Patterico's Pontifications

7/20/2009

Let’s Play Economic Jeopardy

Filed under: Economics,Obama — DRJ @ 3:42 pm



[Guest post by DRJ]

Answer: $23 Trillion.

Question: According to testimony today by the financial bailouts Inspector General, how much could the bailouts cost in a worst case scenario?

$23 trillion is almost double the nation’s annual economic output and “more than the federal government has spent on any single effort in American history.” But it is a worst case scenario. Of course, when it comes to government budgeting, that means it could be even worse.

— DRJ

78 Responses to “Let’s Play Economic Jeopardy”

  1. Until TARP, the congress had no idea how much it could get away with.

    Now, they are testing their boundaries like pioneers of graft! They know that Americans are basically completely uninformed and that most of them today won’t have to pay for most of this craziness. So the congress gets whatever derivative benefit they get (power) and make a huge problem that the future will not be able to punish them for.

    Juan (bd4b30)

  2. hope the worst case doesn’t come to pass, Charmin will be out of business

    reg (40ad66)

  3. Right now, whenever I hear someone saying inflation isn’t a problem, I assume they are trying to take advantage of suckers.

    Inflation is going to come pretty quickly, and I hope you all are invested in something substantial that might ride that wave, so that you’re somewhat shielded. It’s a bigger incentive to buy a house than the $8000 check.

    Truly, for the inner city voters who supported Obama, I have a bad feeling for their future. What hedge against inflation does a poor renting family in St Louis have? When baby formula and beef cost twice as much money, maybe I could laugh at how awful life becomes for all these swarms of Obama voters, but I won’t be able to. Obama will, of course, complain that Bush did it and he actually reduced the damage. And they will actually curse Bush for the coming rampant inflation.

    Juan (bd4b30)

  4. I found this innocent little line in the story:

    The Treasury Department says less than $2 trillion has been spent so far.

    Oh, gee, now that makes everything seem better! The total of all federal spending in FY2008 was less than $3 trillion. In other words, we’ve spent an amount roughly equal to two-thirds of FY2008 federal spending, just on bailouts.

    The economist Dana (474dfc)

  5. this is kinda off topic but it is economics stuff and I liked the way he put this down… it’s that Greek kid what landed on his feet at Reuters after USN&WR got all flakey. He’s very smart.

    My pal John Tamny doesn’t think the Fed chairman deserves a second term for the following reasons

    1) Bernanke is too much of a political operator.

    2) Bernanke thinks too much economic growth causes inflation.

    3) The dollar has collapsed vs. gold during Bernanke’s tenure.

    4) Bernanke was a TARP enabler.

    5) Zero percent interest rates are a market of Fed failure.

    Bottom line:

    Here’s hoping the Obama administration ignores the establishment consensus, and realizes that the job of Fed chairman should be a prosaic, undesirable one, whereby the chairman is humble in his actions with an eye solely on issuance of a stable dollar.

    Bernanke’s past and present lust for the job of Fed Chairman signals an expansive vision about what the position entails, and this means he’s unfit for the role, which should have greatly diminished prestige. Indeed, the fact that he covets the position so much tells us all we need to know about his love of status and rank. As Bagehot observed, “such men are dangerous.”

    happyfeet (71f55e)

  6. The story isn’t worth the bytes it’s printed on. By all means let’s scream the sky is falling based on worst case scenarios. Let’s assume that all of the assets purchased with TARP money become worthless, that not a single CDS is worth even 1 penny. Let’s assume that every bank not only fails but writes off every asset it has, leaving the FDIC on the hook for 100% of the insured deposits. Let’s assume that everybody with a mortgage defaults – and – every house is worthless, leaving the federal government eating 100% of the mortgages they insured. And let’s assume that no bank ever repays the money they borrowed from the Fed.

    And comparing the number to such as WWII or the moon landings is likewise ridiculous.. there’s a big difference between spending that actually takes place and spending that is, at worst, just a contingent exposure.

    In fact, with even Barofsky acknowledging that the worst case is ‘unlikely’ (wow, that’s really going out on a limb), this whole thing is a non-issue… and anyone who tries to portray it otherwise is a demagogue… or ignorant… or both.

    steve sturm (3811cf)

  7. Everyone picks on Alan Greenspan, but I rarely got the impression that Greenspan was playing a game.

    Juan (bd4b30)

  8. And #4, ‘spent’ isn’t the same as not coming back in the sense that regular government spending flows only one way. Yes, $2 trillion was spent buying assets and providing money to companies in need, but in theory, at least some of that money should come back. (not from GM or Chrysler or CIT or AIG… ).

    steve sturm (3811cf)

  9. This is nuts. If it costs “$23 trillion” it’s because we’re already all living in dumpsters because there is no economy to speak of.

    For it to cost that, ALL mortgages and underlying properties would have to be worthless, and no one would have any ability to generate a payment.

    NOT going to happen.

    Kevin Murphy (805c5b)

  10. #6 Steve, it doesn’t take your reductio ad absurdum to cause real bad pain. Think about mortgage interest at 21%. I’ve seen that. I am very concerned about variable interest rate mortgages and think everybody should be battening down hatches. It’s one thing to ride out zero (or negative) equity; it’s another to try to pay 21% interest payments.

    In 1979, my partner was building a new house. On either side of him, others who were fairly well off were building houses. The new lake in Mission Viejo had opened and these were custom homes for about $800,000 total including land. When they were finished, the owners of the house on either side of him could not qualify for the mortgage and the houses went into foreclosure. They had qualified for the construction loans nine months before but the interest rates had gone up so much that they were looking at monthly payments of $14,000 a month.

    That’s what inflation looks like. I think, unless he is stopped, Obama will give us that by 2012.

    Mike K (90939b)

  11. damn contingent exposures always crawling up my leg and biting the inside of my ass and … oh. this whole thing is a non-issue. Hey that’s my lunchables I’m saving. That one’s got a reese cup and cheetos both mom got it just for me.

    happyfeet (71f55e)

  12. steve sturm and Kevin Murphy,

    You’ve convinced me. Now why did we need those bailouts again?

    DRJ (6f3f43)

  13. Happyfeet: The latest rumor (as of last Friday, anyway) was that the Administration, particularly Rahm Emanuel, wanted to force out Chairman Bernanke, ostensibly to replace him with Larry Summers. Given that Mr Emanuel doesn’t really like Dr Summers all that much, I have some doubts, but such would get Dr Summers out of the White House, where Mr Emanuel has to look at him every day, and further away from being able to influence the President.

    Then again, there’s a question of whether Mr Emanuel wants Dr Summers out of his face strongly enough to make that happen by giving Dr Summers independent power.

    If there’s one thing the Obama Administration has brought us, it’s amusing intrigue! 🙂

    The rumor-mongering Dana (474dfc)

  14. Mike K: so some people suffer, BFD, are we supposed to structure the economy so nobody ever gets hurt? People who take mortgages that expose them to 21% interest rates are, by definition, stupid. Your partner made a bad choice and suffered… that’s life. And sympathy for someone buying a $800,000 house in 1979 who didn’t have his financing locked down? Nah, again, textbook stupid.

    DRJ: I didn’t say I favored the bailouts.

    steve sturm (3811cf)

  15. I know you didn’t, steve sturm. I was inviting you to expand on the topic but I’ll try to be less flippant this time. I agree the underlying assets aren’t worthless but do you think the federal government will get repaid in full (or in a significant amount) and in a reasonable time frame? If so, do you think it will use those funds to pay down the deficit or funnel them into more spending?

    DRJ (6f3f43)

  16. I’ve not been real impressed with Bernanke, but Summers is far too lightweight for Fed Reserve Chairman. That nomination would be laughed out of the Senate.

    SPQR (26be8b)

  17. SPQR, I seriously would like to know how bad a nominee Obama would have to appoint before his senate would really reject it.

    Larry Summers isn’t that bad. He’s got foot in mouth syndrome (takes one to know one), but he’s always struck me as at least somewhat earnest. I see Joe Biden the same way. Is Joe a competent well spoken braniac? No… but half of the time he’s stumbling because he is trying to be decent and admit some flaw.

    Juan (bd4b30)

  18. Summers knows his stuff but will keep his mouth shut in order to keep his standard of living nice and high.

    Boston, New York, DC and USVI are very expensive.

    HeavenSent (641cde)

  19. 16. Summers is no lightweight. He is political however. Summers is actually painfully talented.

    HeavenSent (641cde)

  20. No, Summers is a lightweight. The markets would defecate ceramic building materials if he was nominated for Fed Chairman.

    SPQR (26be8b)

  21. Heavensent, I think the fear with Summers is that he’s made comments that got him in hot water. These comments actually came from deep intellectual honesty, I guess, but if the Fed Chairman makes an ill considered remark it makes a real impact. We need someone who is very careful about that kind of thing.

    Juan (bd4b30)

  22. Next year Obsama’s and the spend-crazy democrat’s chickens come home to roost and the SHTF.

    1) Unemployment over 10% Officially, in reality over 20%.
    2) Skyrocketing Inflation.
    3) Stock Market Tanks, if not Crashes.
    4) U.S. Debt rating tanks.
    5) China stops buying U.S. Debt, except at insanely high interest rates.
    6) Rapidly increasing energy and food costs.
    7) A President who votes “Present.”
    8) Passage of the “Cap and Tax” Bill by the Senate.
    9) Passage of Socialized Healthcare.
    10) Amnesty to 20 Million Illegal Aliens.
    11) A major Taliban Counter-strike in Afghanistan.
    12) Riots in China, Africa and South/Central America.
    13) Israeli air strikes on Iranian nuclear facilities and Iranian-Hezbolla-Hamas retaliation.
    14) The commercial real estate bubble will burst and make prior real estate crisis seem like small potatos.

    Add to that either a huge natural disaster or a nuclear, chemical, or biological terrorist attack on a major U.S. metropolis and we have the beginnings of Armagedon.

    To prepare: Guns, knives/swords, ammo, food, water, gold and silver.

    We are a mere three days without food and water from total anarchy.

    You’ve no doubt seen the L.A. Riots, imagine that when people haven’t had food or water for three days happening all across the country.

    Are you prepared? I’m not, yet, but I’m working on it.

    We’re screwed! IMHO 😉

    J. Raymond Wright (e8d0ca)

  23. I can’t tell who will be any good when it comes to the economy because I never know to what extent they will be guided by politics instead of economics.

    DRJ (6f3f43)

  24. I know I’m an idiot just to suggest this, but George W Bush would be a pretty good selection. He’s knowledgeable and has a great circle of advisers, he’s not afraid to do what’s right in the face of tremendous personal pressure, the job would not be a prestige enhancer, and even for Obama, this would actually be a smart political move.

    I realize this is silly nonsense, but Bush would probably do a better job than whoever does take the seat (And the man who currently has it).

    Juan (bd4b30)

  25. Wright, commercial real estate collapsed awhile ago, look at the REIT indexes.

    SPQR (26be8b)

  26. SPQR, that may be the case, but Wright’s little spiel is still enough to scare me quite a bit.

    If half of that stuff happens (which is entirely realistic), then we really could be in for a much worse economy. I’ve got enough canned goods for a few weeks just because I bargain buy, but I’m probably screwed if we have real trouble.

    I think inflation is going to help a lot with preventing a real estate collapse, but we’ll see, i guess.

    Juan (bd4b30)

  27. SPQR, whatever. I won’t even bother. Summers is brighter and better prepared than Mankiewicz. This is like arguing that Obama doesn’t give a good speech — you can but you sure sound off base to me. A lightweight? Oh boy.

    Juan, Summers comments that got him in hot water were about women and the fact they tend to score worse (and not as active in academia) in higher order math, physics, engineering and science.

    http://www.boston.com/news/local/articles/2005/01/17/summers_remarks_on_women_draw_fire/

    He was submarined by the PC Crowd at Harvard. It spoke WORSE to Harvard than anyone else b/c he did not say a damn thing wrong from what I recall. He was fired for speaking the truth.

    HeavenSent (641cde)

  28. HeavenSent, I don’t think that there is a lot of respect for Summers’ work at Treasury. If you disagree, fine – point me to some of his accomplishments during his time there.

    SPQR (26be8b)

  29. http://en.wikipedia.org/wiki/Lawrence_Summers

    Lightweight indeed.

    HeavenSent (641cde)

  30. … and funny enough he is a right winger on economics …. but again, he is a political animal.

    HeavenSent (641cde)

  31. HeavenSent, I would not cite to Wikipedia however, the lines about Summers and Enron ( as well as Gramm-Leach-Bliley ) in that page are amusing fodder.

    If he was nominated, the resulting edits on that page by the Obama cultists should be hilarious.

    SPQR (26be8b)

  32. Heavansent, I agree that Harvard acted idiotically towards Summers for his serious discussion of the potential differences between brains in men and women. It’s just science, but the PC crowd saw it a different way.

    And yet, I wonder if Summers could have handled that differently. Certainly, he backed off very quickly for someone who was knowingly taking the PC crowd on. Either way, he didn’t appear to understand the reaction people would have to his comments, which makes me concerned for his future comments (though perhaps he learned his lesson).

    Of course, my recommendation was pure jackassery, so I have no room to complain.

    Juan (bd4b30)

  33. SPQR, you don’t want the question answered really. You are just going to argue “he has not accomplished anything” yet you the guy has served in 3 administrations starting at the age of 28/29.

    Larry Summers may be LOTS OF THINGS but a lightweight he is not. His short time at Treasury was during the Tech Bubble but Gov.t finances did quite nicely.

    Larry’s problem is he is arrogant and the smartest man in the room most of the time. Unfortunately, powerful people don’t like to be called morons by academics.

    But if you want to know how well he has done look at the jobs he keeps getting …….. and in fact he would have gotten Treasury this time if not for Obama being a not to bright. Instead he picked a tax cheat who is career Fed guy — which is not very distinguished on Wall Street or in Ivy circles.

    Light weight is way harsh….

    HeavenSent (641cde)

  34. Larry is considered a jackass by just about everyone who meets him.

    Larry is also considered the smartest man in the room by everyone who meets him.

    Just a fact.

    HeavenSent (641cde)

  35. SPQR, and with respect to Wall Street’s view on Larry I would not take it to heart too much.

    Wall Street’s opinion is the only good finance guys are in a bank and if there is anything Robert Rubin or Hank Paulson have proven is they are hardly the smartest bets in the room.

    Plus didn’t these same morons from the Street just almost sink the entire world into global depression and collapse by constantly doubling up their bets on “real estate?”

    HeavenSent (641cde)

  36. HeavenSent, obviously I don’t agree with your conclusions.

    However, I’m baffled why this sentence made sense to you: His short time at Treasury was during the Tech Bubble but Gov.t finances did quite nicely.

    Perhaps you can explain the non sequitur.

    SPQR (26be8b)

  37. Barack Obama tentatively said he wants to own the economy for real but when he said that what he was doing was lying. If he replaced Bernanke he’d be moving in a decidedly more owning the economy sort of direction I think, and he’s too much the coward I think for that sort of decisiony decisiveness, unless Mr. Soros says no, I want you to do it and so you have to do it and you know what happens when you argue don’t you Barack?

    Yes, Daddy.

    happyfeet (c75712)

  38. SPQR — you say Larry is a lightweight.

    The guy was the Sec.y of the Treasury of the United States. He was the Pres of Harvard. Really, I am not calling him Warren Bufett, but to say he is a light weight. Frankly, your statement has nothing to support it at all. Mine does.

    With respect to the non-sequitor, Larry Summers was Under Secy during a nice run at Treasury. That run at Treasury was aided by a Tech Bubble but still — those were very good economic times for the US. Many of the leading companies we talk of today grew up during Clinton’s years. Denying this is a flat out lie and Clinton should get some credit for it.

    I realise a critic, with no basis or understanding of finance or economics, would say “he was there during the bubble” but matter of fact it was the Fed who blew it with artificially low interest rates. That would also be Mr Greenspam with his friend Big Ben Bernacke. They also missed the real estate bubble too and aided and abetted in that disaster.

    So … again, I have no earthly idea why Larry Summers would be a “lightweight” to you unless you happen to be pig trader who thinks a 7 figure bank account is what makes one important.

    HeavenSent (641cde)

  39. I will continue to pray that they simply do nothing.

    JD (878a7c)

  40. How long will it be before Obie begins to speak of quadrillions?

    Blacque Jacques Shellacque (1641e7)

  41. Larry Summers is a fiscal conservative? One would wonder why considering his accomplishments. Just as Bush claimed to be a conservative and demonstrated to the dhimmies what government spending could be Summers has a record that just doesn’t pass the laugh test.

    When has Summers advocated a policy that would have tightened monetray expansion? When did he question the government’s expansionist policies and their impact on credit? When did Summer’s question the easy money policies that created the subprime loan boondoogle?

    When a nation faces high inflation and persistent economic contraction there will be a major, soul shaking crisis in the future. Most estimates predict continued unemployment for 6-8 quarters; significant drains on the government’s resources; further mortgage collapse extending into commercial properties; no recovery or stabilization in home mortgages or values.

    So will someone tell how Larry Summers and his evil twin the Big B. are such economic wonders again?

    Thomas Jackson (8ffd46)

  42. HeavenSent, so your statement has nothing to do with any particular tax policy advocated by Summers during the tech bubble? A “nice run at Treasury” ? With no relation to his actions evidently.

    Its interesting that your defense of Summers descends to ad hominem so quickly. Tells me a lot.

    SPQR (26be8b)

  43. Larry Summers is probably passing smart but he don’t exactly got Jared Padalecki nervously looking over his shoulder or anything.

    happyfeet (c75712)

  44. Thomas,

    Really, you guys are completely missing the point on Summers. Navel gazing at its worst.

    Also, b/f you get into a discussion on Larry Summers you need to understand the difference b/w the Secy of Treasury, Fed Chairman and Congress.

    Your questions should not be directed at Summers but Congress and the Fed.

    HeavenSent (641cde)

  45. SPQR,

    1) I have presented data to support my argument and frankly the more you write the less I think you know anything about this. You simply are attacking Summers by calling him a lightweight with ZERO data.

    2) Ad hominem? Please explain. I must be missing something b/c your position boils down to “I disagree with you because I disagree with you.”

    3) Summers has CONSISTENTLY written how certain business taxes distort the economy and are bad. Sound like Reagan/Kemp to you?????????????? It does to me.

    Larry is a free market guy to the core but he is a Larry FIRST guy above and beyond. He goes where the money is and Democrats happen to be his sugar daddies.

    HeavenSent (641cde)

  46. #43, Yeah MIT at 16 for Physics, Harvard Ph.D, tenure by 28, he is related to economic theory royalty — really he is a damn joke.

    Phew, what a lightweight. Glad he is on the other team!!!!

    HeavenSent (641cde)

  47. Larry Summers never guested on ER not once. Google away my brother.

    happyfeet (c75712)

  48. This is kind of embarrassing really. You can only blame your agent for so long.

    happyfeet (c75712)

  49. HeavenSent, I guess a pig trader like me is not supposed to know what ad hominem is.

    SPQR (26be8b)

  50. SPQR, ask yourself this, how perceptive am I that I figure out you were a Trader?

    The only people I have ever met who would be dumb enuff to say Larry Summers is a lightweight are Wall Street Traders. Traders think ZEROs on the Statement define importance.

    Too funny, but I have always been extremely perceptive. I guess my years in financial institutions taught me something.

    You know Jimmy Chrystal?

    HeavenSent (641cde)

  51. … and btw it was not ad hominem …. I had no idea you were a trader but I suspected.

    HeavenSent (641cde)

  52. Go long, I am buying bacon tomorrow.

    HeavenSent (641cde)

  53. Steve Sturm in your post #14 you didn’t seem to read the short post (#10) you were responding to very well.

    First, if you read the second paragraph again you will see that MikeK’s partner plays a different role than the one you describe.

    Second, if you reread the second paragraph again you will see a story that describes a scenario where over nine short months, interest rates went up to astronomical heights.
    You attribute the the inability of the people building on either side of MikeK’s partner to read interest swings this severe on “stupidity”.
    This is staggering from a guy who can’t digest three paragraphs.

    I also read another form of what I think is real stupidity in you post.
    Class warfare when it comes to discretionary construction spending is stupidity squared.

    $800K in construction spending by a rich person is a huge win-win for the economy. Only an idiot needs help figuring that one out.

    land/utility improvement equals blue collar and white collar jobs, materials

    land sale profits equals taxes, and raises property tax base. Profit earner usually spends or reinvests a majority of those profits.

    home building equals major (up to 85%) investment in labor, goods and services. The finished product is reassessed for higher property taxes
    The return on the corporate end is usually reinvested with a dividend going to the investors, which is usually spent on goods and services.

    In the described instance in #10, $800K would have been redistributed locally from a wealthy person to a myriad of hard working, productive, tax paying craftsmen, laborers, architects, planners, city administrators, lawyers.
    A person spending the $800K in this fashion deserves a thank you, not derision.

    SteveG (97b6b9)

  54. I meant to write “discretionary or speculative

    SteveG (97b6b9)

  55. SPQR,

    And BTW, markets guys always call Treasury guys lightweights unless they worked Goldman. They always attack non-markets guys. I remember the navel gazing nasty comments about Summers in the late 90s when Rubin took his CitiBank bail-out from Sandy. Also Bush’s first guy — forgot his name.

    Markets guys always dis non-markets guys when it comes to econ and finance.

    HeavenSent (641cde)

  56. DRJ #15: I don’t think we’re going to be repaid in full. the money given to GM and Chrysler was wasted the moment the checks were written. the same probably holds true for CIT. underfunded pensions will end up being picked up by taxpayers. some banks will fail, the FDIC will eat something covering deposits and taxpayers will never see a return on the stimulus spending.

    And I think the money that isn’t lost will get re-spent. As (as I think is the case) this money has been recorded as spent (as opposed to invested as would be the case if a business spent money buying assets or making loans), any repayment will lessen the current account deficit (in the same way social security surpluses mask deficit spending)… giving Congress the cover to re-spend the money without making the official deficit any larger. In slightly fewer words, since Congress doesn’t think elections are won by not spending money, it’s pretty much guaranteed that they will spend any money they get a chance to spend.

    steve sturm (3811cf)

  57. http://news.bbc.co.uk/2/hi/business/8160304.stm

    Changing topics, funny how the NYT gets religion when it is their money.

    PAY CUTS! The horror! What about the children and the communities!

    Where is the outrage at capitalism and the NYT for this assault on the American Middle Class and working people!!!

    Gotta love it.

    HeavenSent (641cde)

  58. Guys, even in a worse-case everything-collapses scenario, nobody seems to be addressing the real issue–the liability to taxpayers.

    The story isn’t worth the bytes it’s printed on.

    Bullcrap. American taxpayers are on the hook for up to $23.7 trillion in programs for banks going back to 2007. Whether a total economic payout of such proportions could even happen is beside the point–why the hell should taxpayers be liable for it at all? Furthermore, Barofsky pointed out a ridiculous lack of transparency in how the money was being spent. This is trillions of dollars ($2 trillion spent already through TARP and these programs), and people like you are claiming that it’s irrelevant because the larger figure “can’t happen”? That’s not only whistling past the graveyard, it’s explicitly stating that it’s not a big deal for taxpayers to be liable for bank bailout and support programs that total twice the nation’s GDP.

    These banks are being propped up right now primarily through taxpayer dollars, not their own investments (after all, the bad debt hasn’t gone anywhere, it’s just been shoved under the rug and ignored since TARP passed), and Barofsky just confirmed how deep those commitments go. And you honestly don’t think this is a big deal? You’re dreaming.

    Another Chris (a3bb8f)

  59. 23.7 trillion is approximately a mortgage for every tax payer.

    It’s just a single program that I doubt these taxpayers would prefer existed instead of giving them an additional house.

    Juan (bd4b30)

  60. In fact, I bet you could outright buy at least 3/4ths of the homes in America for that kind of money.

    Juan (bd4b30)

  61. steve sturm,

    I agree with much of your last comment. By the way, I saw a brief TV clip on CNN’s business channel about CIT today but I assumed it was private financing. Did the government bail out CIT today?

    DRJ (6f3f43)

  62. HeavenSent – I am pretty sure that you are way off the mark about SPQR. Way off the mark.

    JD (bdcd86)

  63. Mike K: so some people suffer, BFD, are we supposed to structure the economy so nobody ever gets hurt?

    No, we are supposed to let the economy function so those who plan ahead (I suspect you are not one) can anticipate future changes. My partner was fine and so was I but the others had trusted more in the wisdom of the administration. I bought treasury bills with 16% coupon rates (at a discount so the yield was 18%) for investment but a lot of little people were ruined by the consequences of the last Democratic administration that had a Democrat Congress.

    Your reaction (“BFD”) leads me to believe that you are a member of the debtor class that thinks inflation will help pay your debts. The people who depend on the investor class for jobs didn’t do so well. You certainly showed where you are in the economic system.

    I’m sure you are depending again on the government to take care of you. Some of us prefer to be our own people.

    Mike K (90939b)

  64. Like Barcky the dirty little socialist kind of off the mark …

    JD (bdcd86)

  65. MikeK: you’re 180 degrees off, I am the investor/owner class, I’m tired of being tagged with having to pay for other people’s stupidity, laziness or mistakes. I don’t want my taxes going up to rescue those who bought houses they couldn’t afford or took on mortgages with terms they didn’t bother to read… or those who took ARMs without understanding that low teaser rates came with the risk of resets to a much higher rate. I don’t want my taxes going up so overpaid auto workers can continue to be overpaid auto workers. And what exactly is ‘anticipate future changes’? You think there’s any certainty in the economy… or life?

    DRJ: the latest CIT bailout was financed by bondholders (figuring they’d come out better than in bankruptcy), but I read that some TARP money had earlier gone to CIT (and apparently all of which was blown).

    Steve G: I think read the paragraph just fine. Mike’s partner made the mistake of buying into a project where other buyers weren’t solid and thus (presumably) suffered when they didn’t close on their houses and the value of property dropped. And rates didn’t skyrocket over just 9 months, they were already high, they went higher. It’s risky to proceed with just a construction loan in hand, without a permanent financing commitment.. and given how well the economy was doing under Carter, I dare say it was stupid to expose oneself to significant interest rate risk.

    And my point about the $800,000 house was that in 1979, that was some seriously big house. MikeK’s $14,000 (=21% on $800,000) a month in payments presumes ZERO down payment… risky now, risky then. Each 1% swing in interest rates amounts to (even with zero down) an additional $8,000 a year in deductible interest… so even a 4% jump in rates would cost an additional $32,000 a year in interest, $16,000 after tax. If someone was buying a $800,000 house in 1979 and didn’t have $16,000 of cushion, then yes, they were stupid.

    Anything else?

    steve sturm (369bc6)

  66. How perceptive are you, HeavenSent? About as perceptive as a rock. Not even igneous in your case.

    SPQR (26be8b)

  67. SPQR,

    You called yourself a Pig Trader and your comment perfectly fits the mindset. If you are not, then you can’t say I went ad hominem. Pick one.

    With respect to Summers the lightweight, you are the one foolish enough to say it and do nothing to back it up. I simply said you were off base.

    HeavenSent (641cde)

  68. And what exactly is ‘anticipate future changes’? You think there’s any certainty in the economy… or life?

    This alone shows you are lying about being an investor. Your comments about my story are lll informed and make assumptions that are not based on anything but your own bias.

    You could stop by Tres Vistas in Mission Viejo and see how much “the value of property dropped..” You simply don’t understand but I’m not surprised.

    My point, for those who are still reading this, was that some people made assumptions that did not anticipate the most reckless and irresponsible behavior by the US government until Obama and company came to town. Those people I referred to paid a high price and lost their investment because they didn’t anticipate what inflation could do.

    That same dynamic is at work now and those who still think Obama is their guy are riding for a fall. Inflation is a terrible blow to the lower middle class who hope to own a home and have a comfortable retirement. We are still paying for Jimmy Carter and his feckless Congress of the late 1970s.

    Mike K (90939b)

  69. JD, that is fine. It is an internet blog. So, all that matters is what is written and that is all we have to go from.

    HeavenSent (641cde)

  70. After a while the zero’s just blend together, do these people have any concept how much a trillion really is? They are at the bottom of the money pit and digging at an ever increasing pace.

    Thomas (b7fe33)

  71. Mike: you’re being ridiculous. I know property values have dropped and sometimes significantly. But that is the risk investors run. You buy property, sometimes it works out, sometimes it doesn’t, sometimes you benefit or lose because of mistakes you make and sometimes you benefit or lose because you get caught up by bigger forces. Any investor who doesn’t know they risk getting screwed by Washington is a stupid and/or naive investor.

    And to my original point, I could care less, they made their bet, they would have reaped the profits if it worked and they – and they alone – lose if it doesn’t.

    steve sturm (369bc6)

  72. Comment by steve sturm — 7/21/2009 @ 6:22 am

    In 1979, property values weren’t dropping, but interest rates were going sky-high.
    MikeK said that these individuals were BUILDING their homes, and qualified for the construction loans at the beginning of the process, but couldn’t qualify (due to the increases in the rates) after the completion of construction when a mortgage has to be taken out.
    In 1978, I purchased (in Orange Co. CA) a quite nice 3bd, 2-1/2 bath townhouse of about 1300sq.ft. for $78K, @ 9-5/8% IIRC. A year later there was no way I would qualify for that loan – the interest rate had doubled.

    AD - RtR/OS! (8d7b04)

  73. AD, I think Steve is just a guy who mouths off on any subject and dislikes everybody and revels in their misfortune. I looked at his blog and that seems to be the theme. There is no point in trying to explain anything or use examples. Maybe those who were seriously trying to discuss the problem of inflation got something out of it.

    The real victims of inflation are the lower middle class who want to own a home someday and move up the economic ladder. In 1969, I bought my first home in South Pasadena for $35,000 on a salary of $17,000 as a surgery resident at County Hospital. In 1973, after I had moved to Orange County, I sold that house for what I paid for it. Home S&L had the mortgage and I put 20% down. My house payment was $204/ month.

    Ten years later, a friend sent me a pamphlet from an open house on my former house in South Pasadena. It was for sale for $595,000.

    Salaries for resident physicians at County had doubled in the 10 years but the house, and lots of others like it, had gone up by 20 times. There were factors like traffic but most of that change was inflation. My kids are now dealing with that and that phenomenon had never happened before in our country. It is about to happen again.

    People like me can cope with inflation but many can’t. That was my point.

    Mike K (90939b)

  74. Comment by Mike K — 7/21/2009 @ 1:05 pm

    Those like steve who refuse to learn the lessons of the past doom the rest of us to reliving those Hells!

    AD - RtR/OS! (8d7b04)

  75. Speaking of lessons, AD, why the hell didn’t I keep that house and rent it out ? By the time I paid the commission and with the money I had put into it, I netted zero from the sale. I just didn’t anticipate what happened and I doubt anyone did.

    We should know better now.

    Mike K (db3eb5)

  76. A wise man (or at least someone I perceived to be smarter than myself) told me a long time ago that you should never sell real-estate in CA, but lease it. I followed that advice when I had to relocate from Orange Co. until economics demanded that I sell that townhouse to have some capital for a new business, though it would be nice to still have that t/house – I would have made the last payment (all things being equal) last November.

    AD - RtR/OS! (8d7b04)

  77. Isn’t it amazing how much more perceptive we become as we get older?

    AD - RtR/OS! (8d7b04)

  78. How much would the low estimate be, per uninsured citizen?

    Amphipolis (42043b)


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