bostonbubble.com Forum Index bostonbubble.com
Boston Bubble - Boston Real Estate Analysis
 
 FAQFAQ   SearchSearch   MemberlistMemberlist   UsergroupsUsergroups   RegisterRegister 
 ProfileProfile   Log in to check your private messagesLog in to check your private messages   Log inLog in 

SPONSORED LINKS

Advertise on Boston Bubble
Buyer brokers and motivated
sellers, reach potential buyers.
www.bostonbubble.com

YOUR AD HERE

 
Go to: Boston real estate bubble fact list with references
More Boston Bubble News...
DISCLAIMER: The information provided on this website and in the associated forums comes with ABSOLUTELY NO WARRANTY, expressed or implied. You assume all risk for your own use of the information provided as the accuracy of the information is in no way guaranteed. As always, cross check information that you would deem useful against multiple, reliable, independent resources. The opinions expressed belong to the individual authors and not necessarily to other parties.

Economist's Buttonwood column

 
Post new topic   Reply to topic    bostonbubble.com Forum Index -> Greater Boston Real Estate & Beyond
View previous topic :: View next topic  
Author Message
Guest
Guest





PostPosted: Thu Mar 22, 2007 12:07 pm GMT    Post subject: Economist's Buttonwood column Reply with quote

This week's column mentions that there are three types of borrowers :
Quote:
Hedged debtors can safely meet all debt payments from their cashflows. Speculative borrowers can meet current interest payments from cashflows but need to “roll over” their debt in order to pay back the principal. And Ponzi borrowers can pay neither interest nor principal from cashflows but rely on rising asset prices to keep going.

The American housing market seems to be suffering from the unravelling of a Ponzi-type system. Subprime loans were offered on generous terms that, implicitly or explicitly, depended on rising house prices. The banks that made these loans bundled them up and sold them in the credit markets to investors, eager for high yields. This was supposed to make the financial system more secure by dispersing risk more widely.


The column goes on to say that this could be the tip of the ice berg for the economy in general. While I don't think we're heading in that direction (at least not until 2014, when the baby-boomers start to retire en masse), it does cause for a pause, since what-ever is in print is usually 6 to 12 months behind the thinker's actions.

Thoughts?
Back to top
john p



Joined: 10 Mar 2006
Posts: 1820

PostPosted: Thu Mar 22, 2007 3:25 pm GMT    Post subject: Reply with quote

The thoughts this generates for me are:

Everybody wins so long as the scheme moves forward. Then if it does hit the skids, only a certain segment gets caught with their hand in the cookie jar.

What you are seeing now is how some people made a few doubles, paid off their debt and are sitting pretty. On top of that, the baby-boom had the most money because they were at their highest earning years, and had mortgages for homes they purchased 20 plus years ago, there was a lot of cash floating around. People rationalized the growing disparity by saying the whole "risk, reward" thing. Failure as "buyer bewares". Once they change from risky investments to secure they look for more stable income stocks, bonds, etc. In the Bush Administration they made income investments more attractive because they lessened the tax on dividends. It was the golden parachute for the rich. Once they eliminate the death tax the rich will have their final vision, to let their kids live like Paris Hilton, never work and never have to. Maybe make TV. shows making fun of overweight kids. Paris Hilton is a manifestation of "decadence" it is a generation in decay or decline. Her obnoxious behavior, similar to that of the kids depicted in the Sopranos is the resultant of her acceptance of a two tiered society. Our great country will not perish under the weight of dumb silver spooned, never done anything on their own individuals. Well, we may get a President or two, but we're smart enough to not let it bring us all the way down. Hey how about Paris Hilton in 08? She could star as an action hero in the movies in 07 and the dumb bubbas will think she actually served in the Military.

The other Ponzi related theme surrounding Boston is that we became a world class leader with technology during the stock market bubble era. This pumped in a lot of cash into our State. Then good old Tip O'Neil get's his farewell gift in the Big Dig which pumped in billions more and every contractor, electrician carpenter all the way from Maine down is asked to come and work. So, the carpenter that is left in Newton doing an addition can pretty much name his price.

So, when you think about how much wealth made its way to Massachusetts in such a short period, you see how the cost of living skyrocketed. The problem is that the Big Dig and the stock market bubble were relatively short lived and professional services can only demand a certain amount before there is a better alternative elsewhere and other cities get tapped. Boston pretty much priced itself out of the market in many areas. What you have left in the aftermath are those that are silly drunk with wealth, many more that have bills up to the gills barely making it, and those that arrived on the scene too late and discover that there are other hot areas that offer much more than Boston does right now. If things remain flat for a little while we will be able to economically come back into balance. This changing disposition of wealth will affect the price structure of the existing housing stock. As these different price points have a dialogue with one another, meaning, a buyer will say "How come I can get this for $300k when this other guy wants $800k and there isn't really a big difference?" You will find that the price structure will settle back into place and the major airspaces between and within the existing price structure will balance out.

Imagine how hard it will be for tax assessors. There are more working families in Boston than rich people, so if taxes rise due to political pressure, the rich won't want to have a high assessment. They will relocate to another State with cheaper taxes. It seems that everyone is trying to woo over the fat drunk rich retirees and divorcees. They have money. The retirees want to be near the city so they can find a boat ornament with lower mileage. My guess is that many are educated and they will realize that they will be throwing money away if they don't let things settle in for a little while, and that gold diggers with nice bodies bring a decreasing marginal benefit.

For a rich person it isn't the best place to be if you have a big disparity of wealth. You will most likely be outnumbered by those that resent you. In an economically balanced city the crimes are usually based on crimes of passion, local gang related crime, and from desperate drug addicts. When you have a big disparity in wealth you will have people robbing so that they can put food on the table. This is more socially accepted, unfortunately. A poor person will be hungry so they will "roll" a rich person. If the hunted are older and can't defend themselves as well, they will be easier targets. Further, poorer people will see the rich as the ones driving up the prices so they will resent them and want to drive them out. When you have disparity in wealth you pretty much tear the social fabric. Massachusetts people are tougher than most so creating a balanced economy should be a very high priority.

Regarding the Ponzi scheme the "debtors" aren't just individuals but the associated banks and mortgage companies. To them, if they have 20% in the kitty they see themselves as covered for the failed loans. What do they care; the 80% is the number they care about. As the Ponzi scheme grows 20% grows into a large number and it isn't just in dollars, 20% translates into individuals. When you are dealing with a small amount of collateral damage it is white noise politically. What we are talking about today is much more than that. Again, the hunters could be the hunted and political forces may have to make examples of some in order to correct the behavior.

Lastly, when you study the numbers that get released think about how stale they are. It takes them a few weeks to assemble them, and they are based on closings, not purchase and sales which means that they could be at least a month old. When people actually decide to sell or buy it usually means that they first have to decide, then clean and paint their property, get it ready, get a realtor, etc. The process takes a long time. So understanding the numbers is more than just looking at them like it is in real time. The current numbers are based on decisions that took place some time ago. Some of the big developments out there were conceived many moons ago and their optimistic projections may not have played out. I'm sure they are doing all they can with propaganda to manufacture an artificial sense of optimism.

The problem with this dam internet is that nobody is here to slap you when you get fixated on a rant!!! I think I just ate the whole box of crayons!
Back to top
View user's profile Send private message
Display posts from previous:   
Post new topic   Reply to topic    bostonbubble.com Forum Index -> Greater Boston Real Estate & Beyond All times are GMT
Page 1 of 1

 
Jump to:  
You can post new topics in this forum
You can reply to topics in this forum
You cannot edit your posts in this forum
You cannot delete your posts in this forum
You cannot vote in polls in this forum


Forum posts are owned by the original posters.
Forum boards are Copyright 2005 - present, bostonbubble.com.
Privacy policy in effect.
Powered by phpBB © 2001, 2005 phpBB Group