The Affairs Organizer Blog

Many thanks for another great visual guide from the talented people at WallStats.com

What a fantastic job by Wallstats.com (a very interesting and informative site) visually describing the events leading up to the current financial crisis:

Today’s Wall Street Journal article “Builders Make Plea for Federal Aid” by Nick Timiraos reports:

“The builders’ lobby is ramping up its sales pitch for a $250 billion stimulus package called “Fix Housing First,” arguing that financial markets won’t recover until home prices stop falling. They are calling for a generous tax credit for home purchases and a federal subsidy that would lower a homeowner’s mortgage rate … Housing economist Thomas Lawler … and others argue that effectively setting a floor for home prices will prolong the pain because it will keep supply and demand out of sync. “The government does not have the tools to rewrite the laws of supply and demand,” said Harvard University economist Edward Glaeser. “By artificially increasing prices, we are encouraging more building.”

I’m certainly not a Harvard economist, but the proposal by the Homebuilders is a terrible idea.

Will the “leaders” of all these firms ever tire of trying to keep profits private and untaxed, while having the public bear their risks and losses?

Endless borrowing by the US Government to bail out every losing bet or struggling industry is not capitalism and is not sustainable.

No one likes to see companies go bankrupt and employees lose their jobs, but bankruptcy plays an important role by helping our economy evolve and allocate resources efficiently.

A strong social safety net for those who lose their jobs is important and I’m happy to pay my share of taxes to support this system, but artificially propping-up industries that overbuild and/or make products consumers don’t want to buy weakens our system in the long-run and warps the risk/return equation.

I do make exception to this philosophy, to a very limited extent, to allow for the financial system being temporarily preserved because the consequences of this entire industry failing are too great for the economy to bear.

Also, at some point – perhaps not so far in the future at the rate we’re going – US Treasury securities will lose their “zero risk” assumption, and then we’re really in for some difficulty.

Okay, maybe “almost anything” is a stretch.  Still, this site does offer a ton of free calculators for dozens of personal and small business financial situations: http://www.finance.cch.com/tools/calcs.asp

I’ve tested a few of the calculators and they seem accurate, but I can’t offer any guarantees about them or about the website’s publisher: CCH*.  I learned about the site from the Wall Street Journal’s Small Talk column about small business, which I believe is written by Kelly Spors.

*(from the About Us page of their website) “CCH INCORPORATED, a leading provider of business, legal, and tax information and software to the business community in the U.S. and abroad since 1913. More than four generations of business and tax advisors have trusted our products for their accuracy, reliability, comprehensiveness, and timeliness.”

Good luck, and happy calculating!

The New York Times website has in interactive map that shows where homes across the US are worth less than the mortgage debt.

Click on the map’s upper-left to view on a state-by-state basis:

(1) the percent of homes with negative equity;

(2) the number of homes with negative equity; and

(3) ratio of mortgage debt to property value

A related article by David Streitfeld about Mountain House, Calif. reads: “This town, 59 feet above sea level, is the most underwater community in America. Because of plunging home values, almost 90 percent of homeowners here owe more on their mortgages than their houses are worth, according to figures released Monday. That is the highest percentage in the country. The average homeowner in Mountain House is “underwater,” as it is known, by $122,000.”

It continues later: “The Martinezes bought their house in early 2005 for $630,000. It is now worth about $420,000. They have an interest-only mortgage, a popular loan during the boom that allows owners to forgo principal payments for a time. But these loans eventually become unmanageable. In 2015, Mr. Martinez said, his monthly payments will be $12,000 a month. He laughed and shook his head at the absurdity of it.”

Thanks to David Streitfeld for an interesting article.

“The term hails from a legend that Siamese royalty gave albino elephants — revered but financially ruinous to maintain — to unpleasant courtiers. Today, the financial burden of carrying an overly big, overly unique manse is being shared by many wealthy owners, who are finding out the hard way that not everyone is willing to pay up for their vision of a dream home. Realtors concede a growing number of these pricey pachyderms are sitting unsold for months and selling at steep discounts, if at all.”

Source: Christina S.N. Lewis – many thanks for her interesting WSJ article “The Stampede of White Elephants: Slowing Sales of Luxury Properties Reveal ‘Trophy Homes’ Weighing Owners Down”

According to The Wall Street Journal, despite most of the state’s population living in the desert, “Nevada Has Highest Percentage of ‘Under Water’ Households”

• Nevada leads the U.S. in the proportion of households whose mortgage debt exceeds the current estimated value of their homes, a condition known as being “under water.”

• Many Americans are under water because they bought homes at or near the peak of the housing boom and put little or no money down.

• (A new study estimates) 48% of owners of single-family homes with mortgages in Nevada are under water. That compares with 18% nationwide.

Cheers to WSJ’s James R. Hagerty for a fine article.