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email the perth indmedia mob...
This newswire is for stories from overseas..
Illegal use of Equity - Average and Normal |
| by Kenn spacefield |
2008-10-09 3:46 AM +0800 |
People have made bad, and improper investments with credit and equity.
My family and friends (who I would say are "average" and "normal" Americans) have used home equity to buy other homes, invest in the stock market, to buy "stuff", and to pay expenses. This sometimes illegal and improper use of residential property equity is the problem! This equity does not exist yet and no one knows when or if it will, or how much it may be; and it is all ready "at work" - multiply times over. I have seen many people live off of credit and use their money to invest. This "hyper-capitalism" of equity on equity - on credit and debt appreciation, is a flawed and failing economic model, and it is failing - just as it should. |
My landlord was out yesterday because her house needs major work.
She said "Well, I'll just have to do it - I mean it has to be done - I am getting a home improvement loan on another property and I'll have to use it here - Well it has to be done - so keep me informed - I am refinancing this house at a lower rate on Friday - if I can get the loan with the house like this - could you cover it with plastic or something for the bank appraiser to come out?"......
I told her no and they would see it anyway, I am going to do the work and she knows it will be 10 to 20 thousand so we go from here...
This is "normal" and accepted behavior, and it is the "CRISIS"; - Consumer credit and equity abuse and improper use.
This economic "Crisis" is a "consumer" equity debt problem.
Homeowners are not much affected by the price fluctuation in their home equity, unless you have already consumed it.
A "homeowner" would not use their home equity for a consumer purchase, a "consumer" would.
How many billions of dollars in equity has been invested in the stock market?
I feel in the last twenty years it is probably a trillion dollars. (more lately with those lax regs).
How much home equity has been spent on consumer goods and stuff?
Probably trillions of dollars in the last twenty years (more lately with those lax regs).
How much property equity was used to buy other property?
Again, probably a trillion dollars in the last twenty years. - (Huh, I wonder if this all has had a self inflating effect? )
Bad investment is bad investment, why is the "poor consumer" being bailed out?
I here the blame for wall street for packaging these underperforming (worthless) mortgages and the blame for lax regulation and the blame for lenders; what about the "consumers" blame?
Why does the "mass media" ignore this?
If I was a banker and people where trading these securities of bundled mortgages, why I would have packaged up all my "under-performing" mortgages and sold them as fast as you can say "Bail-Out".
US Real Estate: From Goldmine To Money Pit
Mortgage Backed Securities and Derivatives are Flawed and Failing.
The mortgage debt problem is simple really, it has been a total mis-appropriation of equity. The equity lost on flat screen TV's, boats, new cars, vacations, and other living expenses; is equity lost forever. This loss of equity spent on consumer goods and expenses is a pyramid scheme of hyper-capitalism that is flawed and failing. Equity not spent on the property the equity comes from, is equity lost forever, a mis-appropriation of funds, and inappropriate; it is a failing economic model.
Mortgage debt is public, and traded globally, but home appreciation on debt is private profit. This economic model does not work. The idea that mortgage debt is a shared risk of the global economy, interest on the debt is deductible to homeowners, and the appreciation on the debt is private profit; is an economic model that does not work.
The US government promotes and encourages home ownership with tax incentives. The more you owe, the more interest you pay and write off on your taxes, and the more money you make on the appreciation on the debt; if the house goes up, and always goes up in value. This is a failing economic model; because of mortgage interest deductions, shared debt risk, and private profit.
Keeping home mortgage interest tax deductible for the homeowner while they collect equity appreciation on their debt, is a self inflating pyramid scheme propped up by the federal government. The homeowner is rewarded for taking on a higher interest mortgage payment, and this encourages and rewards debt. (People get the biggest house they can afford or maybe two, and use it as a "write off".) This is just plain wrong and this house of cards is flawed and failing. (Home equity loans that are not spent on home repair, remodel, or improvement, is equity lost forever; and its deductible!) If everyone's idea is to "up size" now and "downsize" later, who is going to be "up sizing later"? - The retiring baby boomers?.)
The federal governments debt, mortgage debt, and the loss of value in real estate is going to continue to climb. Housing prices will fall until people can afford to buy homes on what they actually earn. The United States has destroyed its reputation and economic trust globally and trashed the constitution here at home. This is a meltdown globally from the US being seen as a respected "superpower" to now being seen; as a bully you cannot trust. All the federal debt and real estate value loss is going to cost the US government a lot, but I feel the damage done to the United States reputation globally and at home; will cost it even more.
I have felt for twenty years real estate has been over-valued, and over priced. Real estate appreciation has been ridiculous and unsustainable. I am still not ready to buy, as the prices are still not low enough, and have 20 to 30 percent - and even 40 percent to drop, before people, on what they make can afford them. This is real estate coming back down to earth, and I am not panicked, or in crisis.
Americans are making less, and housing just kept rising and costing more, more, and more. Hows that working for you?
I have heard there are 70 million (plus) disenfranchised (under-paid) Americans who do not file income tax. I feel more people are feeling disenfranchised with the federal government and I feel this number will rise. This disenfranchisement causes people to shy away from passive participation with the federal government, to active non-participation in the economic affairs of the federal government.
Buying a house turns your life into a business, and the federal government then has total access and knowledge of your finances. The financial markets use government papers to qualify you for a loan.
It is all about the real estate, which is all about the money, and the federal governments goldmine of income tax collection, turning out to be a dilapidated money pit.
The debt from bad war, torture, illegal imprisonment, domestic spying and "other" bad debts; that the US federal government has yet to realize, tabulate, or equitize. If you have lost your job and your home; the US has lost a taxpayer.
From Gold Mine to Money Pit - the 2008 fall of US Residential Real Estate. A Trillion Dollar band-aid Bail Out that - (like most homeowners did with there equity money and their last home repair; put a band aid on it, and spent the money somewhere else) does not fix the problem.
Are you part of the problem?
The US governments encouragement towards home ownership and the tax benefits granted are well known. With real estate appreciation and the tax credit, it is like living in a little gold mine. You can chisel out equity as you go along your merry way and chuckle at all those people who did not buy real estate sooner.
Where I live houses have doubled in six-seven years and land has doubled in five years. Now land and houses are not selling even at reduced prices, because they have not come down enough to be affordable to the people who live here. (A lot of Californians moved to Washington state and that drove up prices - boy has that slowed down!)
This "bail out" is an absolute joke. The idea the US government can control or diminish house mortgage failure or control or influence the price of housing; is absurd.
Many more people will be walking away from their home mortgages and a lot more mortgage derivatives will fail. This is not the stock market talking, it is home prices on main street.
It is the chiseling away at equity by homeowners who now find their little gold mine is a money pit. It is worth less than their debt they have piled onto their home and the mortgage, and it only makes sense to walk away and buy the house next door for thousands less.
Will the bail out work?
No one knows if the US governments bail out of bad mortgage debt will work.
I feel it is a trillion dollar band aid for a much larger problem; and whether or not it works - will mean what you meant by; "Will the bailout work?"
I feel it is only going to slow the economic problem down in hopes US residential real estate will start to appreciate and the "crisis" is solved.
So the question really is; When will US residential real estate start to appreciate?
No one knows, but here is my opinion;
The US residential real estate market will not be appreciating much over the next ten years.
US real estate is over-valued and still has not come down enough to sell excess suburban homes.
A lot of US residential real estate built over the last 30 years was built out of materials with a 30 year lifespan.
Tens of millions of US homeowners are aging and selling homes in the suburbs and this will accelerate.
There is an exodus from the suburbs to population centers as traffic, cost, age, and pollution, become more of a concern.
The US is experiencing high unemployment, and an economic "slowdown" as "consumers" have less to spend.
The number of residential mortgages "underwater" will continue to rise for at least a year.
It is no longer a new homeowner "sub-prime" lending problem - as many "prime" older homeowners are now underwater due to the constant chiseling away at their equity through second mortgages, and equity lines of credit. |
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| by Kenn Spacefield |
2008-10-09 5:32 AM +0800 |
I wanted to add that the stock market will still have to "come back to earth", US stock market PE ratio's will begin to equalize with global averages and settle somewhere slightly above. I have not kept track what planet they are on now, but I am sure it is closer to earth!
Link here
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A perfect reply to this post |
| by Manny |
2008-10-09 5:56 AM +0800 |
In January of 2007, PRIOR to the ''Subprime'' issue becoming well known, I went to my bank to transfer some money into our savings account. It was a CD that had come due. I wanted to put the money in our savings account so we could do some auto and house repairs.
The bank manager told me I'd be better off with a ''Home Equity Line of Credit''. I asked him why would I want to do that when I have the money saved up already? He tried to explain that it would be a ''push'' (as he phrased it). In other words, the interest we would have to pay on the money we'd be borrowing was ''pushed'' (''balanced out'') by the interest we make on the money remaining in the account.
I told him that there was no way that the interest his bank was going to pay us was going to match the interest his bank was going to charge us to borrow that same amount.
His reply was ''But you can deduct it.'' At which point I pointed out that a tax deduction is a PERCENTAGE of the amount spent on interest. You don't get to deduct ''entire amount'' from your taxes! It's just a small (TINY) percentage you get to ''deduct.''
I also stated that when it's all said and done there is no way that I am BETTER OFF borrowing the money against my house. Plus the fact that it makes no sense to borrow what you already have (unless you have need for it somewhere else, and/or unless you plan to put that money to work for you... ANYWHERE BUT a bank).
He looked at me as if I had 3 heads (and 12 eyes and 5 antenna), and then said ''Ok, which account did you say you wanted it deposited into?''
End of conversation.
But I drove away thinking that these people MUST be talking a heck of a lot of people into doing this!
I was obviously correct, because a few days later the Stock Market took a big dump, and the word ''Subprime'' became a common household word.
I've never ''gotten'' the concept of going deep into debt just so you can get a small percentage of that interest ''back'' via income tax. It's like taking two steps back to gain the ''privilege'' of taking one step forward.
:-(
Link here
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