London Leads the Biggest U.K. House-Price Drop for Five Years
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Prices in the London region fell an average of 28,099 pounds on the month and all 32 areas of the capital in the survey had declines, led by the districts of Hackney, Tower Hamlets and Islington, Rightmove said. Home costs in Kensington and Chelsea, where Russian billionaire Roman Abramovich lives, fell 4.9 percent to 1.65 million pounds.
Related: Fourteen Fold Increase in 31 Years
Fed Plans To Curb Mortgage Excesses, way late but at least they may do something.
Yes the Fed should have taken more aggressive action. But the legislators should not throw stones at others – what have they done? A recent example – they want to lower the down payment required for FHA loans to 1.5%. I can’t take anyone’s opinion, of how others should have behaved seriously, when they vote for such legislation in the midst of a subprime mortgage loan crisis. What are these people thinking. Ok, everyone now says loan standards were to lax, people stopped putting 20% or even 10% down on home purchase. Ok, lets blame the Fed and then lower the down payment required for federal backed mortgages to 1.5% (from the already very low 3%). Did this crazy legislation just barely squeak by? Nope, passed the senate 93-1! Lets have the politicians explain what they have done right before they just criticize others. Their game of blaming others while doing next to nothing positive themselves is sad.
Another real voice of reason. The Mortgage Bankers Association (MBA) really expects anyone to pay any attention to their opinions. They have someone managed to create a threat to the economy so large that $90 a barrel oil is not the threat to the economy people are worried about. I think anyone that reads these opinions from the MBA and doesn’t see them as self serving statements and nothing else should be ashamed of themselves. Shouldn’t the Washington Post at least include some follow up question on why the public should listen to that organization. What was there senior vice president saying 5 years ago to ensure the economy wasn’t threatened by the reckless action of their members? We seem to have forgotten that individuals and organization should be held accountable for their actions. Quote some people that are not only concerned with their benefits without regard for what it does to everyone else. If that is not what they are doing, lets see 5 policy recommendations they have made in the last 5 years that are good for America and bad for you and your members. I don’t think the rest of us believe what is good for the MBA is good for America.
Related: Why do we Have a Federal Reserve Board? – Ignorance of Many Mortgage Holders – How Not to Convert Equity – Washington Paying Out Money it Doesn’t Have – Legislation to Address the Worst Credit Card Fee Abuse (Maybe) – Lobbyists Keep Tax Off Billion Dollar Private Equities Deals and On For Our Grandchildren
Here is my comment on, The Sun Devil Suggestion System a few days ago:
Here is a post on the Freakonomics blog today, Why Don’t Sports Teams Use Randomization? by Ian Ayres:
He then goes on to discuss an equally interesting but different topic faulting coaches for failing to take enough risk in football – in going for a first down on fourth down. That supports my gut instincts. The “conventional wisdom” seems mainly about not “seeming stupid” not the best long term results.
Related: Testing Mixed-Strategy Equilibria When Players Are Heterogeneous: The Case of Penalty Kicks in Soccer – Minimax Play at Wimbledon
I have posted some photos from my walk last year on the Capital Crescent Trail in Washington DC.
The Capital Crescent Trail goes along the Potomac River in Washington DC (on the C&O towpath). I hiked first along the Arlington, Virginia side of the Potomac (starting at the north end of the Teddy Roosevelt Island Parking lot) then crossing over at Chain Bridge and heading back down the Capital Crescent trail and over the Key Bridge to and making a loop hike out of it.
More photos: Shaker Village of Pleasant Hill, Kentucky – Paris, France – Glacier National Park – The Cloisters Museum and the Museum of Modern Art – Great Falls National Park
“If you owe the bank $100 that’s your problem. If you owe the bank $100 million, that’s the bank’s problem.” J. Paul Getty
Individual mortgage holders are in the first situation; together they are in the second.
I want to look into this whole situation of freezing some adjustable rates (that are scheduled to increase for adjustable rate mortgages) more – because I don’t really understand what is actually involved in the “agreement.” But my impression is that the government is paying nothing, giving no other incentives (like reducing taxes owed). With that being the case I can’t see why some people think it is bad. some people are saying it is unfair to people that were careful They don’t get this benefit. That makes little sense to me. One of the things you have to learn about investing and personal finance is there are no guaranties. You enter into mortgages with your best guess about what will happen (as the lender or the one receiving the loan).
From my very surface understanding of what is involved is that the government used some moral suasion to try and get lenders to step up and provide more favorable terms than originally agreed to. I not that confident such a think we end up happening in practice but I don’t have a problem with the attempt. It is an interesting case where no single mortgage holder owes enough to harm the lenders but together the class does hold enough to harm them. So the lenders have gotten themselves into a situation where the problem is not just one for the mortgage holders but one that could harm them (because they have too much lent to the class – risky residential mortgages).
The risk of a cascading bad impact. One waive of foreclosures triggers another and another… Thus creating huge losses for lenders. For that reason it makes sense to me that if (which is a huge if) they class of lenders can all agree to sacrifice some to avoid starting the runaway cascade of foreclosures they may benefit. Of course each individual lender would likely benefit if just everyone but them sacrificed.
It seems to me if there really is some significant amount of freezing of loan rates that will have a significant impact on how much harm the foreclosures do to real estate prices and the economy. And so I can see how such an agreement could benefit everyone. But as I say I really need to read more about all this. And I am skeptical that individual lenders will try to limit there sacrifices and as each cuts back there sacrifice the risk of the cascade increases.
An actually bailout – government money paying off those that took bad financial risks I would be very reluctant to support.
Related: How Not to Convert Equity – Housing Inventory Glut – mortgage terms explained – 30 year fixed Mortgage Rates – Homes Entering Foreclosure at Record – Ignorance of Many Mortgage Holders – Beginning of the End of Housing Bubble? (April 2004)
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If you haven’t added money to your Roth Individual Retirement Account for this year yet – go ahead and do so now. Given the state of retirement planning for the vast majority of those in the USA there is a good chance your retirement is the area of your financial life that will most benefit from more resources. The other action that is likely worthwhile is to cut your spending but we will leave that for other posts.
If your employer offers matching on your 401(k) or 403(b) that may well be an even higher priority. There is almost never a decent reason not to add at least 5% of your income to a retirement account matched by your employer. Make sure, as the amount grows above $100,000 that it is invested in a diversified manor (not all in the stock of your employer or…).
For 2007 the most you can add to your Roth IRA or just IRA is $4,000 ($5,000 for those 50 years old or older). Next year that maximum increases to $5,000 ($6,000 for those 50 and up). If you have already added the maximum that is matched to your 401k and have added the maximum to your IRA for this year get ready to add the $5,000 to your IRA for 2008 in January (you do have to make sure you don’t earn too much to be eligible to add funds – pretty much you have to be over $100,000 in income, $150,000 on a joint return, before you have to worry but look up the details yourself). By adding the money to your IRA early in the year you will get another year or tax free growth (for the Roth or tax deferred growth from the regular IRA).
For more details on the rules on IRAs see the links we provide on the Curious Cat Investment Dictionary IRA page.
Related: Saving for Retirement – Roth IRAs a Smart bet for Younger Set – Our Only Hope: Retiring Later
After years of complaints about abusive practices that trap borrowers in an endless debt cycle, federal and state officials are shining light on the most controversial practices and preparing changes that would make card companies’ policies more consumer-friendly. The fight between consumer advocates and the banks that issue credit cards has been simmering for decades.
I used to be surprised how badly the banks would treat customers and how little the government would do to prohibit abuse by banks and the like (those companies that pay the politicians huge amounts of money). However, I have seen how bad things have to get before the payoffs can’t prevent massive abuses from at least getting a decent hearing. But I also have learned you shouldn’t believe sensible legislation will pass if it, in any way, could be negative toward those paying large sums to politicians. It can happen but money the influence of payments is huge (which is pretty obvious and not at all surprising to anyone). Without factoring in huge payments it is hard to understand what is going on in Washington. If instead you look at who paid politicians and then see how they vote it is pretty clear why such abuse is allowed to continue for years.
Related: Credit Card Tips – Hidden Credit Card Fees – Poor Customer Service from Discover Card – Lobbyist Assure Future Taxpayers Will Pay Taxes Private Equity Deals Avoid
Smaller Companies Grab Bigger Share of Surging U.S. Exports
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Lower tariffs as a result of free-trade agreements have also helped. Since the North American Free Trade Agreement with Canada and Mexico in 1993, the U.S. has entered into accords with Chile and Central America. Treaties with Peru, Colombia, Panama and South Korea are currently awaiting congressional approval. “The free-trade agreements are really an important element for the smaller companies because tariffs and non-tariff barriers pose less difficulties for large multinationals,” the U.S. Chamber’s Murphy said. “For smaller enterprises, the tariffs can be a deal-breaker.”
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A European customer eyeing an American product priced at $100, would now need to come up with only about 68 euros to make the purchase, compared with 99 euros five years ago.
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That may be one reason spending by factories on new equipment rose for a fourth straight year in 2006, according to the Commerce Department’s Annual Survey of Manufacturers. The last time that occurred was from 1994 to 1998.
Interesting article. Once again I repeat my message that the end of manufacturing in the USA is greatly overstated. While surging exports are good for the economy the massive current account deficit needs to shrink a great deal before the USA can be said to have stopped living far beyond its means.
Related: Manufacturing Jobs Data (USA, China, Europe, Asia…) – USA Manufacturing Plant Construction – Manufacturing and the Economy
Goldman Sachs Rakes In Profit in Credit Crisis
But for Goldman’s chief executive, Lloyd C. Blankfein, this is turning out to be a very good year. He will surely earn more than the $54.3 million he made last year. If he gets a 20 percent raise – in line with the growth of Goldman’s compensation pool – he will take home at least $65 million. Some expect his pay, which is directly tied to the firm’s performance, to climb as high as $75 million.
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This contrast in performance has been hard for competitors to swallow. The bank that seems to have a hand in so many deals and products and regions made more money in the boom and, at least so far, has managed to keep making money through the bust. In turn, Goldman’s stock has significantly outperformed its peers. At the end of last week it was up about 13 percent for the year, compared with a drop of almost 14 percent for the XBD, the broker-dealer index that includes the leading Wall Street banks. Merrill Lynch, Bear Stearns and Citigroup are down almost 40 percent this year.
Interesting story with at least a couple of good points to remember. First it does make a difference what company you chose. There are many market conditions where anyone can make money, but those conditions will change. Also look at the type of pay these people get. The CEO’s take huge risks to possibly get even more obscenely paid. It is absolutely no surprise to me the companies write off hundreds of millions in losses. It happens constantly. Executives are paid ludicrous salaries. In order to try and justify them they take huge risks. When the gambles pay off they pocket even huger bonuses. When they fail they pocket huge severance packages. Who wouldn’t bet the future of the company for that kind of money. Some people wouldn’t but not many that fight there way to the top of the corporate world. Right now it is banks writing off hundreds of millions but just watch every year companies do it. It is not some isolated rare event – it is predictable, common happening.
And third the financal markets are much riskier than people think. Combine that with leverage and you get huge swings – huge profits and huge losses. I suppose some company may be able to guess just write about when to leverage and make the changes at just the right time – but I doubt it. A few great investors might be able too much of the time.
MIT launches initiatives in innovation and India
Since 2002, The Deshpande Center has funded 64 projects with over $7 M in grants. 11 projects have spun out of the center into commercial ventures, having collectively raised over $88 M in outside financing. Twelve venture capital firms have invested in these ventures. The Center supports a wide range of emerging technologies including biotechnology, biomedical devices, information technology, new materials, tiny tech, and energy innovations.
Related: India related posts from our management blog – Educating Engineering Geeks – What Kids can Learn – The Future is Engineering