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john p



Joined: 10 Mar 2006
Posts: 1820

PostPosted: Sun Jan 24, 2010 3:32 am GMT    Post subject: Reply with quote

Do gooders help build the middle class. The middle class is having a hard time competing with emerging markets right now and as our money was flowing to other countries, the last thing we needed was to drive the housing prices up.

The Credit Default Swaps are basically like insurance, but don't have the rules and regulations of insurance. When they securitized the subprime loans they eventually got "insured" by these swaps. The Banking Modernization Act of 2000 (which was supported by Lawrence Summers, Obama's current Economic Advisor) allowed huge leverage limits.

Now is it fair to say that when these do gooders drafted the CRA Ammendments of 1995 that they envisioned Credit Default Swaps or these huge leverage limits? No, but as legislation evolves we need to look at things in context and not attack those that try to talk about risk.

Culture effected the birth rate; immigrants decades ago used to have many children. Now in areas like Brockton, Lynn, Fall River, etc. had industry leaving for down south where they didn't have Unions and these families kept having more and more kids and the industry was leaving. This is a big reason why these cities turned into rough areas. JFK got pressure from Unions because at the time the companies were threatening to leave Massachusetts because of Union demands. The Unions promised political support. JFK ran for Senate against an old Boston Wasp Family (Cabot Lodge). The immigrants who were often screwed over by the old school Boston Blue Bloods became loyal Democrats. The Bush's have lineage to these old money families, but the McCain segment of the Republicans were a totally different breed. McCain's wife or daughter now is supporting gay marriage. The Republican Governor Candidate has a Lt. Governor Candidate, Richard Tisei, who is openly gay. This is a different breed; things can evolve.

Anyway, that WSJ article posted before shows how JFK opened the door to flood unions into government jobs. I am very surprised at the incredibly high salaries that Federal Government workers are paid. Maybe they ought to relocate certain functions to cheaper cost of living areas than D.C.? The current Union deal to be exempt from taxes shows the influence of Unions on the Democratic Party. Today the Unions don't even serve their own members very well.

Bottom line, Unions like the Community Reinvestment Act started out by decent people with good intentions but as times changed they didn't serve us well at all. As a society we need to not make things sacred cows or play the race card to defend policy that actually hurts minorities.
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john p



Joined: 10 Mar 2006
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PostPosted: Sun Jan 24, 2010 3:57 am GMT    Post subject: Reply with quote

Oh, my point about telling the truth is kind of like explaining to people that are having 7 kids in a city that has industry leaving ought to understand that many of the jobs AREN'T coming back and if they join Unions and make it even more difficult for the companies that still remain, they will just drive them away.

When the Industry goes away, these Union members needed a living so they got into government jobs. People would try to get jobs at Boston Edison, the MBTA, the Turnpike Authority, etc.

Watch Obama go economic populist. He knows the Unions are the backbone of the Party, but it doesn't do anyone any good by leading them to believe that we can have a two class system, a public sector for those that control government and a private sector that has to compete in a global economy.

My big point is that just like the context around Unions, the CRA, etc. changed with new rules, globalization we have to step back and look at things in context. What we needed Obama to do was to help create a global regulatory infrastructure that prevented the Wild West. We needed leadership at G-20 to establish leverage limits, and protect copyright laws and other business tort rules. We needed to establish some basic rules of the road for environmental laws so that companies wouldn't pick and choose polluter nations to do business. All of these things we needed leadership. In our Stimulus we had protectionist language and prevailing wages to protect unions. We also protected more public sector jobs and we know that it is the private sector that creates the abundance necessary for us to sustain our lifestyle. Instead, Obama will act like a desperate politician who creates a scapegoat to charge up the population and to direct their anger. It's kind of funny, most of the people that voted for change don't actually want to change. They think if we build cars and pay union rates that somehow we'll be able to compete with other nations that build them much more cheaply. Obama is actually defending the status quo in that regard. Before we can develop a sophisticated strategy, we have to purge ourselves of these delusions that are just anchoring us down and making us mad at each other.
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Boston ITer



Joined: 11 Jan 2010
Posts: 269

PostPosted: Sun Jan 24, 2010 4:57 pm GMT    Post subject: Reply with quote

John, here is 'the truth' (not Paul Pierce) from my perspective... the US has already lost the globalization front for the private sector.

The whole asset bubble culture, with the 90s-to-00's reflation of equities, real estate, and pretty much anything else destroyed the meaning of work, for work's sake. You'll find that over 70% of our private sector employees are engaged in non-tradeable goods/services, (healthcare being a biggie). Thus, the money/credit churn is our economy.

I suspect that unconsciously, a lot of folks suspect that the above is true whereas the true scientists and engineers, starting from the NSF shortage myth of '88, are fully aware of what's going on. They can see it by the offshoring of core R&D, the implosion of stateside industrial research and thus, limiting the USA into a pure consumerist/financial type of economy.

With the above in mind, the public sector will need to pretty much hire everyone, and let the private sector wither, as a collection of salesmen and spin meisters. The 21st century will not be kind to our country.
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john p



Joined: 10 Mar 2006
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PostPosted: Sun Jan 24, 2010 6:11 pm GMT    Post subject: Reply with quote

That is what I'm worried about.

I look at printing money like filling up water in a bathtub. If the FED prints too much money it will create inflation.

If however, the water we're pouring in is less than the money draining out, we don't actually get inflation; we get deflation. The bathtub is draining out and we can't fill it fast enough. We're just draining, and as our debt burden increases that drain at the bottom gets bigger and bigger so it drains even faster.

What they to do is fill the bathtub with something that can stop the draining. In this months edition of Popular Science they show a product that they fill into leaky infrastructure pipes that act like platelettes do in our blood stream; in that they clot the leaks. The Stimulus should have been money that stopped the bleeding. Instead, they just let the drains increase. The drains being the Unions, the regulations that send jobs overseas, the interest on the Debt, the waste, etc.

We ate through our nest eggs, ate through our credit cards, and ate through the equity in our homes and now we want to spend our future's generations earnings. The end game here is War. We are condemning a future generation to fight a war pure and simple. I don't believe in feeding the rich and burying the poor so we've got to get our act together because a bankrupt nation with the largest Military will not go down quietly and the Unions that are eating through our taxpayers today will be the hawks that push us to prey on other nations when they've eaten through us. If you think I'm kidding, a good tell sign are the casinos. Casinos prey on the poor of a society and the Unions want us to prey on our poor so that they can get rich. If they say it is ok to prey on our own citizens why wouldn't they say let's start taking another nation's resources?

Obama's gamble is "Green Jobs". I can tell you because it is my industry that we won't even address the truth of what is green. The most important green characteristic on a building is insulation period, yet they give out design awards for all glass buildings (buildings with barely any insulation). The Boston Globe's chief architectural writer promotes buildings like City Hall which is made of reinforced concrete and glass, two of the worst insulating materials. That building costs a fortune to heat. The Apple Store on Boylston Street is an all glass building and heat pours through it and people think this is a "Green Building". We don't have a clue what is green and to think that we're going to put our trust in leaders who don't have a clue. Because we don't understand what green is, the money we spend on what is green will just make the drains bigger.

What is funny is that wealth is like heat and it is pouring out of our nation, our building envelope. Our stimulus should help insulate us while not suffocating us.

I think our nation has enough creative people they just aren't empowered.
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balor123



Joined: 08 Mar 2008
Posts: 1204

PostPosted: Mon Jan 25, 2010 4:06 am GMT    Post subject: Reply with quote

Quote:

I look at printing money like filling up water in a bathtub. If the FED prints too much money it will create inflation.

Your bathtub analogy is good but I think a better application is that the drain refers to the trade deficit and the water being added is liquidity. We're trying to pour enough water on so that the level of the tub stops dropping - and it appears to do so at least for a while because the rate is matched. However, this water is only being lent to the tub and at some point in the future will need to be removed.

If you could go back in time and you could poll Americans with the following questions, what do you think the responses would be?

(1) Would you stay in your career if you were making half as much (of course, you'd be unhappy about it)?

(2) Would you cut half your salary to help America remain competitive?

America has become more wealthy over time and I bet that you'd find that as they became more wealthy they also became more selfish. That is, most would answer no to both questions today.

Quote:
We ate through our nest eggs, ate through our credit cards, and ate through the equity in our homes and now we want to spend our future's generations earnings.


Bankers make money when people borrow. They've convinced us all to borrow more and, protecting their interests, they've convinced us to borrow more to solve the problem. Americans are remarkably unsophisticated, especially with the amount of greed that we have now. If they can borrow, then it appears that they will.

Quote:
Obama's gamble is "Green Jobs"

We no doubt need to become "Green". What I don't understand is how Obama thinks that this will revive the economy. Will it generate jobs? Yes. Will our standard of living rise as a result? Absolutely not. Our future just won't suck as much due to global warming. Productivity won't rise as a result. We'd be lucky to come out as wealthy as we are today.

Quote:
I think our nation has enough creative people they just aren't empowered.

I graduated from Cornell and WPI. You graduated from MIT. Between the two of us, I think we have a pretty good sample of America's top scientists and engineers. How many of the students attending today do you think come from other countries and how many of them would, all things being equal, like to go back home? I notice many of the "call for papers" that I'm receiving lately aren't for conferences in Europe. Most Americans aren't exposed to anything outside America and even those who travel really don't get an idea of the full extent of how quickly our traditional educational and infrastructural advantageous are being matched or exceeded by the home countries of most of those who we depend on to make Americans rich.
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john p



Joined: 10 Mar 2006
Posts: 1820

PostPosted: Mon Jan 25, 2010 3:55 pm GMT    Post subject: Reply with quote

I didn't go to MIT.

I think the "thought leaders" that you're talking about are here but they are under the radar.

So many of the things you and Boston IT'er say ring true and make me think of things that are slightly different than where you guys are going with it.

For example, when you guys talk about how people opted for MBA's what that says to me is that the dominant coalition within companies are the finance and business strategy people and that the technology people are commodities. Because of this, businesses don't see value in sending their people to conferences. In my company, they acquire knowledge or skill and when they're done they spit you out or let you fade in to the background. They don't spend much at all to train or develop so much of that is on the individual. Ask yourself, how many CEO's have their own laboratory? Henry Ford did, Thomas Edison did. Guys like that are most likely working in some office cube with some "Office Space" lifestyle with some bonehead boss who ignores them and has them chase their tails and waste their talent. Then, culturally the hens want us to buy houses and go to cookouts and pretty much eat up all our free time and the next thing you know you don't have much free time.

The internet is changing much of this because people can find others who have similar interests and they can share research and advance their pursuits more rapidly.

One key ingredient with the Enlightenment was that people had an abundance of free time.

Have you seen Avatar? My God, think of how many man hours that took. When I see stuff like this, talented people who aren't caught in fly-paper of b.s. I can see a prosperous future, but when it gets gummed up by politicians and hacks I see War.
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Boston ITer



Joined: 11 Jan 2010
Posts: 269

PostPosted: Tue Jan 26, 2010 12:51 am GMT    Post subject: Reply with quote

Quote:
Ask yourself, how many CEO's have their own laboratory? Henry Ford did, Thomas Edison did.


Locally speaking, that would be the Ken Olsen era of hi-tech.


Quote:
One key ingredient with the Enlightenment was that people had an abundance of free time.


For that, one needs to be financially independent. And it's a tragedy that only phony baloney types like Bill Gates or Warren Buffet have that kind of cash but are wasting it in propping up their self-inflated sense of worthiness.
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balor123



Joined: 08 Mar 2008
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PostPosted: Tue Jan 26, 2010 4:22 am GMT    Post subject: Reply with quote

Yeah the problem for us is that we can't afford to innovate. You know how I spend my free time? Cleaning my apartment. Taking care of the baby. Finding the best interest for my house downpayment. Doing my own taxes. Investing my own money. Why do I do all these things? Because I don't make enough money not to. I have lots of great ideas but I can't afford to take the risk of innovating and with the rising cost of living (healthcare, housing, etc) it's becoming increasingly difficult. Bankers can get away with not because they are more willing to take risks but rather they are more able to take risks. They make so much with their day jobs that they can afford to quit and see how it works out. If it doesn't, then they can always go back to their $250k/yr jobs putting numbers into spreadsheets, a skill which likely won't degrade much while they're away trying to do a silly startup.
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Boston ITer



Joined: 11 Jan 2010
Posts: 269

PostPosted: Tue Jan 26, 2010 4:48 am GMT    Post subject: Reply with quote

Quote:
I have lots of great ideas but I can't afford to take the risk of innovating and with the rising cost of living (healthcare, housing, etc) it's becoming increasingly difficult.


And without a backer, like a Bruce Wayne benevolent billionaire, why should anyone do such a thing?

It's a real shame that Bill Gates, a man who's little more than a shark in a nerd's outfit, is lauded as some tech genius when he's just a shrewd monopolist.

All and all, one's socioeconomic class does matter. And with scientists and engineers joining the ranks of poor artisans and craftsmen, it'll really be about those with deep pockets vs those w/o them.

Sorry John, but my prediction about the 21st century still stands firm.
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john p



Joined: 10 Mar 2006
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PostPosted: Tue Jan 26, 2010 3:56 pm GMT    Post subject: Reply with quote

The original poster was talking about Property Bubbles.

What do you think of this:

When we got the housing bubble, it allowed people who weren't even involved in a real estate transaction to refinance their homes. So lets say that a person has a $3,000 mortgage and then they refinance and now they have a $2,500 mortgage. That's $500 more per month that family has in their pockets every month. Now $500 a month times 12 months is $6k, and when you gross that up it's like what just under $10K a year? My point here is that when they lowered rates it was equivalent to giving homeowners a significant pay raise.

My second point is the magnification of that, Now, when you add that $500 per month to the other families that say saved $300 a month etc. to the economy. You're adding trillions to the economy. Now that's a one time deal to the economy which by definition is a BUBBLE. Isn't it understandable that we could have to scale back to reset to what is really supported by real earnings? Guys like Paul Krugman at least understood that we had an enormous gap in the market due to this Bubble money that had dissipated.

My theory wasn't to have a huge crash or do what he said which was have a huge infusion of capital, I thought we needed to be more incremental and target helping those who got caught in the crossfire. Now, I bought in 2006 and went to refinance a couple of months ago. The silver lining for us was that we could refinance and what we paid in 2006 was still holding up at market value. We had a house three doors down which was 400 square feet fewer for $7,000 less than than what we needed the appraisal to come in at for us to hit our Loan to Value (LTV) without having to pay exorbinant amounts of closing costs. Because we're in a position to pay off our piggy-back note (we did this because it was cheaper than CMI) in a few years, we decided that it made sense to not waste our cash for closing costs to target a 25 year note when in a few years we could possibly get a better rate for a 20 year note.

FYI, Renting and MPR, I was going on Obama rants because this was a critical decision for me and deciding if we were going to have inflation or deflation was huge and it was all up to how Obama was going to play his cards. I was mad because he was a politician and he was head faking left and right and who the hell knew what he was going to do. I had a lot riding on this decision and I just wanted to have a President who was honest and consistent.

We decided not to go through with the deal because when you take the closing costs and compare them with the monthly savings and consider the payback period to when you get ahead, by that time we could get into a 20 year note for hopefully a lower interest rate. I saw this tremendous hole in the economy due to the loss of the equity that was thrown in (12 Trillion) and I became more concerned about deflation than inflation. I was trained to think that when you printed money you got inflation, but I began to consider that we were printing money (inflating) at a slower rate than what was deflating. (the bathtub theory). Given that, Cash is King and I didn't want to throw cash into closing costs in case I had to weather six or eight months of unemployment....

What gets me mad is that the guy who bought his house 10 years ago can refinance and that guy wasn't directly harmed by this bubble. We failed to administer the relief to those that were directly hurt. The guy who didn't get hurt or the deadbeat who took on too much risk, got into an adjustable got rewarded but the guy who played by the rules got hurt. Sure, I didn't have to buy, but it is a bit unfair to ask a generation to wait a decade to buy a home, and I did reduce the risk I was taking by sticking within historical price to earnings ratios and only offering at prices that wouldn't expose me that much to future price drops. I feel I played the hand as best as possible for that market period and I honestly don't really care if I got a chance to refinance or not. What I do care about is if the Government is encouraging homeowners to refinance and people who weren't hit by this bubble get the benefit, I actually am harmed because I now have less buying power relative to them. To add insult to injury, GMAC, our mortgage holder gets a bailout, and they are the ones who are asking me for these exorbinant closing costs and the Appraisal was completely bogus. The comperables had false numbers regarding square footages, etc. There was a house that had a smaller footprint and was only 1.5 stories and was said to be 300 sf less than ours. It was over 1,000 square feet in reality and was next to a busy road and was asking $19k MORE than what we needed the appraisal to come in at.

This year has been bad, like many, I have been corn holed six ways to Sunday. I'm not going to complain because many have it worse than I right now.

I know a guy who's kid is going to college and he said that tuitions are $45K on average. Now these colleges have financial aid departments and they are redistributing wealth for sure. A guy in a public college's financial aid department is making a decision as to who pays what. I know people that are asking why they don't just quit their professional pursuits and get a job at the Post Office for th epension, benefits, and early retirement...
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CL
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PostPosted: Tue Jan 26, 2010 4:31 pm GMT    Post subject: Reply with quote

john p - I agree with you that the current gov action (via tax credit and low mortgage rate) is not targeting specific homeowners (ie the homeowners that has been hurt the most). I think the gov action is to create some sort of positive momentum to arrest the fall in home price, throwing all the tricks to the wall and see what sticks basically. So in a way, you have benefited, albeit very very indirectly, by government-manufactured low mortgage rate. Lower mortgage rate points to higher demands, points to higher price, points to higher apprasial value, points to more equity and better chance to exit properties/refinance.

Going forward, my guess is that the gov action will shift focus to target very specific homeowner via home loan modification. Thus the retreat of Fed buying MBS and increase role of Fed/Frad/FHA in loss making. The issue, however, is that you probably will not be benefited directly as well since the policy goal is to avoid foreclosure, and you are not that risky in that aspect.

So, in a sad twist or irony, you got the worst of both worlds - you got screwed by being in the market at a very bad time, but got screwed again since gov bailout is always saving the reckless and risky ones, and you are not one of them. And you as taxpayer are paying for the gov help.

That's the problem of government action - they are always imperfect and always generate unintended consequences.
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john p



Joined: 10 Mar 2006
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PostPosted: Tue Jan 26, 2010 4:38 pm GMT    Post subject: Reply with quote

Thank you for explaining in 200 hundred words what would have taken me 2,000.

Reading what you just wrote explains why Scott Brown won.

It was left wing politicians and Wall Street who did this and there isn't a Party that confronts both, individual and institutional irresponsiblity.

This explains the Tea Party Movement.
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CL
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PostPosted: Tue Jan 26, 2010 4:54 pm GMT    Post subject: Reply with quote

I think what this country needs is more Volcker. Like him or not, he is not afraid of short term painful dose of medicine to cure the long term economy. What I find in current political environment is that both democrats and republicans do not have the gumption to do what is necessary, if the action involves economical painful consequence. Democrats will cater to the unions and republicans will cater for businesses, but when if comes to taking the pain honestly, nobody does it better than Volcker.
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john p



Joined: 10 Mar 2006
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PostPosted: Tue Jan 26, 2010 5:28 pm GMT    Post subject: Reply with quote

http://banking.senate.gov/public/_files/VolckerTestimony2409.pdf
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Renting in Mass



Joined: 26 Jun 2008
Posts: 381
Location: In a house I bought in December 2011

PostPosted: Tue Jan 26, 2010 5:51 pm GMT    Post subject: Reply with quote

Quote:
you got screwed by being in the market at a very bad time, but got screwed again since gov bailout is always saving the reckless and risky ones, and you are not one of them. And you as taxpayer are paying for the gov help.


On the bright side, you still would have been screwed if you didn't buy and kept your money in the bank while waiting for prices to return to normal. There was no winning path for responsible, rational people.
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