on all houses and forgot the CMHC stuff, that would drop home prices.
As I said, circular.
They won't save the $60000 because in the meantime they have to live somewhere and pay rent, which is often 1/3 of you income. As far as I am concerned if someone can both pay rent & save a 5% downpayment, and meet the other income and credit criteria, that already shows that they can handle a mortgage. No need to make them wait 4 times as long, which could be several years of getting nothing while paying rent.
No it's not a joke but your comment that the sudden number of two income families went up made me think people decided to get married but I guess you meant that of those pre-existing couples where one was working only that the other spouse decided to find work as well. Sorry for the misunderstanding.
There seemed to be more families where only one person went to work and the other stayed home. With the high interest rates many we knew went into the labour force. In the early 70's you could buy a reasonable house in a Toronto suburb for around 25 K. One salary could cover the mortgage for many.
With the high interest rates many spouses did go to work to help carry the costs.
They make an excellent point about the rating agencies. Rating junk as AAA is simply fraud. No other way to say it.
Wow, how the years have changed both of us, huh Bob? When I first met you more than 20 years ago, you were a dyed-in-the-wool Conservative, very much pro free enterprise and laissez faire and all that stuff. I think I was a little on that side, but not nearly as much as you.
Anyway, as far as the U.S. is concerned, I still maintain that a simple saying on a Salada teabag tag says it all:
"The U.S. has one of the highest standards of living in the world. Too bad they can't afford it."
I first saw that when I first came to the U.S. in the mid-90's. The fact that the U.S. has survived economically all that time says a lot about one a particular aspect of physics: inertia and momentum. In fact, I can point to one particular time period when the U.S., and in fact the whole world, seemed on the brink of entering some whole new kind of era, where the usual business cycle laws just didn't apply anymore. It was Bill Clinton's second term of office, and it was either the 1997 or 1998 State of the Union address (which comes around late January / early February). I distinctly remember watching it with a friend of mine. What impressed me was the literal aura of invincibility that surrounded both Clinton and the whole of the USA. Every second word Clinton spoke was interrupted by raucous applause. The mood in the House was pure giddiness. Clinton still had 2 or 3 more years, the U.S. budget was in SURPLUS (!!!). Everything about the U.S. economy was pointing up. Unemployment was miniscule, jobs were available everywhere, a gallon of gas was 95 cents U.S.!!! The internet was going wild!!! Even the most rainy days seemed sunny, and there were few Beckwiths around crying about AGW, and the ones that might have been doing that got no media attention (aside: it is one of my beliefs that the whole AGW debate today, and especially the heated nature of it and the intractable attitudes taken by both sides, are nothing more than a side effect of the decline of the American empire. Just as stess within a fractured home causes explosive arguments over such trivialities as who should wash the dishes tonight, so it is with stress within a society. But of course, Beckwith is caught up in the moment of it and would disagree).
Well, folks, eventually friction wins the day. Everything that has happened since about January 4th, 2000 A.D. can be said to be on the other side of the peak of U.S. world power and economic might.
Why January 4th? Well, January 3rd 2000 A.D. was a Monday, and it was a day the world heaved a collective sigh of relief. The Y2K bug wasn't going to crash computers globally after all. January 3rd 2000 A.D. may be the actual zenith of the American age. Everything after that was now on the downside. By July of that year, the internet-fueled stock market was crashing. By November that year, the heady years of Bill Clinton turned into (via the infamous "hanging chad" voting debacle) dubya -- a transformation from a confident, tall, smooth-talking, swaggering legend to a dumbed-down, git-r-done-the-stupid-way, oil-wealthy militarist. Still, American power was unsurpassed and the view was rosy. Then came 9/11, an event I can only surmise was inevitable: at the height of a great nation's power, when the very idea of being attacked on its own soil was most laughable, when sheer pride was more blinding than ever before, comes a traumatic hit to the knees from a bunch of towelheads who did their homework and found the internal weakness of the giant. And that sealed the deal: America was now in long, dangerous, possibly irreversible decline.
There's been some false positives since then.... times when the world thought the decline might be stopped and reversed. Stock market recoveries, economic growth back in the 4% - 5% annual range. But the tide of history, and of the cyclic nature of all things, cannot be overcome.
Today, the U.S. still can't afford its standard of living, now more so than ever. The slide in standard of living is literally decreasing daily. The friction that is slowing U.S. economic activity down can't be greased much more. The government is running out of butter, which can only mean guns are just around the corner.
The ultimate end is going to be very, very ugly... and not just in the USA. Gary would probably want me to put a timetable on just when the end will come. No, I'm not that prescient. Something as strong as the U.S. economy could still put up a fight for years to come. But there's always intangibles that can either delay or hurry the trend. The current situation with the U.S. debt ceiling is one such intangible. Which way will it go? Will the Republicans actually stand fast and bring swift, global retribution upon America? Or will they give way, let the debt ceiling rise, and put off the day of reckoning?
I'm only posting here, in response to Bob's obviously distressful discovery of the shape we're in, to repeat a very wise piece of advice: let him (or her) with eyes see, and him (or her) with ears hear. The trend is your friend.
Only the rushing is heard...
Onward flies the bird.
The Big Short by Michael Lewis - if you haven't read it yet, put it on your must-read list.
+1. +1 more because I was able to get it from the Public Library. So I didn't have to pay for the privilege of wondering why so many brokers/bankers weren't in jail. YMMV, but that made me feel slightly better.
Say, is jail (this) the fastest-growing off-topic thread? Will it become more popular than climate or depression or blindfold? But look at the number of hits on hockey (by clicking on the views column in the index)!
... Today, the U.S. still can't afford its standard of living, now more so than ever. The slide in standard of living is literally decreasing daily. The friction that is slowing U.S. economic activity down can't be greased much more. The government is running out of butter, which can only mean guns are just around the corner. ...
To me, that is the single most evocative paragraph I have ever read on ChessTalk in the roughly 15 years it has been in existence. Bravo!
The thing is that up here in Canada we think this time is different. When it comes to bubbles and their aftermath it is never different.
"Tom is a well known racist, and like most of them he won't admit it, possibly even to himself." - Ed Seedhouse, October 4, 2020.
They won't save the $60000 because in the meantime they have to live somewhere and pay rent, which is often 1/3 of you income. As far as I am concerned if someone can both pay rent & save a 5% downpayment, and meet the other income and credit criteria, that already shows that they can handle a mortgage. No need to make them wait 4 times as long, which could be several years of getting nothing while paying rent.
Getting nothing? When you pay rent you get a warm, dry place to live. I can move when I want (e.g. if I find better employment or lifestyle opportunities elsewhere) and can use the surplus that doesn't go to the bank in interest and save/invest it. Sure I don't get to keep my place, but so what? I also don't have to pay upkeep on a consumable whose price at the moment is absurdly high, at least here in Ottawa. Is food, clothing, furniture a waste of money because I can't keep it "forever"? Saving $60K is a joke, right? People do need to save for retirement and hopefully they have a bit more than that.
I'm not suggesting that no one should buy a house. I am saying that having < 20% of the skin in the game is just not a serious commitment, and shouldn't be backed by the taxpayer. Not at these inflated prices and with historically low interest rates. When the interest rates normalize what is going to happen when people renew their mortgages? Won't they be paying more for a consumable that is worth less?
Just curious, but what did the US meltdown teach you? Didn't it demonstrate pretty convincingly that (unlike what Bernanke and co. thought right up until the end) that sub-prime risk cannot be contained?
I see that US housing markets are still dropping. Every day in the US more and more people are underwater and have learned that buying homes at any price is not a good "investment" strategy as real estate doesn't just go up. Even people who thought they were buying at reasonable prices and were ostensibly "good risks". What makes things different here?
"Tom is a well known racist, and like most of them he won't admit it, possibly even to himself." - Ed Seedhouse, October 4, 2020.
Getting nothing? When you pay rent you get a warm, dry place to live. I can move when I want (e.g. if I find better employment or lifestyle opportunities elsewhere) and can use the surplus that doesn't go to the bank in interest and save/invest it. Sure I don't get to keep my place, but so what? I also don't have to pay upkeep on a consumable whose price at the moment is absurdly high, at least here in Ottawa. Is food, clothing, furniture a waste of money because I can't keep it "forever"? Saving $60K is a joke, right? People do need to save for retirement and hopefully they have a bit more than that.
I'm not suggesting that no one should buy a house. I am saying that having < 20% of the skin in the game is just not a serious commitment, and shouldn't be backed by the taxpayer. Not at these inflated prices and with historically low interest rates. When the interest rates normalize what is going to happen when people renew their mortgages? Won't they be paying more for a consumable that is worth less?
Just curious, but what did the US meltdown teach you? Didn't it demonstrate pretty convincingly that (unlike what Bernanke and co. thought right up until the end) that sub-prime risk cannot be contained?
I see that US housing markets are still dropping. Every day in the US more and more people are underwater and have learned that buying homes at any price is not a good "investment" strategy as real estate doesn't just go up. Even people who thought they were buying at reasonable prices and were ostensibly "good risks". What makes things different here?
People have 30 to 40 years to save for retirement, RSP tax benefits help with that. So let's say you have to save $60000, you put aside $10000 per year and it takes you 6 years, when if you only had to save $15000 you could do it in 18 months and have 4 1/2 years earlier to start paying off that 25 year amortized mortgage to get it paid off prior to your retirement. If you save $10000 per year into an RSP, using the RSP tax benefit & putting your tax return into your RSP as well, you would have $300 - 400 thousand in RSP contributions alone by the time you retire.
You receive no equity from your rent payments. You do not benefit by the capital gains exemption from a principal residence if you ever sell and downsize for retirement. You will always pay for rent, never be in the same accomodation expense position as someone who is mortgage free and never benefit in retirement by having a paid off house. If rents go up in retirement, which they always will as they go up each year, you may be one of those grumbling about having to pay higher rents on a fixed income. That said single people without children probably have less reason to get a house, they don't need the extra room necessarily and don't have a two income family to make the mortgage, maintenance/renovation payments. A lot of people downsize anyway when their children leave, just the heating bills for some of these large houses are substantial.
In their case since they still have to prepare for retirement a small condo may be wiser. The condo fee will always be there but for example the fees in Toronto are about $550 include utilities usually and are substantially less than rents in Toronto, so you monthly payments are a lot less than rent after your mortgage is paid off.
The lesson learned from the sub-prime crisis was not to lend to people that don't meet normal mortgage requirements, not just in terms of downpayments but in terms of income ie do what Canadian banks and financial institutions do currently with lending practises. There was no subprime crisis in Canadian housing, no ninja loans etc. Also to regulate the use of derivates for speculation, that derivates are best used to hedge or arbitrage. The huge risks that can be taken with derivative speculation can bring down the biggest financial institutions. That reforms are needed in bond rating agencies and that no one should ever invest in something they don't fully understand and that yes there is a certain amount of reckless and greedy behaviour that still takes place in financial markets that must continue to be regulated.
Yes you're right when interest rates go up it is more difficult for home owners paying a mortgage. The Bank of Canada has already issued several warnings about this and debt in general.
Your house, condo etc. should not be primarily viewed as an investment, it is a place to live, a source of equity if need be but primarily a place to live, as such the investment aspect is secondary and should be viewed over the long term. Don't buy more house than you can afford, take into account if you can afford it if interest rates go up. If you are the type of person who may have to move for work regularly ie change cities consider renting instead having to buy/sell every couple of years. Buy less house and make extra mortgage payments on the principle in the first few years especially because it's in the earlier years of a mortgage that more of the payment goes to interest than it does to the principle. The 3 most important things for long term capital gains potential in real estate are still location, location, location.
If the house price falls while you are in it it does not mean that you go 'underwater'. You continue to pay your mortgage, live in your house. It's only an issue if you have to sell your house. If housing prices collapse totally then I guess you have a point but they haven't done so. If they do collapse totally there won't be any place to rent anyway as rental stock and vacancies wouldn't be able to accomodate everyone. Rental shortages would exist again as they did during and after WW2 in major US centres such as Washington DC. So you might as well continue to live in your place even then.
Last edited by Zeljko Kitich; Wednesday, 29th June, 2011, 08:24 AM.
Your house, condo etc. should not be primarily viewed as an investment, it is a place to live, a source of equity if need be but primarily a place to live, as such the investment aspect is secondary and should be viewed over the long term.
At best a house (home) is a long-term investment... but it's really much closer to a liability. It doesn't make you any money, in fact it's a money pit with maintenance/repairs and upgrades. The only way it can actually earn any money for you is by selling it - and then where do you live?
At best a house (home) is a long-term investment... but it's really much closer to a liability. It doesn't make you any money, in fact it's a money pit with maintenance/repairs and upgrades. The only way it can actually earn any money for you is by selling it - and then where do you live?
Whether it's a money pit depends on the age of the house. There will always be some maintenance/repair required but the older the house the more that is. Where do you live? Usually in a smaller or less expensive location than the house you sold which since you don't need to commute to work each day can be in a much different location in retirement and since presumably the kids won't be knocking on your door to get back in does not have to be as large. You also may want to live in a much more pedestrian friendly, people friendly, greener, more recreational area in retirement, further away from the urban centre. In one case I know a fellow who bought the house next door that was half as big and sold his house, which was a large house in a prime location in Hamilton on the mountain brow. His saving on his heating bill alone was substantial.
Or you can just continue to live in your house and leave it to your kids, benefitting them, your grandchildren and generations to come.
Last edited by Zeljko Kitich; Wednesday, 29th June, 2011, 07:54 AM.
In the biggest reckoning of the 2008 financial crisis, Bank of America said Wednesday it will pay $8.5 billion to investors burned by fraudulent mortgage securities.
The securities, which packaged numerous home mortgages and sold them to investors, faltered after the housing market collapsed.
Investors said they had been misled by the packages, many of which were highly rated even though they included mortgages from borrowers with questionable credit.
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