Malkiel

AIG, Fannie and Freddie Put the Crunch on Condo Mortgages

This discrimination against condominiums vs other kinds of housing is irrationall would probably meet with regulatory scrutiny. Condominiums make up most of the affordable housing in many markets, and are usually LESS price-inflated than other kinds of housing. If a first-time buyer qualifies for an FHA, and is only able to come up with a 3% down payment which would trigger mortgage insurance provisions, what justification would the mortgage insurer have for refusing to cover simply because the housing in question is a condominium? What about coops and neighborhood associations?

Better Off Now Than 5 Years Ago?

After reading what 20 years of right-wing propaganda has done to "thethirdway"... brain, it's clear at least one person is scraping the all-time bottom of the barrel...

Florida Has a Five-Year Supply of Condo's - Housing Tracker

Somehow I suspect this glut of relatively inexpensive condos in Florida is not such a problem for that market as the overpricing of ordinary housing in California is for that market. That condo surplus is coming to market in an era when a wave of baby-boomers is commencing retirement and at those prices every baby boomer in the northeast could snap one up as a vacation/retirement nest with the equity from their expensive suburban primary homes up north...

World Crisis Not Dissimilar to 1929-1932

I'm no economist, correct me if I have it wrong, but my understanding is that the Depression was brought on when universal trade barriers and protectionism among the advanced industrial nations exacerbated the monetary problems caused by the market crashes; economies couldn't recover quickly because of trade barriers. Since todays' world economy is virtually the opposite of that, with no trade barriers to speak of, it might be more accurate to say "World Crisis NOT similar to 1929-1932"...

The Housing Problem: What Inning is It?

To say that the old jumbo mortgage cap (of $417k) was ridiculous simply because it denied recognition to markets priced beyond a reasonable relationship to income, and then to buy the new uncapped jumbo mortgages in high-cost areas, shows a total lack understanding of the critical relationship between incomes and housing cost and a total lack of respect for the power of the market to correct those imbalances. To issue jumbos on houses whose price must inevitably continue to fall is a recipe for disaster and a red flag to stay away from the companies that do it. Analysts who believe prices can be propped up at astoundingly high levels against local income without some form of subsidy are resolutely ignorant of the essential facts of their market...

Apple to Experience Market Share Madness

I'm kind of perplexed here--did I read the same article as everyone else? It sounds to me from the figures presented that Apple is stuck with the same market share for most of its products that it had this time last year. It also sounded like the main basis for believing there would be a Mac breakout is that Steve Jobs said so. Don't get me wrong, I would love to see a Mac breakout, but if I were a Mac fanboy I might be a little more concerned that, objectively speaking, the data isn't showing one happening yet...

Krispy Kreme's China Foray is Doomed

History shows that the public of countries with low-fat diets aren't usually equipped to resist the sweet tooth when they become prosperous. I can't imagine a more powerful weapon for introducing the high-fat diet to China than a Krispy Kreme doughnut. (You New Englanders who know a Dunkin' Donut as "the doughnut" would understand why Dunky D's could fail there and KK succeed once you taste the difference)...

Why The Inflation - Deflation Debate Doesn't Matter

Brilliant work, son, a veritable "theory of relativity" for money. I'd love to hear professor Bernanke (the Depression specialist) candidly mention at a congressional hearing some day the part about the Great Depression being a good thing because it got us off the gold standard...

Who's to Blame for the Commodities Boom?

Governments have an inherent interest in making sure that the essential commodities--food and fuel--are not being subject to artificial price inflation. It's a legitimate question to ask whether the new generation of investment products such as ETF's which allow retail investors low-risk access to commodities is having any unwanted effect upon pricing of essential commodities; I find it amusing, however, that toro keeps wringing his hands about gold, since that commodity has absolutely no industrial or economic function and serves as a perfect sponge for those retail commodity dollars to keep them away from the really valuable stuff, like corn. Go ahead, buy all the GLD you want, there's no danger of mankind being "crucified on a cross of gold" any more...

How To Solve the Housing Crisis Tomorrow

Davis says that only 10% of American mortgages are over $250k, but what if 60 or 70% or more of mortgages in LA or LV or FL or NYC are over $250k? Then it becomes a subsidy of some of the country's already wealthiest regions--how do we feel about that?

The Housing Crisis: Personal Responsibility and Wishful Thinking

I agree that it's too much of a stretch to blame low interest rates for the housing bubble directly, as though all the corruption required of institutional players to enable a bubble were somehow foreseeable; the argument that raising rates tipped the cow is an interesting one that has some validity, but again it requires the belief that the FED would have known how badly (and perhaps illegally) the usual cast of reliable institutional players were conducting their business.

To persistently place blame at the foot of the borrowers on the bottom of the food chain is a prejudice born of personal enmity people (including journalists) seem to feel toward anyone who took advantage of what they did not during the boom. A responsible assignment of blame looks at who was the "smart money" and what responsibilities they had in the chain.

The first blame goes to mortgage lenders: they are institutions with armies of professional accountants and managers operating under formal laws and standards who were fully in command of the tools and knowledge needed to know what practices or products were unsound, yet they broke all the rules and standards.

The next down in the blame chain are builders, who also had sizeable armies of accountants and lawyers who should have been able to see the unsoundness of the agreements going on between them and their buyers. The fact that builders also have vast actual cash sunk into the enterprise should have given them a greater sense of danger than the next villains,

The mortgage brokers. These are the people who gamed the system when they noticed the banks and builders were asleep. But they still operate within legal and professional frameworks and knew by training that many of their clients were being placed in unsustainable loans. They had a professional responsibility not to do that.

Realtors. Their blame is relatively light given their disconnect from the lending side, but they also could see the unsound lending practices at ground level, and could have steered the most vulnerable borrowers away from the worst choices.

Borrowers. Borrowers are consumers, amateurs without training and often without the formal education in any economic or mathematical field that would have given them the tools to analyze the soundness of a loan product. The borrowers reasonably assumed that institutional lenders or mortgage brokers would only let them have amounts they "qualified" for, since the patriarchal relationship between bank and borrower is an old American tradition. Borrowers were the least qualified party to analyze the soundness of what was being offered, and bear the least blame for the crisis. And that's the objective fact even if you hate your neighbors for having been given a $700,000 mortgage you couldn't qualify for and they shouldn't have...

Catching the Next Bubble

I agree with your general idea that "successful investing consists essentially of catching a bubble at its formation stage and not jumping ship too early or too late", though I would qualify that a bit to simply say that the obscene profits in investing are best made from good bubble handling; good investing simply requires a reliable bull market, not bubbles.

I would also qualify the inevitability implied by Janszen; it's fun to look at what trends contain future bubble potential, but there's no guarantee any particular trend will reach that stage of excess. I see no evidence that alternative energy is headed that way yet, nor commodities. Based on the shortage of investable shares in US stock markets, the next stock bull market might make stock investing the next bubble, a la the roaring 20's. The trick here is to stay alert to the signs of excess, to wait for clear evidence, not to make any plans on speculation. Unreasonable valuation by common standards is the most reliable indicator of a bubble, whether it be housing prices or grocery prices or stock PE's, so buy when the trend starts to offend and sell when everyone talks about the overpricing as though it were the new normal...

Gold’s 'Grand' Illusion

Robert Lichello, the author of various books on investing, told a good anecdote from his days in the army in occupied Japan where he found that gold and money were worthless, that only chocolate, booze, and cigarettes had any barter value in a country whose economic and agricultural infrastructure was destroyed.

If we look at the behavior of gold prices in the last 2 years we see that every big market downturn has brought a decline in gold price, not a gain, because most of it is owned in leveraged form and gets sold to meet margin calls. And now that inflation is rearing its head again, the price of gold is slipping. The gold bugs run out of excuses to explain this stuff; some day in the future a critical number of gold investors are going to wake up in the morning, decide it has no particular value, and sell it never to buy again. When that happens, the long night for the gold bugs begins...

Greenspan Just Captive to Conventional Wisdom of His Time

I agree with the idea that people work within an environment and that criticisms of Greenspan's interest rate policies as being somehow responsible for corrupt credit practices later is too much of a stretch. It's like blaming all the authorities who could have nabbed Bin Laden in the 90's for 9/11; none of us, from street level to the top of the government, could have imagined dealing with a serious conspiracy to do what they finally did, so villifying people who missed the chances is beside the point. We lived in one environment then and a different one now, and our foresight today is no better for the next bubble or the next disaster...

CEO Pay Debate: Who Knows Whether $40M is Too High?

Jackoo has a good point--paying the line workers an incentive for measurable quality or productivity gains would probably enhance a company's bottom line more than any executive decision-making and probably still cost a fraction of ceo pay. So why would an idea like this not be considered? Because ceo's are part of the capitalist class and have the power to make the system work for them, employees don't. When poor people need health care or grocery money, the propagandists for the upper classes deride the help as "entitlement"... when middle-class people are in danger of losing their homes to mortgage problems, they wag their finger and talk about "moral hazard"; but executive pay practices violate the concept of "moral hazard" and their perks are clearly functioning as a form of entitlement, but nobody can call them that. The only reason there's no class war going on in this country is that the upper classes are still holding the armory...