When I said feds I did not mean Federal Reserve, I meant federal government.

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Yeah, i got that..  but they are all "feds", i dont care about the org chart.

I just looked at some charts, they are not quiet as proportional as I thought.  Still visually congruent, but banks seem a lot less erratic than the fed, thank god :)  Or this crisis would be even worse.

The point I was making, is if the federal government wants mortgage rates to drop, the federeal reserve will drop them by dropping federal funds rate.  If they want them to rise, they will do the opposite.  That control has not been lost.  Plus the interest rate is not that important anymore compared to types of loans that double your payments and qualifications for borrowing having bieng virtually nonexistant.

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"Я это понимаю на рациональном уровне, но не могу принять на эмоциональном" --Бизнесмен Борис Березовский

Egor,

 I still don't get why ARMs are bad?

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ARMs are actually good for most of the homeowners as you can get lower APR relative to the fixed rate loan for the first several (say 5) years. There is a risk that adjusted rate in 5 years will be higher than the fixed rate. However, most (>50%) Americans move every 5 years, so they are not affected by the rate increase. Remaining homeowners can always re-finance if their adjusted rate becomes higher than the current fixed rate.

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gtSasha:

Don't worry.  I am sure some people already went out and bought flat screen TVs in the anticipation of the checks arriving.

 

Not sure that's completely true... May be some, but definitely not most

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Egor, the point I was making is that federal government is federal government, and Federal Reserve is a private corporation with some oversight from the federal government.  1.25% drop within one week should be a concern.

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TallSally:

Egor,

 I still don't get why ARMs are bad?

 Well, they are not always bad in individual cases, like Bobrik said.  Some people move quickly, some just know what they are doing, some get lucky. But they are bad in the macroeconomic sense as they dramatically increase the chance of a forecloseure.  If that was just the individual's personal problem - fine.  But its not.  The whole economy suffers, and those of you who do smart things end up being hurt as well.

Why does it increase the risk of a foreclosure?  When applying for a loan, your bank will determine what you can afford to pay every month based on your income, debt, and credit score.  The assumption with ARMs is that either your income will increase over time to keep up with the rate, or that rates will not increase much.  The first assumption has been false (on average) for about the last decade, the second was just stupid, since most bad ARMs were taken out during very, very low rates, which could not possibly be sustained.

The tricky part is understanding the nature of the advantages you get (lower initial payments).  ARMs cause people to afford "more" house.  Obviously that inflates home prices with no fundamental supply-demand reason. So you are buying into a bubble regardless of your loan type now.

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"Я это понимаю на рациональном уровне, но не могу принять на эмоциональном" --Бизнесмен Борис Березовский

So, basicaly you all are saying that the current "crisis" is a result of a population which has dumb down over the years and getting dumber by the minute

 

Excellent  !!

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- Независимость - это когда в 20-й раз наступаешь на одни и те же грабли, а русские уже ни при чем....

KGBMan:

So, basicaly you all are saying that the current "crisis" is a result of a population which has dumb down over the years and getting dumber by the minute

I would agree, but I don't think "dumb" is the right word.  I think people saw an "easy" way to make money and greed took the best of them.  People saw house prices go up and they saw or heard rumors about investors making tons money in real estate by "flipping" houses; so many people who knew nothing about real estate bought houses they could not afford.  It was a typical "mania". People were making speculative buys and banks were making speculative loans to borrowers with poor credit hoping that the prices on houses will keep going up.

A remarkably similar thing was going on back in 1999 and early 2000 when people who knew nothing about stocks and investing were pouring their money into .com companies.  Manias were happening ever since the tulipomania in XVII century Netherlands and probably before that. 

Today you keep hearing talk-radio and late-night TV advertisements urging you to buy gold.  "Gold will double in price!...", "gold will quadruple in price...", "...buy coin...", "...buy before the mainstream rushes in."  All over the internet there are long articles that throw around terms like "monetary policy", "inflation", "emission"; all the while suggesting that "[American] dollar in not real money", but only gold is.  I am sure there will be people who knowing nothing about macroeconomics or monetary policy or precious metals trading will invest in gold and lose their money.

 

 

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Sasha

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Work is a matter of taste. If you don't work you don't taste.

There are basically 2 classes of people -

THe poor who could only afford the American dream by using the more creative loan structures (ARM, interest only).  They were renters before - big deal, they will go back to renting.

The greedy who used low interest rates and creative loan structures to buy more properties to flip.  Those that flipped and made lots of money did great.  Those that lost 'musical chairs' and got caught with a whole bunch of properties that are now devaluating in value and increasing in loan cost, are ruined.

 Like the Internet bubble, the increase in home prices were unsustainable.  The speculation caused by the greedy (skewing supply/demand) caused prices to soar to prices the average consumer could no longer afford.  Prices need to come down 20%. 

Not sure we can really blame ARM's for all this - Hedge funds are another creative financial tool - should those be outlawed?  It's so easy to look back and criticize with 20/20 vision.  If prices had kept going up, nobody would complain about ARMs.  THey are bad now that the price bubble has burst.  So, blame the greedy, not the ARM holders.

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"Hearts will never be practical until they can be made unbreakable."

Tam-tam-tam!!!!

 http://money.cnn.com/2008/03/31/news/economy/paulson_regulation/index.htm?cnn=yes

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soon we will have a 5 year plan and a central commeetee !! 

 

 

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- Независимость - это когда в 20-й раз наступаешь на одни и те же грабли, а русские уже ни при чем....

LOL

Really...  We already have some experience living in the country with "developed socialism"... Увольте...  господа... 

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Остановите Землю!!! Я сойду!!!

The same things happens in the corporate world.   If my department fucks up, instead of taking blame, I'll say "if we only had more power and oversight..."

The hard part is figuring out when its actually true.  I think the fed has been doing stupid *** for about 10-15 years, and their power should decrease in favore of different kinds of regulation.  But... what the hell do I know

I think they've been directly responsible for building up the stock market bubble in the late 90s, and the ensuing crash.  They did the same thing (different methods) on the housing market. 

Does anyone still remember what their actual main responsibility is?  Look it up.  They are currently (again) undermining what they were intended to accomplish, always overstepping their bounds, effecting market psychology (which is none of their business), and they want more power?  to do what?  "f*ck off", i say.

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"Я это понимаю на рациональном уровне, но не могу принять на эмоциональном" --Бизнесмен Борис Березовский

Egor... So much anger... WHY?  You and I both know that corporations are really good about finding various loopholes in the regulatory mase.  Somehow,  with all of the regulations they continue to thrive in changing economy...  Do you know what the fastest grouwing occupation is right now?  All you have to do is check out Monster and Career Builder.  Everyone wants either Marketing people or Project Managers.  Do you know why?  Because corporations need people whose occupation is to IMPLEMENT CHANGES...

No one got to be CEO or VP of a Fortune 500 company by being stupid...  They all understand that no matter how regulated the market place gets, they still need to meet the expectations of the shareholders (not to mention that Executive (Director and above) compensation packages and bonuses are directly tied to the corporate perfomrance indicators)...  So...  the market place will become more regulated, the companies will find looholes in the ragulatory requirements, they will hire tlented Marketing people to develop and market their new or refurbished products/services, and they will bring in armies of Project Managers to help retrofit their administrative processes and platforms to support the new products...  Life will go on...  

As far as I can see, such a drastic change will bring about more high paid jobs in the Financial Services industry.  We have already seen this in the Health Insurance world.  In the mid-1990s we saw intorduction of the Clintonian HIPAA regulations, which were follwed up even stricter state regulations.  So... what happened?  All health insurance companies had to change their business models, platforms and business processes.  Everyone introduced new managed care products such as HMOs and PPOs.  Between 2001 and 2006 everyone saw record profits and growth.  The amount of mergers and aquisitions was unprecedented.  Now... the business is changing again.  Everyone's stocks are down, but the job market is "buzzing"  They are all hiring Project Managers and Marketing Gurus.  I get 3-4 calls form recruiters every week, and most of them come from companies, who are posting lower-than-expected earnings and watching their stock go down 35% in value...  Here we go again!!!  I see dollar sgns in my future!! :)  

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Остановите Землю!!! Я сойду!!!