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What if somebody maxed out HELOC to buy gold in 2007 and then sold gold to pay off HELOC in 2009? Grade F for gaming the system or garde A for paying mortgage sooner?
Anyone perceptive enough to time that right deserves the A.
More likely just dumb luck.
Large majority are unable to time the market that well, the ones that do are often lucky (unable to repeat such prescient market calls).
Grade F for taking unnecessary risk.
Gold is less risky than residential real estate.
High liquidity. No taxes, repairs, maintenance, mello roos, HOA fees, fires, earthquakes, floods or 6% RE agent commission. It is unaffected by local crime rates, school ratings, pollution and nuclear plants.
Gold is almost perfect. Nothing to worry except new gold mines and recurring gold bubbles.
You are correct if it was dumb luck—which it would be if it actually happened.
If someone could foresee the chain of events correctly and act upon it, it would not be a grade F unecessary risk, it would be the necessary risk in order to pull off the trade.
This is a topic I have been thinking about lately. I recently got the book, The Greatest Trade Ever about Paulson’s shorting the subprime market. He took a huge risk based on his insight and won. Was he lucky or brilliant?
Maybe they shorted Fannie Mae?
I know some who paid off the whole house with the loan money turned to investment money, but most lost the investment.
Best abuse was refinance to make it non-recourse and pocket the money. Banks were issuing inovative put-options instead of making real loans.
House price goes up, we both win.
House price goes down, we cry for bailout, stick the govt with the bill. We both win and taxpayers get stuck with the bill.
How The Housing Bubble Destroyed Our Future
“... there was so much money to be made in derivatives and credit—largely arising from the underlying housing boom—that many of the smartest people got drawn into these areas rather than tech innovation. Basically, we got lots of questionable financial innovation instead of technological, medical, or environmental innovation.
If all of this had worked out to make us fabulously wealthy, there might not be much to complain about. The tech, green and bio-tech communities would just sound like special interests complaining their favored projects weren’t capturing as much attention and wealth as the enthusiasts think is deserved.
But that’s not what happened. The dearth of technological innovation is largely attributable to government regulations and a loose money policy that led to massive malinvestment. Sectors of the economy unrelated to housing were deprived of needed capital and talent, while the great quicksand of the housing boom sucked down everything.”
I think financial innovation gets short shrift in these arguments. Remember there was a bust from the Internet bubble, but lots of those innovations are still around and benefitting us. The depth and sophistication of finance is a boon, it just went too far. There are plenty of behind-the-scenes innovations that no one outside the industry knows or appreciates. That being said, you need some balance in there in allocating human capital and it got disrupted a bit.
Certainly banks would have innovated themselves right out of existence (and many did) if the Fed and Treasury hadn’t bailed them out with taxpayer money. We no longer have a free market economy, but a crony capitalist system controlled by the government.
Well, I’m trying to make it clear that there was plenty of good financial innovation going on. It’s at the point where that term has become so synonymous with abuse that it’s lost it’s meaning. Innovation that works well include the securitization of hard assets like steel and other commodities to free up cashflow for production businesses. Others include linking seamless credit facilities for cross-border transactions and shipping that allow small businesses to import more efficiently. This stuff lowers friction costs and keeps inflation low, benefitting everyone really.
As far as all these conspiracy claims, you’ve got to be careful not to get sucked into them based on emotional appeal. Believe it or not, congress is more concerned about votes that enable them to keep their jobs than the limited donations they can get from any one PAC or business. The system here works a lot better than other countries, but desparate folks feel better when there’s someone to blame. In reality, bad stuff happens to well-meaning people all the time.
Look at what happen to the US steel industry.
Crude oil was manipulated to $150/bl.
Farmers and ranchers, who are not vertically intergrated are lossing on each hog sold ($25), while record profits are being made by the middleman. That’s real inovation.
Most of what you’ve describle are the result of trade laws and computer networks. Just in time supplies in mfg. was a 1970’s Japanese technique and has nothing to do with financial inovation.
Really? Define “financial innovation” for me. Good luck because even the Surpreme Court can’t seem to get its arms around that one. Innovation interconnects lots of technologies and computers were a large part of the good and bad innovation surrounding CDO’s and derivatives.
On whether what I described is just a “rehash” you might want to look at all the issued patents that say otherwise. I worked in the field a long time as a patent attorney and saw the innovation directly. I didn’t get my information from watered-down mainstream media written by a bunch of English-lit grads who avoided algebra like it was the swine flu.
Much of US patent laws and ruling are artifical barriers to entry and where given like water for already in practice methods. Your beloved Sumpreme Court is re-eamining much of the issued patents that were broad and covered existing practices.
In the patent office, it was easier to issue a patent than fight an applicant, who was appealing.
Laws are artificial barriers to all kinds of behavior. Laws against theft are an artificial barrier that we choose to observe out of fairness. Oh, and patents are much, much easier to deny than grant - grants have dropped from 70% to 40% of applications over the past ten years.
Let’s take of the tin foil hat and return to the point of the whole discussion. Some “financial innovation” is a good thing for people and the economy. Because some innovation has resulted in unpleasant things, we shouldn’t pan all of it. I’m just looking to get people to consider some of the subtleties here.
Of course if you want to be the crazy guy shaking his cane in the parking lot, then go right ahead. I’m done.
ElricSeven,
I don’t know if you have seen some of the writings I did on CDOs, but you might find it interesting.
The Credit Bubble - Part 1
The Credit Bubble - Part 2
I made the same point that you have; structured finance is not the problem, it is what was put into structured finance vehicles that created the problem. I proposed methods to help rejuvenate these markets or at least reform them.
IR is right, it’s not the tools that are the problem, it’s *how* they are used. And right now they are being used to manipulate the market in order to keep the ponzy scheme alive, bubbly and all on the taxpayer’s dime. All this BS about healthcare and underwear bombers are just smoke screens to keep you from looking behind the curtain to see whose really in charge of the country.
The other scams in accounting such as internet bubble, caused misalignment of resources while enriching WS and leakage into the computer industry. Money leaked into the computer industry to discover and development new technology and intrastructure. Computers, programs, routers, network wiring, cable and optics.
The financial inovation was just a scam to move or transfer wealth. Very little money was used to invent new technology. Possible computers to move money with a keystroke and automated bookkeeping systems for self-directed trading. However, these were mostly from other industries. The inovation was more of creating new scams and getting the govt to back them. What are the “plenty of behind-the-seenes inovation” were created and unappreacited?
When WS does it, it’s called inovation. When done in other industries, crimial charges would likely be filed.
WS is futher backed stopped by govt. bailouts for loss. Socialization of loss and privatization of profits. It’s even more immoral when short-term profits are privatized via bonus and long-term loss are but on the backs of pension plans.
IR,
Interesting commentary asking yourself how much, if any, of the MEW apple you might have eaten…. I have wondered the same thing about myself had I purchased early in the cycle.
I always find it interesting how many MLS photos of REOs show fancy pool tables, large screen entertainment centers and above ground hot tubs…I mean “spas”. It’s almost like folks were running out of stuff to buy so they said “give me one of everything.” I think I saw a Richard Pryor movie like that back in the 80’s.
Nice property if you’re not hung up on curb appeal. The front of the house looks like the back of my apartment - the balcony just needs a wet suit and a unicycle.
Yeah, it’s one of those “all-garage” fronts that are pretty darned ugly.
A monthly $410 HOA fee for a SFR is just excessive, IMHO. What on earth does the HOA spend that much money on?
Geotpf,
HOA is used as a method to get around Prop. 13. HOA can be used to maintain the street (repair and cleaning), roadway landscape and watering, pools, tennis court, club houses, “parks” and other things which normally pay for “public” usage. Since it’s gated, guard service will be needed. Lots of stuff. My landlord is paying $450 per month condo HOA, but not even close to the facilities at T.Ridge.
If you have a big family and use the facilities, it’s not that bad compared to multiple gym memberships. Many of the HOA ones are much nicer than the monthly/yearly paid gyms in Irvine.
Some HOAs pay for front yard landscape and roof repair, but I don’t think front yard landscrape and roof is included in this T. Ridge HOA. Any Turtle Ridger want to comment on this?
Soylent Green Is People,
Excellent Financial Inovation in using a robotic ATM process. Did your company patent the process?
For a condo, I can understand a fee that high. That covers things like replacing the roof and maintaining the grounds. But for a fully detached house, the fee really should be a lot less. Things like replacing the roof are the homeowner’s responsibility.
As we structured 1st TD loans our company told us to offer a concurrent closing HELOC - which we would be paid on the entire, undrawn amount on a percentage basis so natch, we sold a great deal of HELOC’s. The best one we had (best as in EPIC FAIL)was a HELOC that automatically increased each year based on AVM’s. In other words, the quality control process was replaced by a robotic ATM process. These HELOCs were sold with an emphatic “Your line can never be decreased!” as if trees grew to the sun. Ahhh 2005… good times… good times!
How much would this help prop up “prices”?
- Gov. backs $10,000 homebuyer tax credit -
http://lansner.freedomblogging.com/2010/01/06/gov-backs-10000-homebuyer-tax-credit/50815/#comments
$18k goverment money is 3 1/2% down on $515k, no recourse. We can get in the game for nothing down?
Hmm… I wonder why the outside pics were taken in the evening? Could it possibly be so you wouldn’t see a bunch of cars cruising by at 100 miles an hour along the 73 tollway located a few hundred yards from your $1.25 million “resort like area”?
Lot Size (Sq. Ft.): 4,792
HOA Fee #1: $410
Thsi—for a million dollars or so?