patrick.net

Do you think Mr. Devaney envisioned an army of idiots leading him to world domination, or is he sincerely surprised that people were so eager to give their lives for him?

My regulation proposal to cleanup --and hopefully prevent a redux-- of our most recent (and by all accounts, largest ever) housing bubble:

--No more NINJAs, I/Os, neg-ams or hybrids thereof. Period.
If you cannot verify a borrower's income or collateral (W-2, 1099 or from self-employment), then don't make the loan. NINJAs, neg-ams & I/Os are little more than wealth transference schemes to move piles of money from sheeple to uber-wealthy for about 99.99% of the population. For the remaining .01% of Wall Street wizards who used to use them for rate arbitrage or convenience, you'll learn to cope --just like the rest of us hoi-polloi.

--No taxpayer funded bailouts of lenders, hedge funds, FBs, fraudsters or the ignorant/clueless. None of these groups is completely beyond (at least) partial guilt for what happened, and subsidizing this behavior will only get us more of it.

--No more rate-fixing/manipulation by the Fed. In fact, and end to the Fed as we know it (see my 2:49pm post). Ditto for the GSEs: time for some "privatization" of the best kind (for taxpayers).

--No more tax breaks for flippers, 2nd homes or houses you've lived in less than 5 years of continuous occupancy.

--Want an open-borders anything-goes immigration policy? Fine, but you also give up the right to oppose residential construction ANYWHERE except federal & state parkland. Don't like that 2,000 unit high-rise apartment for "guest workers" obscuring your lovely view of the Bay? Tough shit, Marinite --those 15 million "guest workers" (including your own gardener & "nanny") carry a big price tag, and it's your turn to start paying it.

--And end to Prop. 13 and S.O.S. type tax-transference schemes that give land-owning corporations, wealthy Trustafarians, and Boomers/Silent gens a free ride at younger buyers' expense. Want lower property taxes? Petition your local pol to drop (or eliminate) the millage rates --for EVERYONE.

(I won't speculate about the chance of any of the above actually passing a REIC bought-and-paid-for government, but at least you know where I stand ;-) )

"–No more tax breaks for flippers, 2nd homes or houses you’ve lived in less than 5 years of continuous occupancy."

I agree. We need a sliding-scale for cap gains. 30% for less than a year, 25% for up to 3 years, 15% for up to 10 years, 10% for up to 15 years, 5% for up to 20 years, and then FREE for 20 plus years. A house you live in shouldn't be treated as if it were stock traded on an exchange.

It's Silicon Valley, man. Live hard, code hard, and maybe die hard. :o

Why is everybody so obsessed about the time someone lives in a house? Yes, prices get bid up sometimes, but they also crash sometimes. People with good credit can buy for the long term during the bad times. And during the boom times, the existing homeowners also benefit.

As a relatively mobile young professional, I think it's ridiculous that I could be heavily penalized by tax law for owning a house and then moving within a few years. I say get rid of the mortgage interest deduction, but let the free market determine the rest.

Why is everybody so obsessed about the time someone lives in a house?

I personally don't care whether people buy hundreds of houses and move every single month --as long as all capital gains are taxed the same way. If Mr. Flipper is getting a free ride on his capital gains while I'm required to pay 15-28% on stocks, bonds, ETFs & MM mutual funds, that's basically preferential tax treatment. An indirect subsidy for flipping houses any way you look at it. And don't even get me started on exactly *why* GSEs "need" to be government-sponsored (i.e., deserving of federal guarantees, implicit or otherwise).

Want to flip houses? Go for it --on your own damned dime.

Now, if you want to eliminate all capital gains tax and institute a VAT and/or flat tax, we can talk, but that's a separate issue.

And for the record...

As a relatively mobile young professional, I think it’s ridiculous that I can be heavily penalized by tax law for the "crime" of renting-while-saving vs. lifetime homedebtorship via suicide loan.

All taxes suck. Unfortunately, as long as government exists, they're inevitable. The question is, which money-generating activities do we choose to tax or not tax (salaries, capital gains, inheritance, imports, consumption, etc.)? What's the 'best' way to levy taxes?

Should we tax some activities more than others (and get less of it)?
Should we tax some activities less than others (and get more of it)?
Should we tax all "like" activities the same (e.g., a form of asset-class neutral flat tax)?

How about down payment requirements?

In the pre-bubble era, banks would have the borrowers declare in writing the source of the down payment. If the down payment was borrowed, the bank would not give the loan. VA and FHA were exceptions.

House prices would be more subject to the same market forces as rents (based on incomes, not debt) if every homebuyer was required to pony up 20% of the price at the closing table. That may sound hard now, but saving up a down payment would be easier to do since you would no longer have to compete with the JoeHowMuchAMonths running up prices.

First of all, we should remove the effects of inflation from taxable income. That's why it's unfair to tax cap gains on a house you lived in 25 years vs. a 1 year flipper at a single fixed percentage.

@DennisN,

That's not a bad idea. When your average T-Bill or bank CD only earns 5-5.5%, you're basically treading water in purchasing power. Where's the "gain" in that? The most insidious tax...

Of course, you could take it one step further and ask yourself, why is it so "necessary" for the Fed/Treasury to increase the credit supply at double digits and CREATE all this inflation in the first place? For the first ~140 years of this nation's history (up until the founding of the Federal Reserve system --surprise, surprise), we had little to no inflation. In fact, there were even prolonged periods of general DEflation. Then came the modern "miracles" of fractional reserve lending, perpetual government debt that never gets repaid, and the rest is history (along with your purchasing power).

"If Mr. Flipper is getting a free ride on his capital gains while I’m required to pay 15-28% on stocks, bonds, ETFs & MM mutual funds,"

I believe the law came about to correct the issue where someone like Brand buys a house for $200k, gets a job transfer 3 years later, sells his house for $250k, but must spend $250k to buy an equivilant house in his new area. The tax on his $50k gain is really an inflation tax.

But a potentially good law was mucked by the "2 out of 5" rule. To be fair, the house should always be owner occupied. Renting it out should subject the owner to the same cap gains and recoup depr as any other landlord.

@Headset,

I like the idea of bringing back down payments, but exactly which % is the "right" amount of collateral to compensate for risk is something the lenders can figure out. The really big fish for me are the non-amortizing NINJA loans. As long as they're still around, reckless idiots and crooks will continue to set the market clearing price for real estate (fraud money always beats out responsible money). That's why I want an outright ban --that alone will bring back risk premiums and borrower qualifying with a vengeance.

"In fact, there were even prolonged periods of general DEflation."

Yes, that happen in Britain also. Actually, as productivity increases, deflation should be the norm.

@Harm,

Are you in favor of eliminating fiat currency?

Guys, you can't have a government mandated downpayment. Banks will offer the terms they find advantageous. If banks take risks, that's part of the free market. As we're observing now, the free market is eating a lot of lenders, mortgage brokers and credit warehouses alive. They didn't properly value the risk involved. My objection is to any government bailout, save one that would prevent the banking system from collapsing (and we are FAR from that grave situation). Let 'em burn, I say. Otherwise you're just giving them an unlimited upside with limited downside, and that breeds idiotic behaviors with huge sums of money.

If you want to diminish the insane bubbles, the government should try to limit absurd liquidity. THAT it has partial control over. The Fed allowed an asinine lending rate to create real estate, private equity and corporate financing booms of cartoonish proportions. The Fed is chartered with a stable banking system---how is the Fed helping that goal by creating the conditions for massive asset bubbles of any kind?

Taxes are pretty secondary to the foolish behaviors of the Fed and its banking cronies. Buyers aren't to blame for a bubble when the Fed is flooding the economy with almost-free dollars.

"Guys, you can’t have a government mandated downpayment."

Not suggesting that. Just do not have any gov guarentees (if at all) of more than 80% purchase price, and no quasi-gov agency purchases of loans not conforming to such standards.

HARM, the question is not whether anybody (buyer or seller or lender) can self-regulate. A free society or a laissez-faire society is not a lawless society. All the laws about fraud and breach of contract will still apply.

In a free society, people will be held responsible for their own actions. That is all there is to it.

There is no way to ensure that everyone makes the "right" decision. And no, government of any size isn't going to ensure that either. At the minimum, we can avoid punishing those who didnt make these stupid decisions (like many on this forum).

As long as there are human beings, there will be human nature. No amount of legislation or government control is going to change that.

Harm, I realized something yesterday. During the depression banks were shut down by people withdrawing their deposits and so the FDIC was put in place. These funds are basically the modern equivilant of the old unregulated banks, the irony is that they can actually put a freeze on withdrawls as opposed to just making people line up for days, in any case, people are locked out and have to painfully watch the fund go broke.

It’s all a conspiracy, I tell ya!
The picture is much bigger than a few policy changes.
But don’t take my word for it, read this paper:

http://tinyurl.com/ybc2uw

GEORGE W. MALLONE, U.S. Senator (Nevada), speaking before Congress in 1957, alluded to the families that secretly own the "Federal" Reserve Bank and control the finances of the U.S. He stated:
"I believe that if the people of this nation fully understood what Congress has done to them over the last 49 years, they would move on Washington; they would not wait for an election... It adds up to a preconceived plan to destroy the economic and social independence of the United States!"

THOMAS JEFFERSON, U.S. President: "I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a moneyed aristocracy that has set the Government at defiance. The issuing power should be taken from the banks and restored to the people to whom it properly belongs."

JAMES A. GARFIELD, U.S. President: "Whoever controls the volume of money in any country is absolute master of all industry and commerce."

HENRY FORD, Founder of Ford Motor Company, commented on the privately owned "Federal" Reserve System scam: "It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning."

LEWIS MCFADDIN, U.S. Congressman, said this about those
same international financial conspirators, during the very time they were taking over the monetary control of America: "We have in this country one of the most corrupt institutions the world has ever known. I refer to the Federal Reserve Board and the Federal Reserve Banks, hereinafter called the FED. They are not government institutions. They are private monopolies which prey upon the people of these United States for the benefit of themselves and their foreign customers..."

You know, if the FED is such a great monopoly, you'd think that a lot of people would have learned how to play that to their massive benefit. I mean seriously, how does one get rich off the FED? Since they affect the economy directly, you must be able to follow the moves of the powerful beforehand and act accordingly. Why not a hedge fund geared to the financial aristocracy?

Why do these geeks buy little rice burners and then go down the road at 80, yes 80, miles per hour?

Geeks. Enough said. :)

Ok, can someone please explain something to me. How did the total # of licensed Realtors in CA jump 33,000 since last June? http://www.dre.ca.gov/statistics.htm

The number of transactions is dropping like a rock practically everywhere, the MSM is now running as many bad news stories on RE as fluff pieces, and even Cramer --yes, CRAMER-- has finally turned bearish on stocks (buy signal?). How is it that the number of licensed agents+brokers actually managed to rise ~7% YoY? What's the new ratio now --something like 1 in 40 adults? Does this mean we'll all be Realtors by 2020?

"Does this mean we'll all be Realtors by 2020?"

Lord. I hope NOT!

I'd be all in favor of an incremental phase out of cap gains on primary homes. While I do hear where Brand is coming from the reality is that SO MANY of the stories we're hearing on a daily basis are from people that moved based on employment (thought they were cutting a fat hog) and now can't sell?

If this boils down to: Do we massage our tax code to accomodate people that need (or want ) to move every 2 years... Or do we structure it in a manner that rewards long term ownership, well then I'm advocating long term every time! And please, let's do away with the "Any 2 Will Do" for crissakes. As Headset rightly points out, this has gotten so abused it's now basically out of control. I don't "believe" playing "musical primary residences" was the spirit of the law?

The license gets you access.

My bet is that the number of licensed Realtors actively representing someone else in a sale pales in comparison to those just using the access to industry information for their own profit.

Is it better to represent yourself in a deal, if you can?

Sad to say, I know several newly minted realtors.

One is a mostly stay-at-home mom who talks up real estate at parties and to date has helped one friend into homeownership. It's fun for her, I guess, and it earns a little money--or, here in Cali, quite a bit of money. I guess she will sell as many houses as her friends need.

The other one is a "financial planner," though I'm honestly not sure what that means. It seems to include some advising and a considerable amount of selling financial products. He figures he can fleece, I mean serve, his clients by helping them with their real estate deals as well. As he points out, there isn't much to listing a house on the MLS, and since he already has a relationship with these clients, why shouldn't he get the money? I suspect he will hire a college student to sit his open houses for him.

The last one took a job as a personal assistant for a successful realtor in SF and got pulled into the work. Since it is a mentorship situation, he might do OK.

Plunge Protection Team (PPT) did their job ... bulls are back.

Cramer isn't bearish. He's just a good snake oil salesman. Like a fortune teller, he subtly waffles and equivocates enough so that he can always say he was right.

Harm, I have a guess on the realtors question. When they can't make money they become waiters so they are technically still licensed realtors. The new ones are still chasing the bubble because 'it could turn any minute.'

I'm still curious how Cramer has ANY credibility left. He was completely wrong about the largest bubble in history. An amateur like me made a ton of money shorting the stocks he was pumping. In other words if you followed Cramer's advice that he 'liked LEND's business model' you now have less than a third of your original investment. I turned $40K into $108K pretty much on that stock alone.

I'll take the ricers over the distracted suburban mom yakking on a cellphone while backing her F-350 out of her parking space.

sriramgopalan Says:
July 30th, 2007 at 8:17 pm
"As long as there are human beings, there will be human nature. No amount of legislation or government control is going to change that."

But it does. There are countless examples. I'd like to think unregulated businesses, and proprietors could toe the line on the honor system but history clearly shows that the strict laisses faire point of view is baseless. It is literally chanted like dogma with only a one sided economic theory argument to back it up.

I just checked DQs example from a few months back. I guess it was a valid example of a real individual SF price increase year over year. I apologize in advance if this has been covered.

"DAiryQUeen Says:
May 21st, 2007 at 9:20 pm
Randy H - You’re welcome to provide the Belmont link, since prices are up about 15-20% since beginning of 2005.
But, here’s a nicce link for you. 3,200sqft house with NO BACK YARD i.e. small lot. 2 open houses, and boom.. in contract at $3.85 million already."

Link no longer works but I had typed the address right after she posted this.

2511 Steiner St, San Francisco, CA 94115

Sale History
06/05/2007: $4,200,000
03/27/2003: $2,100,000

I know so DAMN much about the market, I'm predicting today's climb to be .......drum roll.....THE dead cat bounce.......

This is really it!!! The sky is falling!!!!

Fall sky!!!

And another thang!

Since food and energy are excluded from inflation data I've decided to exclude them from my life!!

I'll eat plasma screen tvs from now on.....

Ride to work on laptops.....

It's pretty easy get a realtor's license....

IIUC members of the CA bar are waived from taking the CA broker's test, just having to pay the license fee. I guess the theory is that law school real property/contracts/torts classes are more thorough than anything realtors would take, so they give you a pass on them.

There are over 200,000 members of the CA bar. This may be a source of the rapid increase in realtors in CA.

But a potentially good law was mucked by the “2 out of 5″ rule. To be fair, the house should always be owner occupied. Renting it out should subject the owner to the same cap gains and recoup depr as any other landlord.

Headset,
Are you sure you can avoid the depreciation recoup?
I still hold that the exemption itself is not flawed (I will give a 2 year homesitter their due -- not looking good if you are starting, say, now), but it is the massive fraud that is the problem. If the law cannot be easily enforced, then perhaps it is due for an overhaul. Still not clear to me that is the case. Seems to me that an IRS agent with access to property records could have a field day (as someone here mentioned several months ago).

Quote of the week (so many good ones as of late):
"Much of prime is not really prime. The Alt-A base (has) been found to be really subprime. And much of the subprime has turned out to be flat-out fraud," Mason says.
"Borrowers over-borrowed, brokers over-lent, investment banks oversold performance and rating agencies overrated (mortgage-backed securities). What we thought was quality was not quality," he says.

I could not bring myself to short my own bank, but I finally bought some puts (Jan 09) on Wells Fargo so that I am not just crying in my beer on the sidelines while the mess continues to unfold.

EBGuy,
Yeah, I read that article this morning. We all discussed this exact point a few months ago when the first bits of subprime meltdown news started showing up in the MSM. The consensus was that all the cheerleaders claiming the subprime mess will be "contained" were smoking crack. Now we're seeing the Alt-A and Prime spillover starting to occur.

It's a bit scary, but this whole thing is beginning to unravel even more dramatically than I thought it would.

FROM WSJ:

American Home Mortgage Investment Corp. confirmed Tuesday that it is facing serious liquidity issues amid a flood of margin calls from lenders and has hired advisors to evaluate its options, including the liquidation of its assets. Its shares fell 86% after being halted for a day and a half.

The Melville, N.Y., lender, whose stock was halted all day Monday and earlier Tuesday pending the announcement, said its lenders have initiated margin calls as the collateral value of some of the company's loans and securities has dropped. The company said it has already received and paid "very significant" margin calls ...

boy, it gets better and better. everywhere you look, you read about more and more hedge funds tanking.

Cramer isn’t bearish. He’s just a good snake oil salesman. Like a fortune teller, he subtly waffles and equivocates enough so that he can always say he was right.

Randy, couldn't have said any better.. I've been watching his show for a month... it is interesting to hear him say now he doesn't distinguish between sub-prime and prime.