Page 1 of 2 12 LastLast
Results 1 to 20 of 35

Thread: White House: Deficit Will Hit Record $427B

  1. #1
    Banned
    Join Date
    Dec 2004
    Location
    New Jersey
    Posts
    471
    Post Thanks / Like
    By ALAN FRAM, Associated Press Writer

    WASHINGTON - The White House says its drive to halve federal deficits by 2009 remains on track, though it projects that the cost of wars in Iraq and Afghanistan will help drive this year's shortfall to a record $427 billion.



    The figure, provided by a senior Bush administration official who briefed reporters on condition of anonymity, was among a flood of numbers released Tuesday that underscored a gloomy budget picture.


    The nonpartisan Congressional Budget Office (news - web sites) said projected deficits for the decade ending in 2014 had grown $503 billion worse than it calculated in September, excluding war costs. The deterioration was chiefly due to tax cuts and hurricane aid enacted since then.


    The congressional analysts projected that this year's deficit would hit $368 billion, excluding war expenses, and about $400 billion with them.


    The highest deficit ever was last year's $412 billion. The administration official said the White House's 2005 projection of $427 billion showed progress because it was less than last year's gap when compared with the size of the growing U.S. economy a key measure of the deficit's potency.


    "By working with Congress to exercise responsible spending restraint" and cutting taxes to spark economic growth, "we've got a plan to cut the deficit in half over the next five years," White House spokesman Scott McClellan said.


    The congressional analysts said deficits over the decade ending in 2015 would total $855 billion. But because the budget offices' estimating techniques require it to count existing law and omit anything else that estimate was not being taken seriously by many people.


    Not included were war spending, the costs of renewing President Bush (news - web sites)'s expiring tax cuts and keeping the alternative minimum tax from affecting more middle-income Americans.


    Including extra interest the government would have to pay, the budget office estimated those items together would add more than $2.9 trillion to projected deficits.


    Combined, that would keep projected deficits over the next 10 years above $330 billion each year and growing steadily in the decade's latter half, budget office figures showed.


    Those numbers exclude Bush's still-evolving plan to revamp Social Security (news - web sites), which analysts have estimated could cost another $1 trillion to $2 trillion over the next decade.


    "No one should be lulled into thinking that this is a good news report," the Concord Coalition, a bipartisan group that favors balanced budgets, said of the congressional figures. "To the contrary, it is further confirmation that fiscal policy is on a dangerous path."


    On Capitol Hill, Republicans said the figures showed the need to clamp down on spending.


    "We must get serious about putting our financial house in order, beginning with short-term deficit reduction and then long-term control" of expensive federal benefit programs, said Senate Budget Committee Chairman Judd Gregg, R-N.H.


    Democrats used the numbers to attack Bush.


    "The nations financial woes can be directly attributed to the irresponsible fiscal policies of this administration," said Sen. Kent Conrad (news, bio, voting record) of North Dakota, top Democrat on the Senate Budget panel.


    Senior administration officials invited reporters to the White House to outline their upcoming request for an additional $80 billion, or slightly more, to help pay this year's war costs.


    The latest proposal would bring war spending since the terrorist attacks of Sept. 11, 2001, to about $308 billion, including $25 billion to rebuild Iraq and Afghanistan, according to the Congressional Research Service, which provides reports to lawmakers.

    Bush sends his 2006 budget to Congress on Feb. 7. The administration won't request war funds for 2006 until later, the officials said.

    The officials said that of the $80 billion, $75 billion would be for the Defense Department, mostly for the Army. They said it would include personnel costs, the start of an effort to add at least 17 combat brigades to the Army and replacing worn out equipment.

    The rest of the money would largely be for aid the State Department would give to U.S. allies and for other expenses. Included would be money to help new Palestinian leader Mahmoud Abbas, to build an embassy in Baghdad at an estimated cost of $1.5 billion, and to aid victims of fighting in Sudan's Darfur province.

    The officials did not say whether the request would include aid for Indian Ocean countries staggered by last month's devastating tsunami. One said the United States was spending $5 million daily there, and the administration would seek "very generous assistance."

    The United States already has committed $350 million to tsunami recovery efforts.

  2. #2
    All Pro
    Join Date
    Jun 2004
    Posts
    1,171
    Post Thanks / Like
    :lol: :lol: :lol:

    I remember for years when the 'rats controled congress we had growing deficits every year. Then the 'pubs took over in '94 and starting balancing the budget. Now with this deficit, the 'rats are trying to look like the good guys, but I ain't fooled. I shudder to think what my taxes would be if the 'rats were still in power trying to pay for their socialist programs.

    BTW, I made a bid on another house last week. I didn't get it, but if I had, I would have had "record deficit" BUT I wouldn't be in as bad a shape as back in '80 when I bought a house and had a "record deficit." Why? Because when compared to my income my debt this time is a lower % than back in '80.

  3. #3
    All Pro
    Join Date
    Nov 2003
    Posts
    1,739
    Post Thanks / Like
    [quote][i]Originally posted by asuusa[/i]@Jan 26 2005, 05:35 PM
    [b] :lol: :lol: :lol:

    I remember for years when the 'rats controled congress we had growing deficits every year. Then the 'pubs took over in '94 and starting balancing the budget. Now with this deficit, the 'rats are trying to look like the good guys, but I ain't fooled. I shudder to think what my taxes would be if the 'rats were still in power trying to pay for their socialist programs.

    BTW, I made a bid on another house last week. I didn't get it, but if I had, I would have had "record deficit" BUT I wouldn't be in as bad a shape as back in '80 when I bought a house and had a "record deficit." Why? Because when compared to my income my debt this time is a lower % than back in '80. [/b][/quote]
    :D
    Right on.

  4. #4
    Hall Of Fame
    Join Date
    Apr 2003
    Location
    Boston
    Posts
    11,692
    Post Thanks / Like
    What is this projected deficit as a portion of the projected GDP?

    That is the question. Most everything today is a "record" when measured in nominal dollar terms.

  5. #5
    All Pro
    Join Date
    Jul 2003
    Posts
    6,159
    Post Thanks / Like
    Here's a record, home ownership levels are at all time highs. That's not a sign of a terrible economy, is it? (I'm asking b/c I really don't know - I think it's a good thing, could use some insight)

  6. #6
    All League
    Join Date
    Apr 2003
    Location
    Washington, D.C.
    Posts
    3,408
    Post Thanks / Like
    [quote][i]Originally posted by sackdance[/i]@Jan 28 2005, 12:15 AM
    [b] Here's a record, home ownership levels are at all time highs. That's not a sign of a terrible economy, is it? (I'm asking b/c I really don't know - I think it's a good thing, could use some insight) [/b][/quote]
    I'm not an economist, but I'm sure the lowest interest rates in a long time have something to do with it. I do know that a lot of economists, even the ones on right-wing radio shows, are warning about people getting into major trouble down the road because of all these new types of loans, ie interest only, ARMs, etc... Time will tell.

  7. #7
    All League
    Join Date
    Apr 2003
    Posts
    3,142
    Post Thanks / Like
    [quote][b]I'm not an economist, but I'm sure the lowest interest rates in a long time have something to do with it. I do know that a lot of economists, even the ones on right-wing radio shows, are warning about people getting into major trouble down the road because of all these new types of loans, ie interest only, ARMs, etc... Time will tell. [/b][/quote]

    Good job section...Folks never talk about personal debt.

  8. #8
    Hall Of Fame
    Join Date
    Apr 2003
    Location
    Boston
    Posts
    11,692
    Post Thanks / Like
    [quote][i]Originally posted by Riggins44[/i]@Jan 27 2005, 11:57 PM
    [b] [quote][b]I'm not an economist, but I'm sure the lowest interest rates in a long time have something to do with it. I do know that a lot of economists, even the ones on right-wing radio shows, are warning about people getting into major trouble down the road because of all these new types of loans, ie interest only, ARMs, etc... Time will tell. [/b][/quote]

    Good job section...Folks never talk about personal debt. [/b][/quote]
    The problem isn't so much the types of loans, but rather the fact that people are not only taking out loans to buy assets, but are borrowing additional monies against the current, inflated values of those assets.

    The problem with a recovery that is based largely on asset apprecition is that those assets may very well drop in price, while debt is fixed. A recovery based on other factors as well, like an increase in real incomes, would be more perferrable.

    Both debtors and creditors face risk, obviously. If the real rates go up, people will borrow less and buy fewer homes, but creditors will also suffer because everyone who got into a home at a cheaper rate would have a competitive advantage over their creditors, who are now earning less on many of their investments than their cost of capital.

    Personal debt or any type of debt is only as bad as the next alternative and is only half of the total financial eqation. I would be willing to lever myself or my investments if I thought I could make a higher return using the borrowed money than the rate I am paying on my debt. Most new homeowners are highly levered, perhaps over 90%. So, even if you are paying 7% on your debt and are only earning 2% or 3% on your money that is in a bank account, it is still profitable to lever yourself and buy an asset - if you estimate a return on that asset to be greater than your cost of capital. It all depends on your risk tolerance and your required rate of return. The problem is, asset prices are currently over-valued and inflated, and people are borrowing more money, becoming even more levered, and increasing the needed return on their assets necessary to still make money or avoid losses. If asset valuations revert back to their historical means, or if rising real rates drive home prices down, a lot of people are going to be in a lot of pain in the future....

  9. #9
    Veteran
    Join Date
    Apr 2003
    Location
    Greenwich Village, NY
    Posts
    2,240
    Post Thanks / Like
    [quote][i]Originally posted by jets5ever+Jan 28 2005, 08:59 AM--></div><table border='0' align='center' width='95%' cellpadding='3' cellspacing='1'><tr><td>[b]QUOTE[/b] (jets5ever @ Jan 28 2005, 08:59 AM)</td></tr><tr><td id='QUOTE'> <!--QuoteBegin-Riggins44[/i]@Jan 27 2005, 11:57 PM
    [b] [quote][b]I&#39;m not an economist, but I&#39;m sure the lowest interest rates in a long time have something to do with it. I do know that a lot of economists, even the ones on right-wing radio shows, are warning about people getting into major trouble down the road because of all these new types of loans, ie interest only, ARMs, etc... Time will tell. [/b][/quote]

    Good job section...Folks never talk about personal debt. [/b][/quote]
    The problem isn&#39;t so much the types of loans, but rather the fact that people are not only taking out loans to buy assets, but are borrowing additional monies against the current, inflated values of those assets.

    The problem with a recovery that is based largely on asset apprecition is that those assets may very well drop in price, while debt is fixed. A recovery based on other factors as well, like an increase in real incomes, would be more perferrable.

    Both debtors and creditors face risk, obviously. If the real rates go up, people will borrow less and buy fewer homes, but creditors will also suffer because everyone who got into a home at a cheaper rate would have a competitive advantage over their creditors, who are now earning less on many of their investments than their cost of capital.

    Personal debt or any type of debt is only as bad as the next alternative and is only half of the total financial eqation. I would be willing to lever myself or my investments if I thought I could make a higher return using the borrowed money than the rate I am paying on my debt. Most new homeowners are highly levered, perhaps over 90%. So, even if you are paying 7% on your debt and are only earning 2% or 3% on your money that is in a bank account, it is still profitable to lever yourself and buy an asset - if you estimate a return on that asset to be greater than your cost of capital. It all depends on your risk tolerance and your required rate of return. The problem is, asset prices are currently over-valued and inflated, and people are borrowing more money, becoming even more levered, and increased the return on their assets necessary to still make money or avoid losses. If asset valuations revert back to their historical means, or if rising real rates drive home prices down, a lot of people are going to be in a lot of pain in the future.... [/b][/quote]
    Good analysis 5, but section still made a very solid point, and they type of lending instrument does matter. I don&#39;t think many people realize that you don&#39;t build equity(or very, very little) on a home purchase in the first few years. The majority of the payemnts go to pauing interest (just a personal suggestion, if you are buying a place and can afford to pay over your monthly mortgage payments early, do it. Even an extra &#036;100 bucks a month will save you big time and start to build equity in your place....."I&#39;m Suzty Orman.")

    These people taking these loans usually do because they can not afford teh alternative......In 5 years if their situations haven&#39;t improved or mortgagae rates are higher, these people will be in serious pain.

  10. #10
    All Pro
    Join Date
    Mar 2004
    Posts
    2,158
    Post Thanks / Like
    [quote][i]Originally posted by jets5ever+Jan 28 2005, 08:59 AM--></div><table border='0' align='center' width='95%' cellpadding='3' cellspacing='1'><tr><td>[b]QUOTE[/b] (jets5ever &#064; Jan 28 2005, 08:59 AM)</td></tr><tr><td id='QUOTE'> <!--QuoteBegin-Riggins44[/i]@Jan 27 2005, 11:57 PM
    [b] [quote][b]I&#39;m not an economist, but I&#39;m sure the lowest interest rates in a long time have something to do with it. I do know that a lot of economists, even the ones on right-wing radio shows, are warning about people getting into major trouble down the road because of all these new types of loans, ie interest only, ARMs, etc... Time will tell. [/b][/quote]

    Good job section...Folks never talk about personal debt. [/b][/quote]
    The problem isn&#39;t so much the types of loans, but rather the fact that people are not only taking out loans to buy assets, but are borrowing additional monies against the current, inflated values of those assets.

    The problem with a recovery that is based largely on asset apprecition is that those assets may very well drop in price, while debt is fixed. A recovery based on other factors as well, like an increase in real incomes, would be more perferrable.

    Both debtors and creditors face risk, obviously. If the real rates go up, people will borrow less and buy fewer homes, but creditors will also suffer because everyone who got into a home at a cheaper rate would have a competitive advantage over their creditors, who are now earning less on many of their investments than their cost of capital.

    Personal debt or any type of debt is only as bad as the next alternative and is only half of the total financial eqation. I would be willing to lever myself or my investments if I thought I could make a higher return using the borrowed money than the rate I am paying on my debt. Most new homeowners are highly levered, perhaps over 90%. So, even if you are paying 7% on your debt and are only earning 2% or 3% on your money that is in a bank account, it is still profitable to lever yourself and buy an asset - if you estimate a return on that asset to be greater than your cost of capital. It all depends on your risk tolerance and your required rate of return. The problem is, asset prices are currently over-valued and inflated, and people are borrowing more money, becoming even more levered, and increasing the needed return on their assets necessary to still make money or avoid losses. If asset valuations revert back to their historical means, or if rising real rates drive home prices down, a lot of people are going to be in a lot of pain in the future.... [/b][/quote]
    Nice post.

    I&#39;m not sure if this is 100% true since a lot of people are erasing high interest debt and replacing it with lower interest debt. This in return is allowing them to spend more. However, most of the mortgage movement is in cash-out refinancing. This is the most dangerous refinancing, imo. First off as in the case of all refinancing if 9/10 of the houses on a block are refinanced thier value is based on one house that sold. Housing prices are not rising right now because people are making better money and outbidding each other. They are rising because of low interest rates and low supply in most areas. Which means the rising rates of houses are largely based on speculation that the other 9/10 of the houses on that block would sell for that price if on the market at this particular moment. This is just not true and it would be a sign of a good economy if people were bidding up houses because they were getting raises. But the housing market is completely false right now and it is a big reason the economy keeps bumping up and down and the bush administration keeps saying we are on our way up. When in actuallity it is in large part due to the fact that people are cash out refinancing and then putting that money into the economy on an inconsistent basis. Lets face facts though those ARM&#39;s will come due for refinancing soon.

  11. #11
    Hall Of Fame
    Join Date
    Apr 2003
    Location
    Boston
    Posts
    11,692
    Post Thanks / Like
    It is a relevant point, but don&#39;t forget that most ARM loans are given at reduced rates. They do not make much sense if the buyer plans on staying in their home for longer than the term of their ARM loan, or if they don&#39;t have a "stop-loss" set up in which they decide to refinance to a fixed rate of the rates move above some high water mark, or if the fixed rates are at the historical lows that they have been lately. Because yes, they are severely exposed to interest rate risk. But that is only half of the picture....

    Again, it comes back to your required return or risk tolerance. The size of an investment matters, obviously. It makes more sense to earn 10% on a 500,000 investment than it does to make 10% on a &#036;250,000 investment., provided you are willing to tolerate the added risk.

    For example, 2.5 years ago, my wife and I got married and bought a home in MA for about &#036;400,000. We knew that this would not be our "long-term" home, and knew that we planned on selling it in fewer than 3 or 4 years or so. So, we did a 5-year ARM loan rather than a fixed rate loan for several reasons. One, we needed the savings on our monthly expenses that the lower ARM rate provided us. And two, we knew that even with a fixed rate that we wouldn&#39;t put a dent into the principle after only a few years, so it made little sense to do it that way, since we planned on selling soon and knew we&#39;d be exposed to interest rate risk from buying a new home in a few years anyway. We&#39;d have to buy our new home at those rates, no matter what. So, a few things broke our way and we ended up making a very good return on this investment, which we then used to buy our current home, which is now the home we plan on staying in long-term, which we got into with fixed rates still at historical lows and did a fixed rate on. I am not bragging about it, because a lot of people have made money in reai estate lately, but rather I am illustrating a nuance to your contention that "most people doing ARMs do so because they cannot afford the alternative." While true, that analysis is incomplete. Doing ARMs provides people the alternative of buying a larger, more expensive homes, if they are willing to incur the risk associiated with that. We could have easily bought a less expensive house, kept our mortgage payments at a comfortable level and gotten a fixed rate, and [i]still[/i] made a comparable return than we did with the ARM, however, by doing the ARM, we got into a more expensive home, and created more actual wealth for ourselves than we would have had we simply earned the same return on the cheaper home.

    It&#39;s all about trade-offs and each person&#39;s circumstances....

  12. #12
    Hall Of Fame
    Join Date
    Apr 2003
    Location
    Boston
    Posts
    11,692
    Post Thanks / Like
    [quote][i]Originally posted by rsherryjr+Jan 28 2005, 09:22 AM--></div><table border='0' align='center' width='95%' cellpadding='3' cellspacing='1'><tr><td>[b]QUOTE[/b] (rsherryjr @ Jan 28 2005, 09:22 AM)</td></tr><tr><td id='QUOTE'> [quote]Originally posted by jets5ever@Jan 28 2005, 08:59 AM
    [b] <!--QuoteBegin-Riggins44[/i]@Jan 27 2005, 11:57 PM
    [b] [quote][b]I&#39;m not an economist, but I&#39;m sure the lowest interest rates in a long time have something to do with it. I do know that a lot of economists, even the ones on right-wing radio shows, are warning about people getting into major trouble down the road because of all these new types of loans, ie interest only, ARMs, etc... Time will tell. [/b][/quote]

    Good job section...Folks never talk about personal debt. [/b][/quote]
    The problem isn&#39;t so much the types of loans, but rather the fact that people are not only taking out loans to buy assets, but are borrowing additional monies against the current, inflated values of those assets.

    The problem with a recovery that is based largely on asset apprecition is that those assets may very well drop in price, while debt is fixed. A recovery based on other factors as well, like an increase in real incomes, would be more perferrable.

    Both debtors and creditors face risk, obviously. If the real rates go up, people will borrow less and buy fewer homes, but creditors will also suffer because everyone who got into a home at a cheaper rate would have a competitive advantage over their creditors, who are now earning less on many of their investments than their cost of capital.

    Personal debt or any type of debt is only as bad as the next alternative and is only half of the total financial eqation. I would be willing to lever myself or my investments if I thought I could make a higher return using the borrowed money than the rate I am paying on my debt. Most new homeowners are highly levered, perhaps over 90%. So, even if you are paying 7% on your debt and are only earning 2% or 3% on your money that is in a bank account, it is still profitable to lever yourself and buy an asset - if you estimate a return on that asset to be greater than your cost of capital. It all depends on your risk tolerance and your required rate of return. The problem is, asset prices are currently over-valued and inflated, and people are borrowing more money, becoming even more levered, and increasing the needed return on their assets necessary to still make money or avoid losses. If asset valuations revert back to their historical means, or if rising real rates drive home prices down, a lot of people are going to be in a lot of pain in the future.... [/b][/quote]
    Nice post.

    I&#39;m not sure if this is 100% true since a lot of people are erasing high interest debt and replacing it with lower interest debt. This in return is allowing them to spend more. However, most of the mortgage movement is in cash-out refinancing. This is the most dangerous refinancing, imo. First off as in the case of all refinancing if 9/10 of the houses on a block are refinanced thier value is based on one house that sold. Housing prices are not rising right now because people are making better money and outbidding each other. They are rising because of low interest rates and low supply in most areas. Which means the rising rates of houses are largely based on speculation that the other 9/10 of the houses on that block would sell for that price if on the market at this particular moment. This is just not true and it would be a sign of a good economy if people were bidding up houses because they were getting raises. But the housing market is completely false right now and it is a big reason the economy keeps bumping up and down and the bush administration keeps saying we are on our way up. When in actuallity it is in large part due to the fact that people are cash out refinancing and then putting that money into the economy on an inconsistent basis. Lets face facts though those ARM&#39;s will come due for refinancing soon. [/b][/quote]
    Great point Rsherry.

  13. #13
    All League
    Join Date
    Apr 2003
    Location
    Washington, D.C.
    Posts
    3,408
    Post Thanks / Like
    [quote][i]Originally posted by jets5ever[/i]@Jan 28 2005, 11:34 AM
    [b] It is a relevant point, but don&#39;t forget that most ARM loans are given at reduced rates. They do not make much sense if the buyer plans on staying in their home for longer than the term of their ARM loan, or if they don&#39;t have a "stop-loss" set up in which they decide to refinance to a fixed rate of the rates move above some high water mark, or if the fixed rates are at the historical lows that they have been lately. Because yes, they are severely exposed to interest rate risk. But that is only half of the picture....

    Again, it comes back to your required return or risk tolerance. The size of an investment matters, obviously. It makes more sense to earn 10% on a 500,000 investment than it does to make 10% on a &#036;250,000 investment., provided you are willing to tolerate the added risk.

    For example, 2.5 years ago, my wife and I got married and bought a home in MA for about &#036;400,000. We knew that this would not be our "long-term" home, and knew that we planned on selling it in fewer than 3 or 4 years or so. So, we did a 5-year ARM loan rather than a fixed rate loan for several reasons. One, we needed the savings on our monthly expenses that the lower ARM rate provided us. And two, we knew that even with a fixed rate that we wouldn&#39;t put a dent into the principle after only a few years, so it made little sense to do it that way, since we planned on selling soon and knew we&#39;d be exposed to interest rate risk from buying a new home in a few years anyway. We&#39;d have to buy our new home at those rates, no matter what. So, a few things broke our way and we ended up making a very good return on this investment, which we then used to buy our current home, which is now the home we plan on staying in long-term, which we got into with fixed rates still at historical lows and did a fixed rate on. I am not bragging about it, because a lot of people have made money in reai estate lately, but rather I am illustrating a nuance to your contention that "most people doing ARMs do so because they cannot afford the alternative." While true, that analysis is incomplete. Doing ARMs provides people the alternative of buying a larger, more expensive homes, if they are willing to incur the risk associiated with that. We could have easily bought a less expensive house, kept our mortgage payments at a comfortable level and gotten a fixed rate, and [i]still[/i] made a comparable return than we did with the ARM, however, by doing the ARM, we got into a more expensive home, and created more actual wealth for ourselves than we would have had we simply earned the same return on the cheaper home.

    It&#39;s all about trade-offs and each person&#39;s circumstances.... [/b][/quote]
    Yes there are definatly advantages to different loan packages. Unfortunatly not everyone buying real estate has an Ivy league education.

    My neighbor is Serbian and she bought her house a few months before me. She doesn&#39;t speak English very well. The bank took advantage of her, they sold her on an ARM when she had no idea what that entailed. They simply gave her a list of different loans and how much her monthly payments would be, of course she chose the one with the lowest payment. My fiance went with her to the bank because they wanted to refinance, it turned out they had a huge payment due in a few months on the ARM that they had no idea about.

    The point is most people don&#39;t understand how these loans work. Hell there are people telling me all the time that they want to buy a house, but they need to save up 20% equity. People havn&#39;t adjusted to the way things work now.

  14. #14
    Hall Of Fame
    Join Date
    Apr 2003
    Location
    Boston
    Posts
    11,692
    Post Thanks / Like
    [quote][i]Originally posted by Section109Row15+Jan 28 2005, 09:44 AM--></div><table border='0' align='center' width='95%' cellpadding='3' cellspacing='1'><tr><td>[b]QUOTE[/b] (Section109Row15 &#064; Jan 28 2005, 09:44 AM)</td></tr><tr><td id='QUOTE'> <!--QuoteBegin-jets5ever[/i]@Jan 28 2005, 11:34 AM
    [b] It is a relevant point, but don&#39;t forget that most ARM loans are given at reduced rates. They do not make much sense if the buyer plans on staying in their home for longer than the term of their ARM loan, or if they don&#39;t have a "stop-loss" set up in which they decide to refinance to a fixed rate of the rates move above some high water mark, or if the fixed rates are at the historical lows that they have been lately. Because yes, they are severely exposed to interest rate risk. But that is only half of the picture....

    Again, it comes back to your required return or risk tolerance. The size of an investment matters, obviously. It makes more sense to earn 10% on a 500,000 investment than it does to make 10% on a &#036;250,000 investment., provided you are willing to tolerate the added risk.

    For example, 2.5 years ago, my wife and I got married and bought a home in MA for about &#036;400,000. We knew that this would not be our "long-term" home, and knew that we planned on selling it in fewer than 3 or 4 years or so. So, we did a 5-year ARM loan rather than a fixed rate loan for several reasons. One, we needed the savings on our monthly expenses that the lower ARM rate provided us. And two, we knew that even with a fixed rate that we wouldn&#39;t put a dent into the principle after only a few years, so it made little sense to do it that way, since we planned on selling soon and knew we&#39;d be exposed to interest rate risk from buying a new home in a few years anyway. We&#39;d have to buy our new home at those rates, no matter what. So, a few things broke our way and we ended up making a very good return on this investment, which we then used to buy our current home, which is now the home we plan on staying in long-term, which we got into with fixed rates still at historical lows and did a fixed rate on. I am not bragging about it, because a lot of people have made money in reai estate lately, but rather I am illustrating a nuance to your contention that "most people doing ARMs do so because they cannot afford the alternative." While true, that analysis is incomplete. Doing ARMs provides people the alternative of buying a larger, more expensive homes, if they are willing to incur the risk associiated with that. We could have easily bought a less expensive house, kept our mortgage payments at a comfortable level and gotten a fixed rate, and [i]still[/i] made a comparable return than we did with the ARM, however, by doing the ARM, we got into a more expensive home, and created more actual wealth for ourselves than we would have had we simply earned the same return on the cheaper home.

    It&#39;s all about trade-offs and each person&#39;s circumstances.... [/b][/quote]
    Yes there are definatly advantages to different loan packages. Unfortunatly not everyone buying real estate has an Ivy league education.

    My neighbor is Serbian and she bought her house a few months before me. She doesn&#39;t speak English very well. The bank took advantage of her, they sold her on an ARM when she had no idea what that entailed. They simply gave her a list of different loans and how much her monthly payments would be, of course she chose the one with the lowest payment. My fiance went with her to the bank because they wanted to refinance, it turned out they had a huge payment due in a few months on the ARM that they had no idea about.

    The point is most people don&#39;t understand how these loans work. Hell there are people telling me all the time that they want to buy a house, but they need to save up 20% equity. People havn&#39;t adjusted to the way things work now. [/b][/quote]
    Well, that is a sad picture Section...damn.


    LG&M&#39;s point is apt, and another huge problem is that some banks are letting people get into homes with nothing down, or 3% or something, which causes that PMI crap to kick in and makes them so levered that it almost makes me shiver.

    People make those same types of mistakes when they buy cars. They focus on the monthly payments. I have friends who tell the dealers, "Look, this is all I can afford to spend a month, what can I get for that...." You may as well paint the word "sucker" on your forehead. I&#39;ve even had dealers agree on a price with me, then go back and "work the numbers" and come back with a different sale price and rate, but identical monthly payments that we&#39;ve agreed upon. When I&#39;ve mentioned it, they say, "Yeah, but it&#39;s just an accounting thing. The monthly payments are the same&#33;"

    Always carry with you a financial calculator to these types of things, and display it when you talk to salesmen. Say NOTHING about monthly payments and if they ask, say that all you care about is the rate first and the price second.

    It&#39;s a tough gig, it really is. I feel badly for your friend. There are so many unethical lenders out there....

  15. #15
    All Pro
    Join Date
    Apr 2003
    Location
    Lansing
    Posts
    1,337
    Post Thanks / Like
    I was raised a Republican. My wife spent 6 years on the senior staff of a US Congressman. Now, my patience with them has just about run out. I&#39;m a software developer, but I&#39;m stuck making programs in an arcane language, because all the work in well-known languages is on it&#39;s way to India. Furthermore, large IT departments in the US are taking on a more western-asian look, and good people in those shops are finding themselves getting "voted off the island". I&#39;m about to change my name from Jerry Karn to jerrishan karnakrishna just so I can keep a job. --all this is taking place with the smiling approval of my own Republicans who will say &#39;retrain, just like the Nafta people did&#39;. The sickening thing is I was ok with this during the Nafta days....because my own children weren&#39;t affected.

    Democrat or Republican, EVERYONE will run deficits for the right "cause". Dems will do it for the great society, Republicans will do it for the right war (or cold war). I don&#39;t like deficits, no matter WHO runs them up, or why.

    What I&#39;d like to see in the public debate is a comparison of the US Economy to our National Parks. Our economy is a national treasure, and should see the efforts made to preserve it&#39;s profitability for our children. Right now, efficiency and low prices are king, and nobody cares if anything was made in a Chinese Prison. We&#39;re buying our stuff at the dollar store and wondering why our brothers have been laid off and are living in double-wides.

    The Economy is being clear-cut by a system of people who take pride in not considering what&#39;s left for tomorrow. Now that I have children who need to live here after I&#39;m gone, this is a problem.

  16. #16
    Veteran
    Join Date
    Apr 2003
    Location
    Greenwich Village, NY
    Posts
    2,240
    Post Thanks / Like
    [quote][i]Originally posted by jets5ever[/i]@Jan 28 2005, 09:34 AM
    [b] It is a relevant point, but don&#39;t forget that most ARM loans are given at reduced rates. They do not make much sense if the buyer plans on staying in their home for longer than the term of their ARM loan, or if they don&#39;t have a "stop-loss" set up in which they decide to refinance to a fixed rate of the rates move above some high water mark, or if the fixed rates are at the historical lows that they have been lately. Because yes, they are severely exposed to interest rate risk. But that is only half of the picture....

    Again, it comes back to your required return or risk tolerance. The size of an investment matters, obviously. It makes more sense to earn 10% on a 500,000 investment than it does to make 10% on a &#036;250,000 investment., provided you are willing to tolerate the added risk.

    For example, 2.5 years ago, my wife and I got married and bought a home in MA for about &#036;400,000. We knew that this would not be our "long-term" home, and knew that we planned on selling it in fewer than 3 or 4 years or so. So, we did a 5-year ARM loan rather than a fixed rate loan for several reasons. One, we needed the savings on our monthly expenses that the lower ARM rate provided us. And two, we knew that even with a fixed rate that we wouldn&#39;t put a dent into the principle after only a few years, so it made little sense to do it that way, since we planned on selling soon and knew we&#39;d be exposed to interest rate risk from buying a new home in a few years anyway. We&#39;d have to buy our new home at those rates, no matter what. So, a few things broke our way and we ended up making a very good return on this investment, which we then used to buy our current home, which is now the home we plan on staying in long-term, which we got into with fixed rates still at historical lows and did a fixed rate on. I am not bragging about it, because a lot of people have made money in reai estate lately, but rather I am illustrating a nuance to your contention that "most people doing ARMs do so because they cannot afford the alternative." While true, that analysis is incomplete. Doing ARMs provides people the alternative of buying a larger, more expensive homes, if they are willing to incur the risk associiated with that. We could have easily bought a less expensive house, kept our mortgage payments at a comfortable level and gotten a fixed rate, and [i]still[/i] made a comparable return than we did with the ARM, however, by doing the ARM, we got into a more expensive home, and created more actual wealth for ourselves than we would have had we simply earned the same return on the cheaper home.

    It&#39;s all about trade-offs and each person&#39;s circumstances.... [/b][/quote]
    Soild point and I can say I wasnt looking at it from the perspective. Thinkwe can all agree we learned something from this series of post.

    5 got to say this would have to be a welcomed change for you lately in this forum

  17. #17
    All League
    Join Date
    Apr 2003
    Location
    Washington, D.C.
    Posts
    3,408
    Post Thanks / Like
    [quote][b]Well, that is a sad picture Section...damn.


    LG&M&#39;s point is apt, and another huge problem is that some banks are letting people get into homes with nothing down, or 3% or something, which causes that PMI crap to kick in and makes them so levered that it almost makes me shiver.

    People make those same types of mistakes when they buy cars. They focus on the monthly payments. I have friends who tell the dealers, "Look, this is all I can afford to spend a month, what can I get for that...." You may as well paint the word "sucker" on your forehead. I&#39;ve even had dealers agree on a price with me, then go back and "work the numbers" and come back with a different sale price and rate, but identical monthly payments that we&#39;ve agreed upon. When I&#39;ve mentioned it, they say, "Yeah, but it&#39;s just an accounting thing. The monthly payments are the same&#33;"

    Always carry with you a financial calculator to these types of things, and display it when you talk to salesmen. Say NOTHING about monthly payments and if they ask, say that all you care about is the rate first and the price second.

    It&#39;s a tough gig, it really is. I feel badly for your friend. There are so many unethical lenders out there.... [/b][/quote]

    The saddest part is that my neighbor got her loan from Bank of America, not some two-bit loan company that advertises through pop-ups.

    Knowledge is always the key. I worked the system to my advantage. I borrowed 110% of the value of my house to cover the closing costs. I paid a slightly higher interest rate so that they would waive the PMI and I could deduct all the interest from my taxes. After 6 months I refinanced and already had 20% equity so I was able to get the prime rate and not have to pay PMI. My house value has quadrupled in less than 2.5 years.

  18. #18
    Hall Of Fame
    Join Date
    Apr 2003
    Location
    Boston
    Posts
    11,692
    Post Thanks / Like
    [quote][i]Originally posted by Lawyers, Guns and Money[/i]@Jan 28 2005, 09:58 AM
    [b]

    5 got to say this would have to be a welcomed change for you lately in this forum [/b][/quote]
    Why, have I really been that much of a jerk lately?

  19. #19
    Hall Of Fame
    Join Date
    Apr 2003
    Location
    Boston
    Posts
    11,692
    Post Thanks / Like
    [quote][i]Originally posted by Section109Row15[/i]@Jan 28 2005, 10:00 AM
    [b] [quote][b]Well, that is a sad picture Section...damn.


    LG&M&#39;s point is apt, and another huge problem is that some banks are letting people get into homes with nothing down, or 3% or something, which causes that PMI crap to kick in and makes them so levered that it almost makes me shiver.

    People make those same types of mistakes when they buy cars. They focus on the monthly payments. I have friends who tell the dealers, "Look, this is all I can afford to spend a month, what can I get for that...." You may as well paint the word "sucker" on your forehead. I&#39;ve even had dealers agree on a price with me, then go back and "work the numbers" and come back with a different sale price and rate, but identical monthly payments that we&#39;ve agreed upon. When I&#39;ve mentioned it, they say, "Yeah, but it&#39;s just an accounting thing. The monthly payments are the same&#33;"

    Always carry with you a financial calculator to these types of things, and display it when you talk to salesmen. Say NOTHING about monthly payments and if they ask, say that all you care about is the rate first and the price second.

    It&#39;s a tough gig, it really is. I feel badly for your friend. There are so many unethical lenders out there.... [/b][/quote]

    The saddest part is that my neighbor got her loan from Bank of America, not some two-bit loan company that advertises through pop-ups.

    Knowledge is always the key. I worked the system to my advantage. I borrowed 110% of the value of my house to cover the closing costs. I paid a slightly higher interest rate so that they would waive the PMI and I could deduct all the interest from my taxes. After 6 months I refinanced and already had 20% equity so I was able to get the prime rate and not have to pay PMI. My house value has quadrupled in less than 2.5 years. [/b][/quote]
    That&#39;s a smart play Section, nicely done&#33; Buy another one&#33;

  20. #20
    Veteran
    Join Date
    Apr 2003
    Location
    Greenwich Village, NY
    Posts
    2,240
    Post Thanks / Like
    [quote][i]Originally posted by jets5ever+Jan 28 2005, 10:06 AM--></div><table border='0' align='center' width='95%' cellpadding='3' cellspacing='1'><tr><td>[b]QUOTE[/b] (jets5ever @ Jan 28 2005, 10:06 AM)</td></tr><tr><td id='QUOTE'> <!--QuoteBegin-Lawyers[/i]@ Guns and Money,Jan 28 2005, 09:58 AM
    [b]

    5 got to say this would have to be a welcomed change for you lately in this forum [/b][/quote]
    Why, have I really been that much of a jerk lately? [/b][/quote]
    Not at all&#33; Didnt mean it that way

    I meant that in refernece to your post about the board deterioating

Bookmarks

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •  

Follow Us