Comments on: Greenspan gave him $275K, and he spent it all

By: Frugal

Frugal — Thu, 21 Dec 2006 03:28:30 +0000

I like your humor, Snap Up Real Estate.
It may be even better in terms of odds of winning, comparing to speculating in futures market.

By: Snap Up Real Estate

Snap Up Real Estate — Thu, 21 Dec 2006 01:24:36 +0000

When you get a mortgage like that, would it not be easier to hit Vegas and blow it all in one shot, or strike it rich? It would save you alot of time, and the markets would correct faster.

By: Frugal

Frugal — Tue, 19 Dec 2006 04:26:18 +0000

Khyron, Doug,

You’re making very good points on the interest rate. The main reason that I believe long term interest rate will not go down to 3% is that I believe inflation will be higher than 3%, due to peak oil (energy inflation) & US dollar devaluation. Short term rates will almost definitely go down to 3%, but NOT necessarily long term rates. I believe that in the next round of Fed lowering interest rates, bond holders & US dollar holders will not cooperate very nicely.

We will see how it unfolds, and it is definitely possible that both scenarios are true, and staged one after another, instead of happening in the same timeframe. By that, I mean, long term actually goes lower, but goes right back up after inflation kicks in high gear.

By: Doug

Doug — Sat, 16 Dec 2006 22:08:12 +0000

I think Khyron may be right – the effect of the asset deflation in housing could cause the Fed to ease, further encouraging borrowing short to lend long. Plus, if long term assets are deflating, then 3% is actually a relatively high real rate (since asset prices are falling, the rate at which they are doing so has to be added to the nominal interest rate to determine the real rate).

But your point about globalization is a good one and the Fed has a real problem in lowering rates, which is why they are jawboning about inflation. The dollar is already weakening at a pretty good clip, and the impact is being felt in many places, if not so much in consumer prices. Wouldn’t sharp easing lead to further devaluation, further increasing prices of imports and commodities that are traded globally? I suppose that other central banks could also “competitively devalue” and lower their interest rates to prevent their currencies from rising, but Japan is already just at 0.25% and China is trying to reign in lending, too.

Ultimately, bad lending ends badly, so I suspect that one way or another this will end quite badly. When it does, I think Bill Gross will be right. I think it will take until 2009 before the impact of the housing bust in the US really hits the US economy, but when it does the overall reduction in economic activity and consuption will mean that credit will be cheap in nominal terms, but still hard to come by, because most potential creditors won’t be creditworthy given their existing obligations (think Japan for the last 15 years).

By: Khyron

Khyron — Wed, 13 Dec 2006 10:07:54 +0000

You’re crazy if you think long term bond yields won’t decrease more. Maybe not in the near future, but they will. (Gross was early, but I think he’s more correct than not.) As for wage inflation catching asset deflation (because honestly, both of those need to occur in fix the affordability problem), it may happen but probably not enough to get as many people back into the housing market as were swept in in the last 5 years.

I was planning to say something witty about that bogus “savings glut” but I lost it. That’s what I get for blogging at work. I’ll be back.

By: JC

JC — Wed, 13 Dec 2006 05:36:46 +0000

The problem is that most people do not know how to compute mortgages. If they do, not only will they see that this is a bad deal, but they may even find errors, too. Yes, banks make mistakes. I was overcharged thousands. It took me 6 months to rectify due to personnel incompetency.

By: Larry Nusbaum

Larry Nusbaum — Wed, 13 Dec 2006 04:24:39 +0000

moneymonk Says:
December 12th, 2006 at 12:38 pm
I believe this is called a negative amorization loan, which is the worst loan you can get.

Larry Says: SPEAK FOR YOURSELF PLEASE.

By: SCapitalist

SCapitalist — Wed, 13 Dec 2006 02:52:41 +0000

Sadly, many American took advantage of the “home ATM” during this recent boom. It will be interesting to see how these cases will effect the market. Heavy losses could be on the horizon for many lenders, as ARM’s reset and home values decline.

By: moneymonk

moneymonk — Tue, 12 Dec 2006 19:38:30 +0000

I believe this is called a negative amorization loan, which is the worst loan you can get.

People get it because they can get alot of house for a low monthly payment. I blame the mortgage lenders for luring this people into this type of loan. They know it’s near impossible for them to ever own the house. I cannot believe this practice is legal.