Stated HELOC dischargeable- May 29, 2008 This write-up by Tanta on Calculated Risk underscores a key, obvious point on what drove the lax lending standards during the recent housing bubble, namely that ability to pay did not matter so long as the debt was collateralized by a rising asset. It did not matter if the borrower had a job, so long as the house the loan was secured against kept rising 20% a year.That said, both the lender and the borrower to placing the same bet. Here, the borrowers lost, and will go bankrupt. Maybe the...http://www.winterspeak.com/2008/05/stated-heloc-dischargeable.html Rethinking capital flows- May 28, 2008 Brad DeLong has a good paper detailing how the reality of international capital flows has been different from what economists expected in 1990. In particular, economists expected rich countries (such as the US) to be net capital exporters to poor countries (such as Mexico and China) where low wages made the marginal return to capital favorable.In practice this has not been the case. While the US has invested in factories in Mexico and China, those countries have found reason to send even more..http://www.winterspeak.com/2008/05/rethinking-capital-flows.html Dilution vs Supply and Demand- May 22, 2008 Megan has a somewhat tortured discussion with Matt Steinglass on inflation, whether it should be targeted, etc. As I've mentioned before, I simply cannot understand Macroeconomics as it's taught in school. IS-LM, AS-AD, et al made no sense to me then, and don't make any sense to me now. I have come to suspect, however, that my confusion comes more from the fact that these concepts do not actually make any sense, than they simply lie outside my intellectual abilities. Others may agree.I think...http://www.winterspeak.com/2008/05/dilution-vs-supply-and-demand.html Interest rates and qualification- May 15, 2008 The chat I linked to in a recent post on what better regulation of the financial sector might look like has a table showing at a combination of lower interest rates, lower down payment requirements, etc. all combined to massively increase a home buyer's ability to spend money on a house. This increase was completely captured by existing homeowners who saw the prices for their property skyrocket, new homeowners just took on additional debt at the same monthly payment.I had thought that the Fed...http://www.winterspeak.com/2008/05/interest-rates-and-qualification.html Closing the window, opening the corridor- May 13, 2008 I strongly recommend reading both the post, and the comment thread regarding the Fed's recent request to begin offering (and taking) interest on bank reserves.Last week, the Fed decided to ask Congress for the right to pay interest on bank reserves. (Hat tip Barry Ritholtz, see also William Polley, Mark Thoma, Brad DeLong) This is a very big deal.Don't be misled into thinking that the Fed's proposal is just some arcane, technocratic change. The Federal Reserve is asking taxpayers for a big pile.http://www.winterspeak.com/2008/05/closing-window-opening-corridor.html Tax incidence- May 7, 2008 The WSJ op-ed says that the housing crises is over, and prices will stop dropping. Why is thatIf one buys a house with a mortgage, the most important factor in deciding what to pay for the house is how much of one's income is required to be able to make the mortgage payments on the house. Today the rate on a 30-year, fixed-rate mortgage is 5.7%. Back in 1981, the rate hit 18.5%. Comparing today's house prices to the 1970s or 1980s, when mortgage rates were stratospheric, is misguided and...http://www.winterspeak.com/2008/05/tax-incidence.html Better regulation- May 5, 2008 As the US housing bubble deflates, there is an outstanding question of what different regulatory environment would have 1) kept the housing bubble from appearing, but 2) supported "good" financial innovation. Two points on this. Firstly, the chart above shows how borrowing power increased from 3x leverage to 9x at the peak of the bubble in 06. You can see how a combination of low interest rates, lower down payments, interest only loans all played their part in fueling the boom.Secondly, I...http://www.winterspeak.com/2008/05/better-regulation.html Traffic in Dubai- May 2, 2008 As horrific as this story is, I also find it quite believable. It seems the morning was foggyhttp://www.winterspeak.com/2008/05/traffic-in-dubai.html Funny- May 2, 2008 Warren Buffet has entered the monoline market. Best line:Connecticut Attorney General Richard Blumenthal said in an interview yesterday that he is investigating possible conflicts of interest since Buffett's company owns almost 20 percent of Moody's Corp., parent of the credit ratings service.http://www.winterspeak.com/2008/05/funny.html My experience with Notes- May 1, 2008 Joel complains about how architecture astronauts, like Lotus Notes' Ray Ozzie, is now building the same useless technical toy at Microsoft.Lotus, of course, began its life with 1-2-3, and then became the sales and marketing arm for Notes, that was developed by Iris. The Iris group kept some of their old offices and signage and continued to work on the convolution that is Notes. I worked there for a summer, and still have no idea why it's anything other than a crappy version of Outlook (not a...http://www.winterspeak.com/2008/05/my-experience-with-notes.html |