They are in the archives. Start the thread here:
http://mailman.lbo-talk.org/lbo/Week-of-Mon-20050117/thread.html#1148
It's a pretty good thread, actually.
But I can summarize:
DH: "What are people thinking when they sign up for these things?" JH: "You don't see the benefit? I think it's clear." DH: "Sane people should not take out variable-rate teaser loans
when interest rates are near historic lows and house
price/income ratios are at historic highs." JH: "for the most part, if a major financial institution thinks
you qualify for a product, you probably do." JH: "I'm willing to bet that the net benefit far outweighs the
potential problems that these kinds of loans present" JH: "Any way to find out what the default rate is on this
particular product? I bet it's low." JH: "I also bet that the average one of
these loans is a relatively low dollar amount." JH: "Frankly, many people (especially first time buyers) borrow
their downpayment: this is just a formalization of the
process, nothing new there." JH-to-WS: "there are plenty of other scenarios where this "works" JH-to-WS: "Making these kinds of mortgages available probably
has a negligible effect on the group of people who are interested
in forming housing collectives" DH: "I suspect most of the borrowers know the risks - they're just
ignoring them. Like the people who bought Pets.com. JH: "It's one thing to factor in risk to a decision and still come
out with signing on the dotted line. It's another thing entirely
to IGNORE them. JH: "An equity investment is NOTHING like buying a house." JH: "if you have to get out of a house while your equity is
negative, that can be bad. Very, very bad. It's much more
rare than you make it out to be and you need something of a
perfect storm to do it."
Etc. Catch up on the archives, respond to some of my statements, and get back to me.
> I say it's absolutely mad to take out a variable rate mortgage
> that puts you more deeply in the hole with each early payment
> at a time when interest rates are near 40-year lows and house
> prices (measured relative to income) are at or near all-time
> highs.
So you said above. But you've done nothing to support the notion that it's "mad" in any way, despite many opportunities; can you:
- Compare this activity favorably to Vegas gambling?
. with facts and numbers, please - Show that people are in fact "mad" for doing this?
. not even sure how you'd do this; thus I have no faith in
how you came to this conclusion other than by projecting your
own conservative postion [perhaps supported by your execellent
personal real estate position?] - Show how this is at all like buying pets.com? - Show that the prudent thing would be to not buy a house in the
cases where these mortgages are written? - Show that your idea of 'prudence' is anywhere near normal?
I think a big part of this is that you don't see the bigger picture of how a mortgage fits into owning a house. The fact that you use a term like "puts you more deeply in the hole" says to me that we should talk more about what "owning a house" means and what "owning a mortgage" means. But maybe I can write something up and start a new thread, because this one is getting moldy.
> You say it doesn't matter because...well it worked
> for you 10 or 15 years ago?
Er ... no, that's not at all why I say "it doesn't matter" (I'm curious about your characterization of my position as "it doesn't matter" -- what doesn't matter exactly? I think my point is clear: it's not at all "mad" to take out one of these mortgages, and the benefits in the vast majority of cases far outweighs the downside, and in the cases of downside, you'd probably be losing bigtime anyway). I've made many statements about the general issue and only once (parenthetically as a data point, YMMV, etc.) gave a personal anecdote.
Geeze, you'd think we were talking about dingos after one ate your brother or something. Tell me the truth: did a negative amortization adjustible-rate mortgage kill your brother?
[ moving on to junk bonds ... ]
> To show you that I'm not hung up on prudence, if I had a bundle
> I'd buy some of the stuff in default.
How about buying some Manhattan real estate with low low money down?
> You're mixing up trends & cycles here.
No, I don't think I am :-)
> Sure, economic growth means that most variables are going to
> be at all-time highs. But things like ratios (e.g., risk
> premiums and house price/income ratios) don't grow to the sky
No one says they are growing to the sky; I think what someone said was that they were at an all-time high. Very different things? Is the "real" level known to you? If so, you're in the wrong business: you could have a nice house by now :-)
> they behave pretty predictably in fact.
I've been subscribing to your newsletter for a long time and I've never seen any of your predicitons about where things like risk premiums "ought" to be at any given time. Can we count on this for the next issue?
Look, things change: oil goes to $40+ and stays there; interest rates go below 10% and stay there; the DJIA goes from 2000 to 10,000 and stays there. they don't, as you say, "go to the sky" -- but no one, least of all anyone this list, knows what the "real" price of things should be, or the "real" cost of money should be, or the real "risk premium" should be.
/jordan