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.

___________________
In the beginning there was Jack. And Jack had a groove. And from this groove came the groove of all grooves. And while one day viciously throwing down on his box Jack boldly declared "Let there be house!" And house music was born. I am the creator and this is my house and in my house there is only house music. But I am not so selfish because once you enter my house it then becomes our house and our house music and you see no one man owns house because house music is a universal language spoke and understood by all. You see, house is a feeling that no one can understand really unless you're deep into the vibe of house. House is an uncontrollable desire to jack your body and as I told you before this is our house and our house music. In every house you understand, there is a keeper and in this house the keeper is Jack.

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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.

Last edited by jerZ07002 on Jan-26-2008 at 20:24

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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.

___________________
In the beginning there was Jack. And Jack had a groove. And from this groove came the groove of all grooves. And while one day viciously throwing down on his box Jack boldly declared "Let there be house!" And house music was born. I am the creator and this is my house and in my house there is only house music. But I am not so selfish because once you enter my house it then becomes our house and our house music and you see no one man owns house because house music is a universal language spoke and understood by all. You see, house is a feeling that no one can understand really unless you're deep into the vibe of house. House is an uncontrollable desire to jack your body and as I told you before this is our house and our house music. In every house you understand, there is a keeper and in this house the keeper is Jack.

quote:

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.

Last edited by jerZ07002 on Jan-28-2008 at 02:31

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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.