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Originally posted by steven-neil I don't know if this is the case all over but it seems to me that greedy property developers fucked things up in FL..

Essentially. With interest rates being 1% in 2003 and 2004, cheap money fueled the homebuilders ability to grow at unsustainable levels. I can assure you their greed has been punished by the massive losses they've sustained.

Foreclosing an entire neighborhood leads to dramatic increases in crime. People need to survive and if they can't secure income in any way, they will take it. If you are surrounded by houses for sale, I'd take as many security measures as possible to protect your asset and the people who reside in it.

Take heart in the fact that Vegas is much worse then FL, developers just kept building out in the desert and for miles there are nothing but empty houses. Estimates have put the numbers near 50,000 built new homes as well as another 20,000 with delinquencies about to foreclose. Miami specifically had the everglades to prevent developers from too overboard. In Vegas it was just cheap desert extended for miles.

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Originally posted by jerZ07002 On a somewhat related note, the proposed economic stimulus package is, well, unbelievably nearsighted and doesn't solve the underlying problem with this economy (well, one of the underlying problems - ignoring the glaring debtor nation issue). Giving households a rebate check in july or even later will not solve the problem that banks are tightening their lending standard which results in greater borrowing costs to those who can obtain lending. Furthermore, consumers are the most nearsighted element in our economy, and they will simply buy some chinese shit and send alot of that money right back to china (which, not coincidentally, is the same place where we are getting it from). So, essentially, we are borrowing money from china, accruing interest, just to send the money right back. The result will be less effect on the US economy than expected, and massive interest charges being sent back to china. Great stuff. (obviously an oversimplification). if the government wants to solve the problem it should buy the debt from the banks and transfer it to a quasi-governmental corporation to administer the debt, (it could also modify the debt to help those struggling). That would solve some of the liquidity in the market, and would also result in a return of some of the debt to the government. It wouldn't solve the housing price problems though.

The stimulus itself won't do anything at all. We're talking about a 200 Billion dollar temporary tax rebate trying to offset the effects of a 2 Trillion dollar depreciation in housing. It is barely a drop in the bucket and I do not like it.

The one thing the stimulus does is say to the average Americans who are not educated in economics that the government is actively trying to fix the situation. This may help, but it will not cause them to resume their unsustainable spending habits.

As for the monolines there is something which has to be done here. If these companies go under the financial markets will seize like an 80,000 mile old engine without oil. I personally do not believe the government should engineer this solution, but place carrots and sticks in the right areas encouraging the banks involved in this messes to figure something out. It could be done via a holding company somehow, although this is not really my area of expertise so I won't pretend like I have the solution.

I do not want to burden the taxpayer with any more debt then we already have and a stimulus or monoline rescue will do this. Medicare and Medicade are basically unfunded after 2012 and many people do not understand how dire of an issue this will become in the future.

Eco is right on about education, it is the silver bullet. An educated populus is tolerant, hard working, and ethically stable. Education's effects take many years to percolate throughout society which is why education budgets get mauled in times of economic downturn.

Hopefully a good thing to come out of this is that young people will be able to get on the property ladder and people won't get forced out of their homes by rising property taxes..

Here's the situation with my house in FL...If the trend continued for just another year after I bought it,,it would be worth prolly $400,000..As it is,,if I had to put it on the market now it wouldn't even be worth $175,000..I'm keeping it but I could never borrow against it...There's an important lesson to be learned from this..

the stimulus package was designed for short-term solvency, not to FIX the u.s. economy in the next 100 years. we're about to jump into recession, us unemployment claims declined for a fourth straight week, median price of u.s. single-family homes falls in 07 - first in 40 years, u.s. fixed mortgage rates are at 4-year lows, we need to create this debt to go into inflation! or at least that's the plan, i guess. i don't really care, i just profit from the trend as i am trend trader. right now i am hedging with agriculture, gold (for a while now) and energy. everything else i have positions that last from a week to a month and a half.

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Originally posted by DJ_Lord the stimulus package was designed for short-term solvency, not to FIX the u.s. economy in the next 100 years. we're about to jump into recession, us unemployment claims declined for a fourth straight week, median price of u.s. single-family homes falls in 07 - first in 40 years, u.s. fixed mortgage rates are at 4-year lows, we need to create this debt to go into inflation! or at least that's the plan, i guess. i don't really care, i just profit from the trend as i am trend trader. right now i am hedging with agriculture, gold (for a while now) and energy. everything else i have positions that last from a week to a month and a half.

The rebate is the dumbest idea ever. You'd be surprised to what extent throwing out some long-term ideas could also affect the current situation. The only reason in my opinion that we're in this mess is the international investors' (and our own investors') lack of confidence in the US economy. That's what it comes down to. Draft some *different* long-term ideas (ones that will make us THE superpower once again in at least 10 years), and the investors will take note. Macintosh's stock doesn't go drastically up when they announce a sale on their computers. It goes up when they announce something like the iPhone, something new. Restore Americans' and foreigners' confidence in this economy and that'll do way more good, both short- and long-term, than a $500 check that'll go toward booze, drugs, or another country. The second someone says "I'm passing new legislation and budget reform that'll make this country THE richest once again in ten years, that immediately affects things in the present-day too. Getting out of Iraq is a good start.

On another note, what do you guys think about the "FairTax", as supported by Governor Huckabee. I'm not a fan of Huckabee or anyt of the Republicans but I find the idea fascinating and, although a bit skeptical, I've been reading nonstop about it. Not sure how I feel about it 100% though.

what are u talking about apple constantly beats earnings estimates every quarter they report i surf that stock like a madman on the days they report..

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Originally posted by DJ Eco On another note, what do you guys think about the "FairTax", as supported by Governor Huckabee. I'm not a fan of Huckabee or anyt of the Republicans but I find the idea fascinating and, although a bit skeptical, I've been reading nonstop about it. Not sure how I feel about it 100% though.

i don't know what he proposed, but he's a republican so it's probably a gimmick. As a tax lawyer, i can tell you that no major modification is coming around anytime soon. there are too many people vested in the current tax structure to allow it.

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Originally posted by madhattared The stimulus itself won't do anything at all. We're talking about a 200 Billion dollar temporary tax rebate trying to offset the effects of a 2 Trillion dollar depreciation in housing. It is barely a drop in the bucket and I do not like it.

the drop in real estate values is not driving the current downturn in the market. the defaulting borrowers is the driving factor. Even if RE values dropped, the market would be fine as long as borrowers could pay the debt. The problem is that stupid / uninformed people are getting into short term RE speculation, and now they can't do anything with the RE becaue they can't recoupe their investment (mortgage > FMV). If you want to speculate in RE, buy a REIT, not raw land!!!

A price correction (drop in values) is natural and healthy for the market, what isn't healthy is the fact that banks can't lend because they aren't getting paid by borrowers.

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Originally posted by jerZ07002 i don't know what he proposed, but he's a republican so it's probably a gimmick. As a tax lawyer, i can tell you that no major modification is coming around anytime soon. there are too many people vested in the current tax structure to allow it.

He proposed NO MORE income tax whatsoever... There will only be a nationwide sales tax of 23% on things bought in store, eliminating tax evasion, and reducing the size of government and the amount of tax statements (only from businesses) they have to sort through.

ahaah thats crazy!

It isn't really 23%, its 30/34%

It's not really fair at all. Basically it really helps those who make less than 25k and more than 200k. Everyone else is worse off.



http://www.factcheck.org/taxes/unsp...he_fairtax.html

Eco hit the nail on the head. The key to fixing this (and so many other) of our nation's problems is through proper education. There is nowhere near enough focus and credit being given to the true pioneers of our generation; the engineers, scientists, architects, and innovators. This American mindset is completely fueled by the media. Turn on the TV, you'll hear 10x more about Britney Spears going to the hospital than about the collapse of the Minnesota Bridge that killed and injured so many people, or about the breakthroughs that the true geniuses of our country come up with daily.

The numbers prove that the way to financial success is education. Most of the top paying jobs (average salary)are in the fields of medicine, science, and engineering. Case in point, I'm in my fourth year of studying Civil Engineering at Drexel University, and I've just secured an internship that pays $50,000 a year. This may not be a substantial amount of money, but keep in mind, I don't even have a college degree yet.

Yet for all of the successes and benefits that I recieve from studying engineering, I still feel quite uneducated. Our institutions often fail to teach us many essential things that we will need in life. I'm 21 years old, attended highly respectable schools, and have never been taught one thing about mortgages in any classroom. I don't have a full understanding on how they work, why they exist, and how to go about applying for one. If in a few years I'm expected to apply for a mortgage, why wasn't I taught about them? And I'm guessing I'm not the only one who feels this way. How do we fix a problem that more than half the population is not educated on?

The educational system in the country needs a complete overhaul, along with many other programs. Aside from preparing students to become highly skillful professionals, we need to start educating people to create a fully prepared American adult.

Let's start with that and work from there...

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Originally posted by chf42 ...

I agree with Eco that we do need a better education system. In terms of highest paying job after obtaining a Bachelor's degree, it would probably be engineering. Medicine and sciences require a much longer training period for better payoffs IMO. I got a BS in chemical engineering from a decent school and currently working in R&D. Once you decide to go R&D, you are practically taking a pay cut, at least that is the case in my situation.

Not to put out any flame bait or anything, but as far as I know, non-US citizens who come to the States to do research still have to pay taxes. The fact that they're living here contributes to the US economy as a whole. As long as these people conduct their research here in the US instead of elsewhere, the US economy as a whole would still be benefited. If that is the case, it would mean that the US can just stay competitive by fostering a research focused environment, not necessarily by overhauling the entire education system (although the overhauling is needed for other reasons).

Technically speaking all engineers need to learn how to calculate ROI, depreciation, etc. Those can be applied to calculate mortgage and the like. I agree in general that we need a little more exposure to finances. We should do it earlier than college though so more people can benefit from the learnings.

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Originally posted by jerZ07002 the drop in real estate values is not driving the current downturn in the market.

Consumer spending and housing valuation are the two highest correlated variables in economics. The equities markets are correcting because they realize the consumer must cut back on their spending.

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Originally posted by jerZ07002 the defaulting borrowers is the driving factor.

This is a part of but it is not the biggest factor. It amplifies the fact that housing prices are declining. As prices decline further it forces more and more people to foreclose on their homes, which causes housing prices to fall further. It is a vicious cycle. Cheap credit, price declines and interest rate resets started the problem. Now it is just feeding off itself.

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Originally posted by jerZ07002 Even if RE values dropped, the market would be fine as long as borrowers could pay the debt.

This is not true in our current situation due to the amount of negatively amortizing mortgages in the US. These are specialized mortgages which accrue interest on to the balance of the loan for the beggining of the loan so the borrower has a lower initial payment. They're weapons of massive housing destruction and causing many home owners to forclose because they can't handle the interest rate resets on these mortgages. The banks initially gave these mortgages out because in a rising housing price environment the bank sells the house at a higher price and recovers its losses. Everything is fine for investors, but in a falling house price environment these are lethal for all parties.

Don't take on more risk they you have to right now, stay away from REITS. No one knows how bad of a recession we could be looking at this year. it is much better to be cautious right now until we can see some light at the end of this subprime tunnel.

As for taxes, I don't like income tax because it punishes people for working. A national sales or VAT would punish people for spending. Either way I think we all agree the IRS and the tax code should seriously reformed. It shouldn't cost us 10 billion dollars a year to bring in 500 billion dollars of tax revenue.

As a manager of a company suspecting waste and corruption, what are you going to do? Audit the crap out of the suspected firms and divisions. We need an entire government audit after the bush admin, because I'm sure we're spending craploads on things the American people don't want or need. This would be a start to lower taxes and lower debts in the future.

As for education, Why isn't finance taught in American high schools? It is not a particularly hard discipline, and the country would be a much better place if people understood the basics and time value of money.

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Originally posted by DJ Eco He proposed NO MORE income tax whatsoever... There will only be a nationwide sales tax of 23% on things bought in store, eliminating tax evasion, and reducing the size of government and the amount of tax statements (only from businesses) they have to sort through.

he wants to import VAT. it won't work in the US because of the state sales and use taxes. if the fed moved in the states would have to reduce or eliminate their taxes to reduce the prices. then, states would just increase their income taxes. in the end, there would be little net effect.

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Originally posted by madhattared This is a part of but it is not the biggest factor. It amplifies the fact that housing prices are declining. As prices decline further it forces more and more people to foreclose on their homes, which causes housing prices to fall further. It is a vicious cycle. Cheap credit, price declines and interest rate resets started the problem. Now it is just feeding off itself.

price decline has nothing to do with foreclosures on houses. forclosures happen because people can't pay the mortgage. normally, once someone purchases a house, the mortgage payments are determined. the price of the house after purchase is irrelevant for determining the mortgage payment. the problem with the current situtation is that unqualified people were given mortgages with low teaser interest rates that make the intial mortgage payments appeared affordable to these people. once the teaser rates expired, and the rate adjusted upwards to reflect the true cost of lending, the mortgage payments increased, and these unqualified people couldn't afford the payments anymore. a decline in the value of the house does NOT affect the mortgage payment. What a decline in housing prices affects is the ability to sell the house and pay off the mortgage. but that's not the underlying funamental problem with the situation.

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Originally posted by madhattared The banks initially gave these mortgages out because in a rising housing price environment the bank sells the house at a higher price and recovers its losses. Everything is fine for investors, but in a falling house price environment these are lethal for all parties.

Banks don't sell houses. Banks lend money to people to purchase houses. this statement is just fundamentally incorrect.

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Originally posted by madhattared Don't take on more risk they you have to right now, stay away from REITS.

a REIT that operates residential rental properties is a fine investment. rental properties are not affected as much by decrease in property values because the operators of rental units aren't looking to sell property in the short term. any price decline in a residential rental REIT is more speculation and fear than fundamental issues with the financials of the REIT. Also, REITs have professional managers who probably know more about RE than anyone on this board, and as part of their job they evaluate risk for you.

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Originally posted by madhattared As for taxes, I don't like income tax because it punishes people for working. A national sales or VAT would punish people for spending. Either way I think we all agree the IRS and the tax code should seriously reformed. It shouldn't cost us 10 billion dollars a year to bring in 500 billion dollars of tax revenue.

tax revenue was actually more in the range of 625 Billion. Either way, 98 - 99% margin is pretty good. any corporation would kill for that. and when you say costs, your talking about jobs. Alot of that money is going to a revenue agent, a lawyer, an economist, or a contractor who is ulitimately going to use the money back in the economy. it's not like the cost of collecting this money is being thrown away.

furthermore, administering a self assessed tax system isn't easy. people have the tendancy not to pay taxes if given the opportunity.

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Originally posted by jerZ07002 price decline has nothing to do with foreclosures on houses.

In the ideal world no it doesn't, but today it does. If you are a home owner who purchased a home at 500k and it is now worth 300k, why would you pay your mortgage? Many home owners who can't afford their current payments due to the interest rate resets are purchasing a much smaller second home and defaulting on the first. It completely screws their credit score for many years but they'd rather do that then take a 200k loss. By doing this they are making the bank take a 200k loss.

This is happening on a wide scale in California. check it out here http://latimesblogs.latimes.com/lal...ping-point.html

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Originally posted by jerZ07002 Banks don't sell houses.

Banks sell foreclosed houses on behalf of investors.

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Originally posted by jerZ07002 furthermore, administering a self assessed tax system isn't easy. people have the tendancy not to pay taxes if given the opportunity.

Semantics, I wasn't talking actual numbers of tax revenue. If we simplify the tax code we don't have to pay 10 billion dollars to the IRS every year, that is my point. I believe the government should be smaller not bigger.

The fair tax will prevent people from cheating on their taxes. It becomes much harder to say my income is blah when under the table I'm really earning blah times 3. You can't get around this with VAT. I'm not endorsing VAT or national sales personally, there are problems with VAT which need to be fixed. It is, however, a far simpler system.

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Originally posted by madhattared In the ideal world no it doesn't, but today it does. If you are a home owner who purchased a home at 500k and it is now worth 300k, why would you pay your mortgage? Many home owners who can't afford their current payments due to the interest rate resets are purchasing a much smaller second home and defaulting on the first. It completely screws their credit score for many years but they'd rather do that then take a 200k loss. By doing this they are making the bank take a 200k loss. This is happening on a wide scale in California. check it out here http://latimesblogs.latimes.com/lal...ping-point.html

that's the first i've heard of that, but that is irrational behavior and those people are also the same people who don't have good credit and are barely paying their mortgages. people who can pay their mortgages would NOT ruin their credit for 7 plus years just to get out of making payments. So either way, those people are barely getting by and in reality CAN'T afford to pay the mortgage.

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Originally posted by madhattared Banks sell foreclosed houses on behalf of investors.

that statement is only partially true. Banks sell foreclosed homes on their own behalf when the bank foreclosed on the house. However, even though they sell the property, they NEVER profit on the sale. Foreclosure laws in all 50 states prohibit a creditor from profiting on the sale. if the sale price exceeds the outstanding debts on the property, that amount actually goes to the foreclosed home owner. In most cases, creditors actually lose money on foreclosure sales. In addition to the possibility of not recouping the debt in a sale, the bank has to pay legal fees, taxes, etc..., and then the bank loses the interest charges they otherwise would have received. plus, once the foreclosing creditor has its claim fully recouped from the sale, the remaining balance is paid over to other creditors or the foreclosed home owner, depending on the priority of the claim.

trust me on this one....this is how the foreclosure system works. banks do not willingly sell houses, and when they do, they don't make money from it.

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Originally posted by madhattared Semantics, I wasn't talking actual numbers of tax revenue. If we simplify the tax code we don't have to pay 10 billion dollars to the IRS every year, that is my point. I believe the government should be smaller not bigger. The fair tax will prevent people from cheating on their taxes. It becomes much harder to say my income is blah when under the table I'm really earning blah times 3. You can't get around this with VAT. I'm not endorsing VAT or national sales personally, there are problems with VAT which need to be fixed. It is, however, a far simpler system.

as long as there is statutory/regulatory interpretation involved in a taxing system, it will not be easily administered. When language is vague, or something is undefined, then taxpayers will take aggressive tax positions that save them in taxes. That means that the IRS will inevitably need alot agents to administer that system and prevent taxpayers from abusive the system with overly aggressive tax positions. No matter what kind of system we have tax lawyers and accountants will take aggressive positions that can only be countered by revenue agents and other IRS professionals.

i'm not sure what other countries spend on collecting revenue, but i do know that the US is highly successful in collecting revenue. In fact, many european countries model some of their tax laws on those enacted in the US. In terms of creativity in tax laws, the US is definitely in the forefront. As long as people want to evade taxes we need a complex set of laws because the simpler laws are, generally, the more taxpayers can manipulate those laws in their favor. You wouldn't believe how many different ways you can interpret the word "income." It's not as easy as you think, and it will never be simple because people are too smart for their own good.

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Originally posted by aralemomdadok Not to put out any flame bait or anything, but as far as I know, non-US citizens who come to the States to do research still have to pay taxes. The fact that they're living here contributes to the US economy as a whole. As long as these people conduct their research here in the US instead of elsewhere, the US economy as a whole would still be benefited. If that is the case, it would mean that the US can just stay competitive by fostering a research focused environment, not necessarily by overhauling the entire education system (although the overhauling is needed for other reasons).

they do pay taxes unless they earn, as they say in latin and the law, "de minimis" amounts of income from foreign employers (there are other less prominent exceptions). And that is a great point about adding to the US economy. Furthermore, the US has had the tech advantage for so long because we recruit some of the best foreign brains. the fact that our personal income tax rates are lower than many countries doesn't hurt either.

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Originally posted by aralemomdadok Technically speaking all engineers need to learn how to calculate ROI, depreciation, etc. Those can be applied to calculate mortgage and the like. I agree in general that we need a little more exposure to finances. We should do it earlier than college though so more people can benefit from the learnings.

there are so many topics in a finance course that are unnecessary for the average person. Most people don't need to know how to calculate NPV, IRR, beta, WACC, or similar equations. A 2 hour course in common sense would be sufficient for someone to learn how to manage their finances. Actually, all they need to know is, "when expenses are greater than income, you need to reduce expenses." You can apply that to anything. Amortization, depreciation, and ROI are not specifically necessary for the average person (although it certainly wouldn't hurt if they knew it). Just make sure the outflow of cash is less than the inflow.

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