Here are your gold glasses.
Posted on 09/22/2006 8:47:25 PM PDT by churchillbuff
The only thing you give is rose-colored glasses.
Nighty night.......................
Yes, that was good detail on LIBOR and Prime.
Someone else mentioned COFI, cost of funds index. Now that jogs my memory that about 20 years ago I was told that my ARM was based on something called, and I may be wrong about the number, the 11th District Cost of Funds. Is this still used and did I remember it correctly, and what is it if it is still pertinent?
"The discrepancy rate [between rich and poor] was far greater at t he end of the 19th century..."
You have exactly made my point. Poverty was rampant, and the middle class very small. We are again moving in that direction.
Regarding health care costs. You make some valid points about overuse, misuse, and law suits, but the fact is that segments of the medical/drug industry make 20% annual profit, compared with from 2% to 7% profit by many other major corporations.
Another point was made that part of CEO compensation increases are from stock options. This is part of the problem. Remember how Enron executives sold off their stocks well in advance of the bad news that Enron was toast. If CEO's are to be issued stock, and if it is to be an incentive to run the company well, then there should be a provision that, let's say for example, that they can only sell 20% of their share in any one year. Thus they would at least have to plan for the next five years, instead of raiding the company for their own profit.
The poverty that you talk about, was far worse back then, than it is now. Living conditions were such, that it is almost unimaginable today, to OUR own poor.
Forget the drug industry! All of those super-dooper machines and tests and LAW SUITS are what has mostly increased the disastrously high costs of health care today. And the overuse and misuse has been of criminal proportions for the last 30 years.
You really have to drop your inclination to unadulterated MARXISM. This IS a CONSERVATIVE forum. All if this damned class warfare and replies filled by same, is just out of order here. And it REALLY would be of help to you if you did some actual research about stocks and stock options, before you start talking about them. It is patently and blatantly obvious that you have no knowledge of that area.
When CEOs are given stock options, they DO have a time limit ( usually of several years ) that they MUST be held, before the options can be exercised.
The poverty that you talk about, was far worse back then, than it is now. Living conditions were such, that it is almost unimaginable today, to OUR own poor.
Forget the drug industry! All of those super-dooper machines and tests and LAW SUITS are what has mostly increased the disastrously high costs of health care today. And the overuse and misuse has been of criminal proportions for the last 30 years.
You really have to drop your inclination to unadulterated MARXISM. This IS a CONSERVATIVE forum. All if this damned class warfare and replies filled by same, is just out of order here. And it REALLY would be of help to you if you did some actual research about stocks and stock options, before you start talking about them. It is patently and blatantly obvious that you have no knowledge of that area.
When CEOs are given stock options, they DO have a time limit ( usually of several years ) that they MUST be held, before the options can be exercised.
Wrong Grasshopper. We recently sold our house this spring, moved back to Alabama. We are in the house buying searching mode now. So, I am VERY familiar with what to do and not what to do. YOU STATED many different people putting pressure on him. Well, it is up to HIM to show a bit of back bone and not give into their pressures and made the decision on the house using his own mind, knowing his own means, and income and ability to PAY THE MORTGAGE!
Here are your gold glasses.
That's a big IF. Huge.
And what is the "situation?" Is it that the time has never been better to own gold? That the world is about to suffer the cataclysmic economic disaster, and should patronize a certain website to learn more?
FR standards require you ping freepers you mention by name.
And your point? What it tells me - driving home something I already believe - is that I have better political and moral judgment than Bill Gates. Gates is also big on planned parenthood. That doesn't speak well for his moral judgment, either. He's a genuis with technology and money-making, but that kind of genuis doesn't automatically come with intelligence on political and moral issues.
I see the same thing.
Thank you for the reasoned response.
No less then the Chairman Of the Federal Reserve Board also advised people to take out a ARM.
I agree with many folks here that these people were careless for getting into a situation like that. How ever many of these folks are self proclaimed christians (read their profiles and taglines) and all they do is belittle others and brag about how great they are. I see little compassion but I see plenty of "i am much to good to get myself in trouble"
Pride comes before the fall. I pray that all those who think they will be able to make payments on their homes no matter what will always be able to. I also pray for my neighborhood.
Really? Alan Greenspan said people should take out an ARM? Perhaps you could post the speech where he said that? Thanks.
Alan Greenspan said people should take out an ARM? Perhaps you could post the speech where he said that? Thanks.
http://www.federalreserve.gov/boardDocs/speeches/2004/20040223/default.htm
Remarks by Chairman Alan Greenspan
Understanding household debt obligations
At the Credit Union National Association 2004 Governmental Affairs Conference, Washington, D.C.
February 23, 2004
Introduction: Credit Unions and Consumer Lending
Credit unions have long focused on the needs of their members. Traditionally, the industry has specialized in personal and automobile loans, and the bulk of lending at many credit unions remains concentrated on these types of loans. In the past decade, however, many of you have become more involved in first- and second-lien mortgage loans. With lending efforts focused on consumer and residential mortgage loans, credit unions have a natural interest in the financial health of America's households.
We have a similar interest at the Federal Reserve. Consumer spending accounts for more than two-thirds of gross domestic product, and residential investment--the construction of new homes--makes up another 4 percent or so of GDP. In addition, households own more than $14 trillion in real estate assets, almost twice the amount they own in mutual funds and directly hold in stocks. Over the past two years, significant increases in the value of real estate assets have, for some households, mitigated stock market losses and supported consumption.
Measuring the Financial Health of Households
One concern of many lending institutions has been the increase in bankruptcy rates during the past several years to an unusually high level. Elevated bankruptcy rates are troubling because they highlight the difficulties some households experience during economic slowdowns. But bankruptcy rates are not a reliable measure of the overall health of the household sector because they do not tend to forecast general economic conditions, and they can be significantly influenced over time by changes in laws and lender practices.
In contrast to bankruptcy rates, delinquency rates may be a bit better measure of the overall health of the household sector. The recent experience with some delinquency rates has been encouraging, with rates falling for several measures of credit card and automobile debt. But, like bankruptcy rates, delinquency rates can reflect changes in underwriting and collection practices, and they may measure the financial health of a relatively narrow set of households.
A primary measure used by the Federal Reserve to assess the extent of American household indebtedness and to provide a view of the financial health of the overall consumer sector is the quarterly debt service ratio. The debt service ratio measures the share of income committed by households for paying interest and principal on their debt. When the debt service ratio is high, households have less money available to purchase goods or services. In addition, households with a high debt service ratio are more likely to default on their obligations when they suffer adversity, such as job loss or illness.
Of course, debt payments are not the only financial obligations of households and thus the Federal Reserve also calculates a more general financial obligations ratio. This measure incorporates households' other recurring expenses, such as rents, auto leases, homeowners' insurance and property taxes, that might be subtracting from the uncommitted income available to households. The Federal Reserve splits the aggregate financial obligations ratio into separate measures for homeowners and renters, measures that I will discuss in detail below.
Changes in the Debt Service and Financial Obligation Ratios over Time
Both the debt service ratio and the financial obligations ratio rose modestly over the 1990s. During the past two years, however, both ratios have been essentially flat. The debt service ratio has remained a touch above 13 percent, whereas the financial obligations ratio has hovered a bit above 18 percent.
These ratios move slowly because both the stock of debt and the interest rates associated with the stock change slowly. Another reason is the stability in the ratio for homeowners, who hold the bulk of all household debt. Despite annual mortgage debt growth that exceeded 12 percent a year over the past two years, the financial obligations of homeowners have stayed about constant because mortgage rates have remained at historically low levels. The homeowners' financial obligations ratio has also remained relatively constant despite this very rapid growth in mortgage debt, partly as a result of an enormous wave of refinancing of existing mortgages, which ended only in the fall of 2003. Refinancing has allowed homeowners both to take advantage of lower rates to reduce their monthly payments and, in many cases, to extract some of the built-up equity in their homes. These two effects seem to have roughly offset each other, suggesting that homeowners might set a target for their mortgage payments as a proportion of income and adjust their borrowing accordingly.
Indeed, the surge in mortgage refinancings likely improved rather than worsened the financial condition of the average homeowner. Some of the equity extracted through mortgage refinancing was used to pay down more expensive, non-tax-deductible consumer debt or used to make purchases that would otherwise have been financed by more expensive and less tax-favored credit. Indeed, the refinancing phenomenon has very likely been a supportive factor for the general economy. The precise effect is difficult to identify because it is hard to know how much of the spending financed by home equity extraction might have taken place anyway. Nonetheless, we know that increases in home values and the borrowing against home equity likely helped cushion the effects of a declining stock market during 2001 and 2002.
Rising Credit Card Debts for Homeowners and Renters
The rise in homeowners' debt service burdens over the 1990s, albeit small, is associated with increases in their nonmortgage debt and, in particular, with rising levels of credit card debt. The financial obligation associated with credit card debt is difficult to measure. On the one hand, households are obligated to pay only a minimum amount and thus, in times of financial stress, a household can forgo making more than this minimum payment. On the other hand, we know that many households make more than the minimum payment and indeed likely would be quite uncomfortable paying only the minimum amount. During financial difficulties, these households might even consume less to pay more than the minimum. Defining the point at which households feel they should pay down their credit card debt is difficult, and thus our measure of debt service relies on estimates of minimum payments required by credit card lenders.
There are several reasons that homeowners might carry more credit card debt than they did a decade ago, but these reasons generally do not indicate financial weakness among homeowning households. Indeed, as noted, delinquency rates on credit card payments have been falling during the past year, despite households' relatively larger holding of credit card debt.
One possible reason for the secular increase in credit card debt is rising U.S. homeownership rates. According to the Bureau of the Census, the share of U.S. households that own homes rose from about 64 percent in 1990 to almost 68 percent in 2003 even as the population grew substantially. Because of rising incomes, lower interest rates, and increased rates of household formation, more people have chosen to buy homes rather than to rent, increasing the value of mortgages outstanding. Although it does not show the relationship conclusively, the Federal Reserve's Survey of Consumer Finances suggests that these newer homeowners who make smaller down payments tend to bring with them higher levels of nonmortgage debt and, in particular, credit card debt. The ability of lending institutions to manage the risks associated with mortgages that have high loan-to-value ratios seems to have improved markedly over the past decade, and thus the movement of renters into homeownership is generally to be applauded, even if it causes our measures of debt service of homeowners to rise somewhat.
Another possible reason for rising credit card debt ratios is the use of credit cards for a variety of new purposes. The rise in credit card debt in the latter half of the 1990s is mirrored by a fall in unsecured personal loans. Reflecting this general trend, the proportion of personal loans in credit union portfolios has been declining as well. The wider availability of credit cards and their ease of use have encouraged this substitution. The convenience of credit cards also has caused homeowners to shift the payment for a variety of expenditures to credit cards. In sum, credit card debt service ratios have risen to some extent because households prefer credit cards as a method of payment.
* * *
In contrast to the increase for homeowners, the rise in debt service ratios was steep for renters in the latter half of the 1990s. The rise for renters, as for homeowners, is concentrated in credit card lending and thus may reflect some of the same factors that have influenced homeowner debt service ratios. But unlike homeowners, renters in recent years have been using a higher fraction of their incomes for payments on student loans and used-car debt. Renters tend to be younger and have lower incomes than homeowners, so the fact that student loans and used-car payments are a larger share of their income is not surprising, although this trend might be worrisome if it indicates greater difficulties in becoming financially established.
In addition, some of the rise in the debt service ratios of renters, unlike that of homeowners, occurred during the most recent recession, a difference highlighting the fact that incomes of renters are generally more at risk during economic downturns. Renters' debt service ratios have stabilized during the past two years, a hopeful sign that is likely correlated with the overall improvement in the economy. However, the rise in the renter debt service ratio might indicate some trends among these households that may be of concern and that need to be investigated further.
Mitigating Homeowner Payment Shocks
Rising debt service ratios are a concern if they reflect household financial stress and presage a drop in consumption or a rise in losses by lenders. Most homeowners and renters are aware of the possible difficulties should they lock themselves into a high level of debt payment obligations. Financial institutions might be able to help some households in this regard by looking for ways that households--both renters and homeowners--can shield themselves from unexpected payment shocks.
One way homeowners attempt to manage their payment risk is to use fixed-rate mortgages, which typically allow homeowners to prepay their debt when interest rates fall but do not involve an increase in payments when interest rates rise. Homeowners pay a lot of money for the right to refinance and for the insurance against increasing mortgage payments. Calculations by market analysts of the "option adjusted spread" on mortgages suggest that the cost of these benefits conferred by fixed-rate mortgages can range from 0.5 percent to 1.2 percent, raising homeowners' annual after-tax mortgage payments by several thousand dollars. Indeed, recent research within the Federal Reserve suggests that many homeowners might have saved tens of thousands of dollars had they held adjustable-rate mortgages rather than fixed-rate mortgages during the past decade, though this would not have been the case, of course, had interest rates trended sharply upward.
American homeowners clearly like the certainty of fixed mortgage payments. This preference is in striking contrast to the situation in some other countries, where adjustable-rate mortgages are far more common and where efforts to introduce American-type fixed-rate mortgages generally have not been successful. Fixed-rate mortgages seem unduly expensive to households in other countries. One possible reason is that these mortgages effectively charge homeowners high fees for protection against rising interest rates and for the right to refinance.
American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage. To the degree that households are driven by fears of payment shocks but are willing to manage their own interest rate risks, the traditional fixed-rate mortgage may be an expensive method of financing a home.
Conclusion
In evaluating household debt burdens, one must remember that debt-to-income ratios have been rising for at least a half century. With household assets rising as well, the ratio of net worth to income is currently somewhat higher than its long-run average. So long as financial intermediation continues to expand, both household debt and assets are likely to rise faster than income. Without an examination of what is happening to both assets and liabilities, it is difficult to ascertain the true burden of debt service. Overall, the household sector seems to be in good shape, and much of the apparent increase in the household sector's debt ratios over the past decade reflects factors that do not suggest increasing household financial stress. And, in fact, during the past two years, debt service ratios have been stable.
Yes, Greenspan did recommend ARMs. It was about one year ago. It seemed quite odd.
... Indeed, recent research within the Federal Reserve suggests that many homeowners might have saved tens of thousands of dollars had they held adjustable-rate mortgages rather than fixed-rate mortgages during the past decade, though this would not have been the case, of course, had interest rates trended sharply upward.
American homeowners clearly like the certainty of fixed mortgage payments. This preference is in striking contrast to the situation in some other countries, where adjustable-rate mortgages are far more common and where efforts to introduce American-type fixed-rate mortgages generally have not been successful. Fixed-rate mortgages seem unduly expensive to households in other countries. One possible reason is that these mortgages effectively charge homeowners high fees for protection against rising interest rates and for the right to refinance.
American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage. To the degree that households are driven by fears of payment shocks but are willing to manage their own interest rate risks, the traditional fixed-rate mortgage may be an expensive method of financing a home.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.