Study: Productivity up.. Workers pay, hirings down.

[Broomstick]

Although if it turns out that it's actually in the national interest that they *do* get made whole with other taxpayers' $$$, then I guess the prudent thing would be to hold one's nose and do it anyway.

The older and more experienced I get the more I realize the wisdom of this very thing, despite its repugnance. Real life is complicated and muddy. Sometimes doing what's best for society as a whole benefits some of the bad guys. When this happens, I try to concentrate on how many good people benefit from the action.

[Starglider]

This looks like it will be my most profitable year to date, but the reasons are a little depressing;
a) Just about everyone in investment finance piling into high frequency automated trading and looking for any crazy AI idea that can give them an edge.
b) Most companies being very receptive to the pitch 'ever-more sophisticated automation can slash your personnel requirements and postpone the need to hire'. Managers are considering technical and project risks they previously wouldn't have considered to achieve this.

It's funny, there used to be a very strong incentive for middle managers to have as much 'headcount' as possible. The bigger your staff, the more important you were. I think that was a significant factor in expanding payrolls. Now, with matrix management galore, offshoring, pervasive internal accounting and endless constant drone about 'maximum added value'... it seems more like everyone is in sales, revenue (even fantasy intra-company revenue) is the new headcount. At least that's the impression I get, talking to managers when I do requirements capture.

[Uraniun235]

Since it's impossible for anyone who isn't rich to buy a home in cash and there aren't 150 million rental properties in the US, mortgages are a fact of life for almost everyone. If you need a mortgage, and nearly everyone does, you are being asset stripped.

If people just stopped buying houses and the rental demand way overshot rental supply, wouldn't there (eventually) be a conversion of some of those houses into rental properties?

It's this sort of problem that makes me wish there was some effective means of consumer collusion. (A consumer's union?)

[Kanastrous]

Huh? Seems like the $$$ I put into the mortgage translate to equity in the property, as I pay off principle. How are my assets being stripped? The interest? I can write off and deduct a considerable chunk of that...

I don't see people abandoning real estate in favor of rentals since when you pay rent the $$$ is just plain gone, and when you pay down a mortgage you are accumulating equity for said $$$. Given the choice at the end of the day I'd rather get something for my money, than nothing (well, something in addition to shelter, as opposed to nothing but the use of the shelter).

*edit* unless of course we were to rearrange the tax code so as to take away any advantage to home ownership. I think that would make at least some people happy.

[Broomstick]

In Indiana, renters are permitted to deduct a portion of their rent costs from their state taxes, so the difference between those with mortgages and those without (renters) in my state is not so sharp. Don't know if that qualifies as balancing or not in your view, but do remember that tax codes vary all over the place in the US.

There are some other non-financial aspects to renting vs. owning that, in some cases, can tip the balance towards renting. For example, when my parents sold their house because they were no longer physically able to keep up with maintenance renting was appealing because they would not have to worry about maintenance, that was the landlord's job. Also, my father didn't want to be tied down, he wanted the option to be able to move relatively quickly if necessary. When the apartment complex changed hands and the new owners stopped taking care of things they simply did not renew their lease and moved elsewhere, without needing to go through the hassle of selling/buying a new property.

Younger people who travel a lot for their jobs might not want to worry about things like lawn maintenance, and for them renting a very small place might be preferable to owning. This especially applies to people like airline pilots, who might have a legal residence they own and a small place they rent on the other end of their usual routes in preference to actually trying to maintain two properties.

While these circumstances certainly wouldn't apply to everyone, there are enough people for whom renting has practical advantages over owning that there will always be interest in renting.

[Kanastrous]

I didn't mean to suggest that renting never makes sense, but that people who are in a position to acquire real estate don't seem likely to pass it up if it suits their goals - I don't see that 'people just stop buying houses' thing from being realistic.

[J]

Huh? Seems like the $$$ I put into the mortgage translate to equity in the property, as I pay off principle. How are my assets being stripped? The interest? I can write off and deduct a considerable chunk of that...

Since I'm now a banker I guess I should explain this.

Here's how the asset strip works. With the introduction of various loan products in the past 30 years or so plus some propaganda PR work, financial & real estate companies were able to greatly boost the demand for homes and send prices soaring everywhere. This has two effects; people now need to take out much larger mortgages to buy a home so the banks get a lot more of their money via interest on the principal, and when the defaults get going as they inevitably must at some point, the banks end up with millions of free homes on their hands which they can then use to generate income via sales or rental. The homeowner gets hosed with artificially inflated housing prices & interest payments and/or he has his home foreclosed upon and it goes to the bank, which then has the option of using it to make money. The homeowner is stripped of his money and possibly his home as well.

I don't see people abandoning real estate in favor of rentals since when you pay rent the $$$ is just plain gone, and when you pay down a mortgage you are accumulating equity for said $$$. Given the choice at the end of the day I'd rather get something for my money, than nothing (well, something in addition to shelter, as opposed to nothing but the use of the shelter).

Question: What is the equity worth if a) you can't take it out and use it, or b) you're not going to take it out and use it?

Keep in mind that over the course of a 20-30 year mortgage at the historical average interest rates, the interest on the principal is considerably greater than the principal itself, and after adding in property taxes & maintenance costs it's comparable to the cost of renting over the same timespan. The homeowner owns a home at the end, the renter has a pile of cash which can buy a home. They've both thrown a similar amount of money down the drain in rent and interest/tax/maintenance costs. They both have equivalent assets at the end, but thanks to the financial & real estate industry PR nearly everyone believes that homeowners come out well ahead.

[Kanastrous]

Okay - stripped of additional $$$ via inflated prices and then stripped of equity and occupancy by foreclosure - those who get foreclosed, anyway. Thanks.

The usual CW I hear is that banks do not want lots of properties on their hands, and that the effort to satisfactorily unload them isn't worthwhile and that property ownership isn't really part of bankers' primary business. But you have found that the banks in fact turn the foreclosed properties to a profit...do they turn them over to management companies and take a cut? They don't really prefer to sell them and be done?

Yes, the historical description makes sense. Thinking about it in large part that's why we bought just recently rather than back-then...

I guess my experience has been atypical. So far I have found that I can pay off the properties I have occupied for quite a bit less per month than I could have rented the same or comparable digs. Probably skewed by the market I'm in and the times of purchase etc.

[Broomstick]

Keep in mind that before the bubble burst banks could get rid of foreclosures relatively quickly. Now, however, they may stay on the books for years, deteriorating a losing lots of their value. Big difference.

[J]

The usual CW I hear is that banks do not want lots of properties on their hands, and that the effort to satisfactorily unload them isn't worthwhile and that property ownership isn't really part of bankers' primary business. But you have found that the banks in fact turn the foreclosed properties to a profit...do they turn them over to management companies and take a cut? They don't really prefer to sell them and be done?

The banks got a little too smart for their own good and painted themselves into a corner on this one, I'll try to explain this as best I can.

When a bank loans out a mortgage on a home it holds the full amount of the mortgage on its books as an asset. In the event of a foreclosure the bank discounts this value by X% depending on the amount owing and what it thinks it can sell the home for (remember this for later). In normal times this is more or less a book keeping entry since the number foreclosures is well under 1% so it barely budges the balance sheet, plus the homes are sold off fairly quickly so they don't stay on the books for long. It worked great up until the spring of 2008, lots of interest income from inflated prices and foreclosed homes were quickly flipped for more money.

This backfired in the current recession since a) the number of foreclosures went through the roof, b) they can't unload them (we'll get back to why in a bit) c)the homes have little or negative equity which makes the X% discount a lot larger.

Now, thanks to various laws on the books, if a bank needs to sell a large number of homes at a X% discount it can no longer hold the remainder of its foreclosed and repossessed homes at the original undiscounted value. The problem here is the banks are still holding all their foreclosed homes on their books at the full undiscounted price, if they didn't do so they'd all have negative shareholder equity and be completely insolvent. That's why they're stuck with their foreclosed homes and can't unload them, if they did so in significant numbers they'd all be instantly insolvent, get bank runned and end up as dead as Washington Mutual and Wachovia.

This strategy has been termed "extend and pretend", they hold onto the foreclosed homes as long as they can and pretend that they're worth more than they are. And everything more or less works as long as everyone believes this and goes along with it.

What the banks are trying to do now is steal enough money from the government (that means your taxpayer dollars) so they can unload these homes without going insolvent. That's in addition to the homeowner credit and other government incentives for buying a home.

Like I said, it backfired a bit and gets a little convoluted but in the end they still have the money and the home.

[Kanastrous]

I guess that's part of why buying a bank repo (we looked at some) is so much more convoluted and protracted and painful a process, than buying from a regular seller...

And to me as Joe Consumer, these particular banks being allowed to go insolvent means...?

[J]

And to me as Joe Consumer, these particular banks being allowed to go insolvent means...?

Well, those particular banks happen to be Bank of America, JP Morgan-Chase, Citibank and Wells Fargo. If one of the first 3 goes insolvent there will be an extended "bank holiday" where all banks close for business until the government and FDIC can sort things out. Credit cards, debit, ATMs, cheque & payroll clearing, all that shuts down for the duration of the holiday, the cash in your wallet is the only money you'll have until the banks reopen for business. Wells Fargo may not cause a bank holiday on its own but it could cause enough collateral damage in the financial system to take out one of the other "too big to fail" banks, and then we're back to a bank holiday.

You really don't want to see that happen, but the alternative is having the banks continue to steal trillions of your money, your childrens' money, and your grandchildrens' money. Personally I'd rather take the banking holiday and get it over with.

[Kanastrous]

Me too. Particularly since I bank with Wells Fargo...

[ShadowDragon8685]

And to me as Joe Consumer, these particular banks being allowed to go insolvent means...?

Well, those particular banks happen to be Bank of America, JP Morgan-Chase, Citibank and Wells Fargo. If one of the first 3 goes insolvent there will be an extended "bank holiday" where all banks close for business until the government and FDIC can sort things out. Credit cards, debit, ATMs, cheque & payroll clearing, all that shuts down for the duration of the holiday, the cash in your wallet is the only money you'll have until the banks reopen for business. Wells Fargo may not cause a bank holiday on its own but it could cause enough collateral damage in the financial system to take out one of the other "too big to fail" banks, and then we're back to a bank holiday.

You really don't want to see that happen, but the alternative is having the banks continue to steal trillions of your money, your childrens' money, and your grandchildrens' money. Personally I'd rather take the banking holiday and get it over with.

Is there any way to engineer a way to bring these 'too big to fail' banks down while ensuring that the Main Street branch stays open and ensure that people's cards (at least their debit cards) continue to operate?

Basically like demolishing a building which is condemned, you don't wait for it to fall down when and where it will, nor do you install outside structural beams (for the most part; historic buildings aside,) you bring the mother down in a manner and time of your choosing. IE, a way to kickstart the necessary almighty free-market adjustment these assholes have been courting for years, while ensuring that as little collateral damage falls on Joe Average as possible.

[Simon_Jester]

And to me as Joe Consumer, these particular banks being allowed to go insolvent means...?

Well, those particular banks happen to be Bank of America, JP Morgan-Chase, Citibank and Wells Fargo. If one of the first 3 goes insolvent there will be an extended "bank holiday" where all banks close for business until the government and FDIC can sort things out. Credit cards, debit, ATMs, cheque & payroll clearing, all that shuts down for the duration of the holiday, the cash in your wallet is the only money you'll have until the banks reopen for business. Wells Fargo may not cause a bank holiday on its own but it could cause enough collateral damage in the financial system to take out one of the other "too big to fail" banks, and then we're back to a bank holiday.

You really don't want to see that happen, but the alternative is having the banks continue to steal trillions of your money, your childrens' money, and your grandchildrens' money. Personally I'd rather take the banking holiday and get it over with.

About how long would a "bank holiday" take, and how much warning would we have? I mean, I'm fairly dependent on my credit card, not so much because it supplies me with a line of credit as because I use it routinely for small purchases.

If there was going to be a bank holiday that locked down the electronic economy, what would the ramifications be? How much cash would I need to take out of my bank account?

[Broomstick]

Is there any way to engineer a way to bring these 'too big to fail' banks down while ensuring that the Main Street branch stays open and ensure that people's cards (at least their debit cards) continue to operate?

Basically like demolishing a building which is condemned, you don't wait for it to fall down when and where it will, nor do you install outside structural beams (for the most part; historic buildings aside,) you bring the mother down in a manner and time of your choosing. IE, a way to kickstart the necessary almighty free-market adjustment these assholes have been courting for years, while ensuring that as little collateral damage falls on Joe Average as possible.

The problem is that that is seen as government interference by many of the power guys. They want NO government interference, even when it is in the best interests of all. There are some ideologues who want no "government interference" even when they themselves benefit.

[Broomstick]

About how long would a "bank holiday" take, and how much warning would we have?

Likely, we wouldn't have enough warning to be useful. About the only warning you'd get would be something like a CNN banner saying one of those big banks have gone under, at which point you drop everything, run out to withdraw money from your account, and hope to get there before the government shuts everything down.

If there was going to be a bank holiday that locked down the electronic economy, what would the ramifications be? How much cash would I need to take out of my bank account?

If we have a bank holiday you won't be able to take money out of your account. The only way to guard against this is to have cash on hand BEFORE the bank holiday hits. That means taking cash out now and putting it in a safe place now. (Even with my dire economic situation I have already started putting some cash aside)

I would be interested in a discussion of how to calculate the necessary "cash reserve" one should have. There would, of course, be several factors involved, including how much food you have stored in your pantry.

[Kanastrous]

Yeah, there's no substitute for keeping a reserve of cash-on-hand, well, on hand. If one can realistically swing a suitable amount. One detail - keep a mix of larger and smaller-denomination bills. If your area goes weird for whatever reason and all you have is hundred-dollar bills you are likely to discover that everything you need is priced in multiples of $100...

[Knife]

About how long would a "bank holiday" take, and how much warning would we have?

Likely, we wouldn't have enough warning to be useful. About the only warning you'd get would be something like a CNN banner saying one of those big banks have gone under, at which point you drop everything, run out to withdraw money from your account, and hope to get there before the government shuts everything down.

Isn't that why they would do it that way, to stop a running on the banks?

[ShadowDragon8685]

Is there any way to engineer a way to bring these 'too big to fail' banks down while ensuring that the Main Street branch stays open and ensure that people's cards (at least their debit cards) continue to operate?

Basically like demolishing a building which is condemned, you don't wait for it to fall down when and where it will, nor do you install outside structural beams (for the most part; historic buildings aside,) you bring the mother down in a manner and time of your choosing. IE, a way to kickstart the necessary almighty free-market adjustment these assholes have been courting for years, while ensuring that as little collateral damage falls on Joe Average as possible.

The problem is that that is seen as government interference by many of the power guys. They want NO government interference, even when it is in the best interests of all. There are some ideologues who want no "government interference" even when they themselves benefit.

I know that. I don't give a toss about those assholes; as far as I'm concerned they deserve to stand on the wall almost as much as the morons who caused this bubble-fuck economy. Maybe we'll let them stand behind the wall.

I was asking if it was possible to set up a contingency plan to safely step-down a major bank so the whirling vortex of assets evaporating and debts coming due doesn't destroy main-street branch operations and people can still use their cards and withdraw money and stuff.

[Knife]

Is there any way to engineer a way to bring these 'too big to fail' banks down while ensuring that the Main Street branch stays open and ensure that people's cards (at least their debit cards) continue to operate?

Basically like demolishing a building which is condemned, you don't wait for it to fall down when and where it will, nor do you install outside structural beams (for the most part; historic buildings aside,) you bring the mother down in a manner and time of your choosing. IE, a way to kickstart the necessary almighty free-market adjustment these assholes have been courting for years, while ensuring that as little collateral damage falls on Joe Average as possible.

The problem is that that is seen as government interference by many of the power guys. They want NO government interference, even when it is in the best interests of all. There are some ideologues who want no "government interference" even when they themselves benefit.

I know that. I don't give a toss about those assholes; as far as I'm concerned they deserve to stand on the wall almost as much as the morons who caused this bubble-fuck economy. Maybe we'll let them stand behind the wall.

I was asking if it was possible to set up a contingency plan to safely step-down a major bank so the whirling vortex of assets evaporating and debts coming due doesn't destroy main-street branch operations and people can still use their cards and withdraw money and stuff.

A healthy bank, let alone one going under, wouldn't have enough assets or cash on hand for all the people to come in and pull their money out. That's why it is illegal to make a run on a bank and why they'd close it down on what J says would be a 'holiday' to prevent. Sure, lots of people wouldn't be able to get to their money, but also there wouldn't be thousands of scared and pissed off people in large groups to riot.

[General Zod]

edit: nevermind

[ShadowDragon8685]

A healthy bank, let alone one going under, wouldn't have enough assets or cash on hand for all the people to come in and pull their money out. That's why it is illegal to make a run on a bank and why they'd close it down on what J says would be a 'holiday' to prevent. Sure, lots of people wouldn't be able to get to their money, but also there wouldn't be thousands of scared and pissed off people in large groups to riot.

So instead of suffering all at once in a group and getting angry and rioting, everyone gets to suffer alone at home with anger simmering over a longer period and less chance of a riot?

The problem with a big bank just shutting down like that and closing out all it's branches and all of it's cards and stuff stop working is that a lot of people don't keep cash on them. Even the ones who aren't clutching at the last end of a line of credit may be keeping their balances in the bank and use their debit card/credit card combo-card as their primary way of purchasing things. Those people are just fucked if the bank goes tits-up like this and goes into an immediate bank holiday.

What I'm saying is that there should be some government mechanism in place to step in immediately and keep those gears grinding. All the nonsensical fairy-fart asset trading and packaging and other bullcrap can go eat every dick, but the point is to keep the functions that Joe Average depends on functioning; so if you go to the ATM you can get your money out, if you use your debit card to make a purchase you can have your purchase, and so forth and so on.

You know, basically what the FDIC was made to do, only happening much, much faster. Credit cards are a stickier issue, because it's one thing to guarantee someone that their money stays their money no matter what, but another to be extending a line of credit. I'm not sure what you'd do about that...

Point is that I'm asking if it's possible to set things up so that if a bank comes crashing down for whatever reason, the government immediately steps in and keeps the main street branch open, keeps the ATM machines stocked and the debit cards operating; conducting as much of the normal, Joe-Average interactions the bank normally does as is possible.

[Kanastrous]

What 'government mechanism' means in that context is transferring huge amounts of taxpayers' $$$ - or more accurately, borrowing a shitload of $$$ at taxpayer expense - meaning that Joe Average once again gets to trade pain now for more expensive pain, later.

Maybe it's necessary for that to happen, anyway. But let's call it what is is: emergency borrowing.

[ShadowDragon8685]

What 'government mechanism' means in that context is transferring huge amounts of taxpayers' $$$ - or more accurately, borrowing a shitload of $$$ at taxpayer expense - meaning that Joe Average once again gets to trade pain now for more expensive pain, later.

Maybe it's necessary for that to happen, anyway. But let's call it what is is: emergency borrowing.

That is what the FDIC is for, you know. That's also why the FDIC has funding of it's own; but yes, come down to brass tacks it is appropriate and even necessary to use tax funds to ensure that people's money remains theirs. Otherwise, well, you get the Great Depression all over again; bank runs, no confidence in the security of money which isn't physically present, people being unable to meet obligations, even necessary ones such as their food or rent or whatever, simply because the money that is theirs is not accessible.

Of course the rest of the conglomo-bank monstrosity can burn in a fire(sale). Actually, I'd find it amusing and even appropriate for the government to go after the rest of the bank with extreme prejudice in order to cannibalize whatever can be cannibalized in the name of keeping the Joe Average interactions going smoothly.