I enjoy the public radio show This American Life, and listen to the podcast, but having fallen a bit behind, I just heard the May 9th show, titled “The Giant Pool of Money.”
It offers yet one more view on the subprime mess, this story centers around a lot of investment money looking for a home. The episode is no longer available as a podcast, but may still be streamed on line. It’s worth listening to. (And I will add it to my list of subprime links page.
Joe
For those who have read my page of links to articles on the Subprime Meltdown, I’ve added one more - “The Government-Created Subprime Mortgage Meltdown” by Thomas J. DiLorenzo.
As the title implies, he holds the Government (not the treasury, nor the federal reserve, but the government itself) responsible and he cites the 1977 Community Reinvestment Act (CRA) as the genesis of our current mess. As always, any other suggestion, please add a comment.
Joe
I’ve gone on in many posts about the subprime mess. Pages and pages along with multiple links. But Randy Glasbergen managed to summarize in one insightful cartoon the source of our crisis;
Note: The above is from “Today’s Cartoon by Randy Glasbergen”, displayed with special permission. For many more cartoons, please visit Randy’s site at www.glasbergen.com
While there, you are invited to support his site by visiting his Cartoon Gift Shop at http://www.cafeshops.com/glasbergen for mugs, t-shirts, calendars, framed prints and other fun products featuring cartoons from his website. Me, I have a day job, and rely on the kindness of professional cartoonists to provide my Saturday material.
Joe
The New York Times offers an interactive page offering beautiful graphs of the change in home prices in different parts of the country.
Clicking on the image above will take you to the Times’ site where you can view the changes in the region you wish.
Joe
The Q1 number is out and it appears we are not yet in an official recession.
This may be just as bad. 0.6% for two quarters now, and consumer sentiment at a low. I believe those shouting “depression” are a bit over the edge, but I do believe the Q1 number, which is subject to a revision or two, will show that we are now officially in the midst of the “mild bagel“.
Joe
The full quote, “There are three kinds of lies: lies, damned lies, and statistics” has been attributed to Mark Twain, and it continues to ring true for me. Last week, I quoted a CNNMoney article which stated, “The national median price drop of 5.8%, to $206,200 from $219,300, was the steepest ever recorded by the National Association of Realtors (NAR), which has been compiling the report since 1979.” Now, I cannot dispute the facts. This statement is likely true, but what is the definition of median? Median simply means the middle number, half are higher, half lower. So far so good? But these numbers only represent transactions, not changes in existing values. Without digging deep into the data, one cannot understand the cause of such a drop. A large turnover in the lower end of the market will skew the data to reflect those sales. It’s possible (though not likely) that homes in a given area increased in value, but a combination of people in the higher priced homes simply moving at a below average rate combined with high transactions in the lower end results in median transaction values dropping.
Joe
Earlier this month, I mentioned the Money Merge Account program on my feature site, and, as frequently happens, I find a magazine article coming to a similar conclusion.
The May issue of Kiplinger’s Personal Finance magazine has a brief article titled “Don’t fall for this mortgage pitch.” It’s a pretty brief article which again questions whether even prepaying at all is a good idea, but concludes with this punchline; “Salespeople challenge whether you’ll follow through on your own - as if spending $3500 for software will ensure that you’ll use it. Tell that to couch potatoes whose high-end exercise equipment gathers dust.” Amen to that.
I’ve also added links to highly trafficked discussions regarding this topic, and also written a stand-alone page comparing one MMA agent’s example to my own approach using a spreadsheet. I don’t know what surprises me more, that the shortcoming of such systems is so obvious, or that people are so desperate they’ll pay $3500 for something they can do with a free spreadsheet. I am happy to send a copy of my MMA spreadsheet to anyone that requests it.
(updated 5/4 - I added the link to the article above as the May issue of Kiplinger is now accessible on the web.)
Joe
My March feature article discusses Money Merge Accounts. This system came to my attention a few months back in the form of a question on a usenet newsgroup. Since then, I’ve gotten as much information as I’ve been able to uncover and am staying with my gut reaction, that if one has the money and desire to pay their mortgage off early, they would be best off doing it on their own. I’ve also spent some time and created an MMA spreadsheet which will let you enter your own number and decide for yourself. Add a comment to request a copy. If it helps you save $3500, please donate $35 to your favorite charity in my name.
In other feature articles, I’ve discussed Bi-Weekly Mortgages, and the general topic of pre-paying one’s mortgage. The larger message here is that there are many approaches to take, but whatever you choose to do needs to be in the larger context of the rest of your financial situation.
Note: I’ve added a page on the sidebar with links to sites that discuss MMA in greater detail.
JOE
A short sale of one’s home is different than we use the term ’short sale’ when referring to stocks. When you sell a stock short, you sell a stock you do not own, and hope it goes down so you buy it back at a lower cost.
A short sale of a house is when the sale price is not enough to cover the mortgage balance and the bank just accepts the sale price forgiving the balance owed. I wrote back in November that the unfortunate seller still had another issue. He had to pay tax on the forgiven amount. Now, thanks to the Mortgage Forgiveness Debt Relief Act of 2007, there is a three year exclusion for this situation, and no tax is due.
JOE
Well, the truth is, my head is still spinning.
Of course Bernanke must be a smart guy, and I have to acknowledge that too much was already in play at the beginning of his term. Watching Maria Bartiromo interview Greenspan and I was floored at his lack of awareness regarding the quantity and quality of the subprime mortgages there were out there. So I think Ben came in to this as an accident waiting to happen.
Given that it takes X months for a rate drop to have any impact on the economy (economy, not the market) we will likely still have a bagel, but as the cheap money once again floods the market, it may be short lived. As far as the 3/4% drop, I think that was a sign of weakness and panic, and the market reflected that.
In a few years this should be seen as any other dip, a buying opportunity. And the next cycle up is where I shift allocation to the mix I’d have at retirement, as I’m looking 5-7 years out.
Enjoy the weekend,
JOE
