Would you like to see the prototype of what is wrong in politics today? Look no further than Senator Dick Durbin's recent speech on the floor of the Senate.
First, Senator Durbin states, "If I read this to you and did not tell you that it was an FBI agent describing what Americans had done to prisoners in their control, you would most certainly believe this must have been done by Nazis, Soviets in their gulags, or some mad regime — Pol Pot or others — that had no concern for human beings."
For days, Sen. Durbin (D-IL) refused to retract or apologize for his outrageous statement. However, after facing much pressure, Sen. Durbin followed up his treasonous remark with, "I have learned from my statement that historical parallels can be misused and misunderstood," Durbin explained. "I sincerely regret if what I said caused anyone to misunderstand my true feelings: Our soldiers around the world and their families at home deserve our respect, admiration and total support."
Of course, shortly thereafter, Senator Durbin responded to talk of his apology with the following, ""It's not that my remarks were wrong or that there's any need for apology," Durbin told the St. Louis Post-Dispatch on Friday. "It's the fact that [my critics] have successfully twisted them out of context." Durbin blamed conservatives for his troubles, saying that he refused to be "intimidated by the right-wing message machine."
And finally, after there was talk of censure, Senator Durbin was really sorry, even seeming to be choked up by his own lack of couth, "Some may believe that my remarks crossed the line," said the Illinois Democrat, at times holding back tears. "To them I extend my heartfelt apologies."
Recently, I watched a program w/ Senator George Mitchell (D-ME). What ever happened to respectable politicians like him.
Wednesday, June 22, 2005
Sunday, June 12, 2005
Housing Bubble? (Pt 2)
I a previous post I opined on the state of the real estate market. I believe it is very important to remember the words of one of history's greatest economists who said, "The markets can remain irrational far longer than we can remain solvent" (or something to that effect. What John Maynard Keynes was suggesting is that asset prices will not necessarily reflect what they should be priced.
In any market (stocks, bonds, houses, and tuna fish), prices are a function of supply and demand. Sometimes, either factor can be artificially enhanced. One example is an "urban growth boundary." I have heard this used as a reason why Portland real estate cannot significantly decline in price. All I have to say about that is to look at Manhattan, which has a very significant urban growth boundary, namely the Hudson and East Rivers. It would be difficult to extend that boundary by law.
Another artificial enhancement is the tax break extended to home owners on mortgage interest. Of course, this enhances demand. Another is derivative mortgage products, allowing people to finance their homes interest only, or fluctuating monthly based upon some measure of interest rates. All of these factors serve to enhance the demand of housing. For prices to change, supply or demand (or both) must fluctuate.
Bottom line: can housing prices decline? Absolutely. Will any measured decline pose a very real problem for some borrowers? Absolutely. If you are in year 1 of a 30 year fixed mortgage and you do not have to move, are you in danger? Probably not. Will housing prices recover from a protracted decline? Sure. Just look to history for precedents. It may take a decade or more (depending upon the severity), but it should happen.
In a related sidenote, based upon an anonymous e-mail I received from a reader, I leaned that this post came up # 2 in popularity when I searched "housing bubble"+"oregon." Pretty cool, even if it did only bring in like 10 readers.
Hope the rest of your weekend goes well.
In any market (stocks, bonds, houses, and tuna fish), prices are a function of supply and demand. Sometimes, either factor can be artificially enhanced. One example is an "urban growth boundary." I have heard this used as a reason why Portland real estate cannot significantly decline in price. All I have to say about that is to look at Manhattan, which has a very significant urban growth boundary, namely the Hudson and East Rivers. It would be difficult to extend that boundary by law.
Another artificial enhancement is the tax break extended to home owners on mortgage interest. Of course, this enhances demand. Another is derivative mortgage products, allowing people to finance their homes interest only, or fluctuating monthly based upon some measure of interest rates. All of these factors serve to enhance the demand of housing. For prices to change, supply or demand (or both) must fluctuate.
Bottom line: can housing prices decline? Absolutely. Will any measured decline pose a very real problem for some borrowers? Absolutely. If you are in year 1 of a 30 year fixed mortgage and you do not have to move, are you in danger? Probably not. Will housing prices recover from a protracted decline? Sure. Just look to history for precedents. It may take a decade or more (depending upon the severity), but it should happen.
In a related sidenote, based upon an anonymous e-mail I received from a reader, I leaned that this post came up # 2 in popularity when I searched "housing bubble"+"oregon." Pretty cool, even if it did only bring in like 10 readers.
Hope the rest of your weekend goes well.
War
In one of the books I recently read (Caucasus: Mountain Men, Holy Warriors), I found a passage from Leo Tolstoy (author of Anna Karenina & War and Peace), who wrote about a 19th century warrior from the Caucasus named Hadji Murad (published in 1904). Murad had been fighting against the Russian empire who had been attempting to extend their empire into the Caucasus. This observation was:
"What always happens when a state, having large-scale military strength, enters into relations with a primitive, small peoples, living their own independent life. Under the pretext of self-defence (even though attacks are provoked by the powerful neighbour), or the pretext of civilizing the ways of a savage people (even though the savage people are living a life incomparably better and more peacable than the civilizers) or else under some other pretext, the servants of large military states commit all sorts of villainy against small peoples, while maintaining that one cannot deal with them otherwise."
And while this does not necessarily apply to our missions into Iraq, it is important for us to know why we are fighting. Is it for the defense of our nation, or that of ambition?
"What always happens when a state, having large-scale military strength, enters into relations with a primitive, small peoples, living their own independent life. Under the pretext of self-defence (even though attacks are provoked by the powerful neighbour), or the pretext of civilizing the ways of a savage people (even though the savage people are living a life incomparably better and more peacable than the civilizers) or else under some other pretext, the servants of large military states commit all sorts of villainy against small peoples, while maintaining that one cannot deal with them otherwise."
And while this does not necessarily apply to our missions into Iraq, it is important for us to know why we are fighting. Is it for the defense of our nation, or that of ambition?
Tuesday, June 07, 2005
Recent Reading
Just finished two very good book. First was "The Big Picture" by Edward Jay Epstein about the entertainment industry. Second was "Caucusus: Mountain Men and Holy Warriors" about the Caucus region south of Russia and north of Iran.
Both were fascinating reads for their own reasons. "The Big Picture" is great for anyone who is puzzled by why Hollywood does the wierd things it does, like "why the hell is Tom Cruise dating Katie Holmes even a relevant news story?" Read the book and you'll understand.
"Caucusus" was very interesting because this is a very volatile region of the world that we don't know near enough about. The main areas in the region are Georgia, Chechnya, Albania, Azerbijian, and Dagestan. I picked up this book because I had heard alot about Chechnya as it applies to terrorism and wanted to learn more.
Both are very good.
Enjoy
Both were fascinating reads for their own reasons. "The Big Picture" is great for anyone who is puzzled by why Hollywood does the wierd things it does, like "why the hell is Tom Cruise dating Katie Holmes even a relevant news story?" Read the book and you'll understand.
"Caucusus" was very interesting because this is a very volatile region of the world that we don't know near enough about. The main areas in the region are Georgia, Chechnya, Albania, Azerbijian, and Dagestan. I picked up this book because I had heard alot about Chechnya as it applies to terrorism and wanted to learn more.
Both are very good.
Enjoy
Monday, May 30, 2005
The Fate of the European Union
While some media outlets are attempting to downplay France's rejection of the EU Constitution, they do so at their own peril. In my opinion, this is a huge story. France, one of the founders of the EU and one of the protagonists of the Europe versus America power bloc, will not be a part of the supranational European Union.
This action was taken by voters for two main reasons: approving the Constitution would likely dismantle the welfare state the French are so proud of and would also likely destroy the labor unions and send artificially high paying jobs to low wage countries such as the former Eastern Block countries.
Because of this rejection, France faces a major problem: their economy is a major drag on growth and employment. Unemployment in France (like other major European economies) is about 10%. Further, employees cannot work more than 35 hours per week. Without the support of Europe, France faces the real problem of a long-term declining economy.
Hopefully a force will emerge within France to reinvigorate their economy.
This action was taken by voters for two main reasons: approving the Constitution would likely dismantle the welfare state the French are so proud of and would also likely destroy the labor unions and send artificially high paying jobs to low wage countries such as the former Eastern Block countries.
Because of this rejection, France faces a major problem: their economy is a major drag on growth and employment. Unemployment in France (like other major European economies) is about 10%. Further, employees cannot work more than 35 hours per week. Without the support of Europe, France faces the real problem of a long-term declining economy.
Hopefully a force will emerge within France to reinvigorate their economy.
Saturday, May 28, 2005
American Exceptionalism
What a term, eh? It has been a long time since this government has unequivocally said that we live in the greatest nation on Earth. Why is that? I believe we are lost in worrying about what others will think of us, rather than looking to us for inspiration.
In the book I am reading (The Big Picture), the author, Edward Jay Esptein mentions that many movies are molded into a format that Americans will enjoy. This format is where the good guys prevail in the end.
After watching Ronald Reagan's biography (which my sister-in-law got for me for Christmas) again, I remembered the things that make us great. We are an optimistic people. We are a kind people. And we are a generous people. And it is about time that we remember why our country is the best country out there.
I am simply exhausted by the moral equivalency that we hear from the press on a day-to-day basis. I don't care what happens in Iraq, Afghanistan or Guantanamo Bay; we live in the greatest nation on Earth.
In the book I am reading (The Big Picture), the author, Edward Jay Esptein mentions that many movies are molded into a format that Americans will enjoy. This format is where the good guys prevail in the end.
After watching Ronald Reagan's biography (which my sister-in-law got for me for Christmas) again, I remembered the things that make us great. We are an optimistic people. We are a kind people. And we are a generous people. And it is about time that we remember why our country is the best country out there.
I am simply exhausted by the moral equivalency that we hear from the press on a day-to-day basis. I don't care what happens in Iraq, Afghanistan or Guantanamo Bay; we live in the greatest nation on Earth.
Housing Bubble?
This morning, the New York Times ran an article about the surge in housing prices and asked if there was, in fact, a housing bubble. The answer: not really. Because in many towns, rental rates have been rising, this partly justifies the soaring cost of homes. In fact, when converted into a rental ratio (price of home/annual rent), this is much less of a bubble than the stock market was in 1999.
The article went on to indicate that some of the hottest markets have rental ratios between 20 and 35; much lower than price-to-earnings ratios on stocks in 1999.
I find this kind of weak analysis very amusing. The reason? Try to sell your home into a declining market and you will quickly find out. Stocks have (and must have for that matter) higher valuation metrics because of their liquidity. Furthermore, rents are ostensibly based upon personal income, which is probably a much more prudent measuring tool since rental rates fluctuate as much as housing prices. And, if you look at home values relative to median income figures, the statistics are much more telling.
Homes should sell at something like 3 X an area's median income. Of course, this is a rough estimate, but it should be based upon an individual's ability to service his mortgage debt. The above ratio, of course, assumes average interest rates. It also assumes that people aren't constantly cashing equity out of their homes (which is a significant problem, as families are relying upon this tool to fund consumption).
If you want to know what the average home in your part of town should be valued, look for the area's median income and median home price. In Portland, the median family income is $50,000. Therefore, the median home price should be about $150,000. In reality, the median home price in Portland as of about 6 months ago was about $185,000. This equates to approximately 25% overvalued. When this corrects (and it will), the decline generally overshoots the target. In short, when housing prices begin to fall, the decline will likely go to below $150,000. Maybe $140,000 or $130,000, causing value buyers to enter the market.
For some people, this will not be a problem. They don't need to move, have a fixed rate mortgage and aren't pulling equity out of their home. For some others, this could be devastating.
The article went on to indicate that some of the hottest markets have rental ratios between 20 and 35; much lower than price-to-earnings ratios on stocks in 1999.
I find this kind of weak analysis very amusing. The reason? Try to sell your home into a declining market and you will quickly find out. Stocks have (and must have for that matter) higher valuation metrics because of their liquidity. Furthermore, rents are ostensibly based upon personal income, which is probably a much more prudent measuring tool since rental rates fluctuate as much as housing prices. And, if you look at home values relative to median income figures, the statistics are much more telling.
Homes should sell at something like 3 X an area's median income. Of course, this is a rough estimate, but it should be based upon an individual's ability to service his mortgage debt. The above ratio, of course, assumes average interest rates. It also assumes that people aren't constantly cashing equity out of their homes (which is a significant problem, as families are relying upon this tool to fund consumption).
If you want to know what the average home in your part of town should be valued, look for the area's median income and median home price. In Portland, the median family income is $50,000. Therefore, the median home price should be about $150,000. In reality, the median home price in Portland as of about 6 months ago was about $185,000. This equates to approximately 25% overvalued. When this corrects (and it will), the decline generally overshoots the target. In short, when housing prices begin to fall, the decline will likely go to below $150,000. Maybe $140,000 or $130,000, causing value buyers to enter the market.
For some people, this will not be a problem. They don't need to move, have a fixed rate mortgage and aren't pulling equity out of their home. For some others, this could be devastating.
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