The next financial crisis is brewing

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Elite Member
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Oct 28, 1999
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I think it’s a mixture of two things - first yes, Democrats are just more fiscally responsible than Republicans. (See the ACA as compared to anything passed under Republican one party rule). The other is that Republicans rediscover their fiscal conservatism under democratic presidents as part of a cynical ploy to prevent social welfare spending.

That's sort of what I eluded to "social welfare spending". When it comes to social spending the biblical party leans towards the cutting a pound of flesh for ounce of fat mentality. They'll give billions to corporations while stripping social programs of millions. What ultimately has a great impact on society? That's where the efficiency comes into play.
 

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Elite Member
Super Moderator
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There's a very interesting risk/reward in that link. "Safe" professions have a decent starting floor, but little ceiling height. Healthcare, engineering, IT professions, ect fit in that category. Other more abstract degrees like "philosophy" and "math" have a much higher ceiling. My guess is that things like philosophy can go on to do things like patent law and ethics offices and make serious bank on the consulting and in big pharma and corporate circles.
 

Mai72

Lifer
Sep 12, 2012
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In this same article she was approved for a car (of unknown costs) and a $119,000 house. On a $16 an hour salary.
It shouldn't take much mental math for a credit agency and lender to go "Oh, this income to debt ratio is bad" and deny the loan. It has nothing to do with drugs or whatever else. It's three numbers.

Lenders don't care.

TBH, both parties are at fault. But, it's more her fault because no one is putting a gun to her head telling her to sign on the dotted line.
 

Jhhnn

IN MEMORIAM
Nov 11, 1999
62,365
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Lenders don't care.

TBH, both parties are at fault. But, it's more her fault because no one is putting a gun to her head telling her to sign on the dotted line.

Please. The people lending her money understand her financial position better than she does. That's right. They'll push the limits of their instructions from on high to make that loan. Back in the heyday of the ownership society fiasco their instructions were to let 'er rip. It was all perfectly legal, too. The ratings agencies would rubber stamp any paper sent their way, and chump investors were dying for more. Until the whole thing fell down & screwed millions of people out of their jobs, their homes, you name it.

The GOP wants to make it that way, always. Let the business cycle run wild on those dumb plebe's asses. The Rich love buying distressed assets. Steve Mnuchin made his fortune forging a deal to buy Indymac for a song from the FDIC & then beating the cash out of distressed & suckered homeowners. Oh, and out of all the investor vehicles that they serviced, too.
 
Nov 8, 2012
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Please. The people lending her money understand her financial position better than she does. That's right. They'll push the limits of their instructions from on high to make that loan. Back in the heyday of the ownership society fiasco their instructions were to let 'er rip. It was all perfectly legal, too. The ratings agencies would rubber stamp any paper sent their way, and chump investors were dying for more. Until the whole thing fell down & screwed millions of people out of their jobs, their homes, you name it.

The GOP wants to make it that way, always. Let the business cycle run wild on those dumb plebe's asses. The Rich love buying distressed assets. Steve Mnuchin made his fortune forging a deal to buy Indymac for a song from the FDIC & then beating the cash out of distressed & suckered homeowners. Oh, and out of all the investor vehicles that they serviced, too.
The ignorance of finding it acceptable that an educated citizen can't be responsible for anything they sign for really shows how fucking dumb you guys really are.

Is it really that confusing? Or are you inciting that the people that do so are fucking dumb? The government has literally made laws that say you have to be given specific forms that break down your expected costs for each month - and they also force escrow on most buyers, which means they break it down with insurance, taxes, and mip. How much more can we dumb it the fuck down for it to be acceptable for people?

You're really just getting to the point where you're calling all Americans retarded - including the one here that you claim is a victim at the same time.
 

Zorba

Lifer
Oct 22, 1999
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People should learn to live within their means. And avoid borrowing money for unneeded things.
While I 100% agree with you, marketing does everything it can to get people to spend like crazy. And marketing companies spend billions on research to better manipulate people.
 
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Jhhnn

IN MEMORIAM
Nov 11, 1999
62,365
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The ignorance of finding it acceptable that an educated citizen can't be responsible for anything they sign for really shows how fucking dumb you guys really are.

Is it really that confusing? Or are you inciting that the people that do so are fucking dumb? The government has literally made laws that say you have to be given specific forms that break down your expected costs for each month - and they also force escrow on most buyers, which means they break it down with insurance, taxes, and mip. How much more can we dumb it the fuck down for it to be acceptable for people?

You're really just getting to the point where you're calling all Americans retarded - including the one here that you claim is a victim at the same time.

Not retarded. Just completely uneducated when it comes to finance. Babes in the woods when starting out. The fact remains that predatory lending is a very real thing. When the house rules allow it, they'll knowingly give borrowers enough credit to hang themselves. Right after they collect their commission. It's the same for the guys at the other end of the business, pushing out ticking time bombs as securitized bonds. Oodles of hot money flooding the markets, like from tax windfalls, usually sets off a feeding frenzy. Expect one.
 

1prophet

Diamond Member
Aug 17, 2005
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While I 100% agree with you, marketing does everything it can to get people to spend like crazy. And marketing companies spend billions on research to better manipulate people.


This, and human beings are not light switches that can turn their bad habits off and good habits on with just some education, most of the foundational habits are formed when they are very young from toddler and up and are very difficult to change in later life.

https://en.wikipedia.org/wiki/Stanford_marshmallow_experiment

The Stanford marshmallow experiment was a series of studies on delayed gratification in the late 1960s and early 1970s led by psychologist Walter Mischel, then a professor at Stanford University.[1] In these studies, a child was offered a choice between one small reward provided immediately or two small rewards if they waited for a short period, approximately 15 minutes, during which the tester left the room and then returned. (The reward was sometimes a marshmallow, but often a cookie or a pretzel.) In follow-up studies, the researchers found that children who were able to wait longer for the preferred rewards tended to have better life outcomes, as measured by SAT scores,[2] educational attainment,[3] body mass index (BMI),[4] and other life measures.[5]


In follow-up studies, Mischel found unexpected correlations between the results of the marshmallow test and the success of the children many years later.[5] The first follow-up study, in 1988, showed that "preschool children who delayed gratification longer in the self-imposed delay paradigm, were described more than 10 years later by their parents as adolescents who were significantly more competent."[citation needed]

A second follow-up study, in 1990, showed that the ability to delay gratification also correlated with higher SAT scores.[5]

A 2006 paper to which Mischel contributed reports a similar experiment, this time relating ability to delay in order to receive a cookie (at age 4) and reaction time on a go/no go task.[8]

A 2011 brain imaging study of a sample from the original Stanford participants when they reached mid-life showed key differences between those with high delay times and those with low delay times in two areas: the prefrontal cortex (more active in high delayers) and the ventral striatum, (more active in low delayers) when they were trying to control their responses to alluring temptations
 
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compuwiz1

Admin Emeritus Elite Member
Oct 9, 1999
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Car and credit card lending has become pretty automated, where a high enough fico score is an automatic approval, where there is no actual analyst looking at anything. I know people who have been approved for huge lines of credit, far exceeding their annual incomes, based on their high fico scores. I managed a car dealership for many years and anyone over a 720 fico, was an automatic approval, income be damned. That is just reckless. So, lenders are enabling people to basically hang themselves, especially those with the mentality that having lots of credit= having money, not understanding that it's way easier to spend it, than to pay it back. There was a time when I had almost $400k in available, unsecured revolving credit. I was only running less than 2% utilization in any given month, but was declined for a mortgage because of what they felt I could do with that much credit. I ended up closing the vast majority of it, and waited for my credit reports to update, then qualified for the mortgage.
 

fskimospy

Elite Member
Mar 10, 2006
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There's a very interesting risk/reward in that link. "Safe" professions have a decent starting floor, but little ceiling height. Healthcare, engineering, IT professions, ect fit in that category. Other more abstract degrees like "philosophy" and "math" have a much higher ceiling. My guess is that things like philosophy can go on to do things like patent law and ethics offices and make serious bank on the consulting and in big pharma and corporate circles.

People I know in finance have talked repeatedly about how they would specifically look for people with philosophy degrees as it’s basically a degree in how to think. It’s the purest distilled form of what benefits a liberal arts education is supposed to provide.

That’s not as true anymore as banks are shifting rapidly towards algorithmic trading so that’s becoming less important but I would not be surprised if that’s a consideration for a lot of other industries.
 

fskimospy

Elite Member
Mar 10, 2006
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While I 100% agree with you, marketing does everything it can to get people to spend like crazy. And marketing companies spend billions on research to better manipulate people.

This is an important thing to note. We have industries spending billions each year on how to manipulate human psychology in order to get them to buy things. When they are successful what do we do? We don’t blame the person who set out to trick people, we blame the victims for not seeing through it.

I agree that people are responsible for living within their means but ignoring the multibillion dollar efforts to make sure they don’t seems to miss an important part of the picture.
 

Jhhnn

IN MEMORIAM
Nov 11, 1999
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This is an important thing to note. We have industries spending billions each year on how to manipulate human psychology in order to get them to buy things. When they are successful what do we do? We don’t blame the person who set out to trick people, we blame the victims for not seeing through it.

That applies to politics as much as it does to commerce. Probably even more so.
 

Vic

Elite Member
Jun 12, 2001
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In this same article she was approved for a car (of unknown costs) and a $119,000 house. On a $16 an hour salary.
It shouldn't take much mental math for a credit agency and lender to go "Oh, this income to debt ratio is bad" and deny the loan. It has nothing to do with drugs or whatever else. It's three numbers.
Except that the debt ratio isn't bad. On the $119k house, the DTI is about 32% including PITI + FHA MIP. Assume a $300/mo car payment and the back end is an acceptable 42% with about $1,635/mo residual.
The actual math:
Income at $16.47/hr and 40 hours/week = (16.47*40*52)/12 = $2,854.80/mo.
FHA mortgage payment for a $119,000 house after min 3.5% down, loan amount of $114,835 plus 2.25% FHA funding fee is $117,419 @ today's 30 year fixed FHA of 4.75%, P&I is $612.51 plus monthly MIP $83.17 plus estimated taxes and insurance of $225/mo for a total payment of $920.68/mo. DTI = 920.68/2854.8 = 32.25%.
Throw on another $300/mo car payment and back end DTI is $1220.68/2854.8 = 42.76%.

Assuming good credit and a stable employment history, I do this every day. :)
 
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Elite Member
Super Moderator
Oct 28, 1999
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I think the argument here is the semantics between "can make the payment" and "can afford this".

I don't disagree that there is enough income to cover the payments. I argue that ratios as they currently are, are one bad home repair or hospital bill away from not being able to cover those payments. There's little room for savings either for emergency or long term under those thresholds.
 
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Vic

Elite Member
Jun 12, 2001
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I think the argument here is the semantics between "can make the payment" and "can afford this".

I don't disagree that there is enough income to cover the payments. I argue that ratios as they currently are, are one bad home repair or hospital bill away from not being able to cover those payments. There's little room for savings either for emergency or long term under those thresholds.

How much do you think it would cost to rent a comparable property? More or less than the $920/mo PITI mortgage payment? How much equity could she build while renting? What's the likelihood that any rent payment will increase more quickly than a fixed rate mortgage payment?
I would agree that the hypothetical scenario here is borderline (or "fits in the box" as we say), and requires compensating factors, but your scenario assumes the borrower didn't already have those problems, ie wasn't already a car repair bill away from being evicted from wherever she was renting.
 

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Elite Member
Super Moderator
Oct 28, 1999
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For that see my prior argument - prevalence of easy money just makes prices higher. Housing went bonkers when dual incomes started being a thing and people were willing to pay more. Same for easy money with mortgages and college tuition. Comparing rent to owning in like for like is never a winning bet on month to month. But when you rent you aren't on the hook for $10k if your furnace craps out, or $1500 if a water heater goes out. All of that is baked into renting costs and not a mortgage.
 

Vic

Elite Member
Jun 12, 2001
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For that see my prior argument - prevalence of easy money just makes prices higher. Housing went bonkers when dual incomes started being a thing and people were willing to pay more. Same for easy money with mortgages and college tuition. Comparing rent to owning in like for like is never a winning bet on month to month. But when you rent you aren't on the hook for $10k if your furnace craps out, or $1500 if a water heater goes out. All of that is baked into renting costs and not a mortgage.

I agree with what you're saying to a large extant, but in this case the housing ratio is 32%. If that's not affordable, then what is?
 

Jhhnn

IN MEMORIAM
Nov 11, 1999
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Except that the debt ratio isn't bad. On the $119k house, the DTI is about 32% including PITI + FHA MIP. Assume a $300/mo car payment and the back end is an acceptable 42% with about $1,635/mo residual.
The actual math:
Income at $16.47/hr and 40 hours/week = (16.47*40*52)/12 = $2,854.80/mo.
FHA mortgage payment for a $119,000 house after min 3.5% down, loan amount of $114,835 plus 2.25% FHA funding fee is $117,419 @ today's 30 year fixed FHA of 4.75%, P&I is $612.51 plus monthly MIP $83.17 plus estimated taxes and insurance of $225/mo for a total payment of $920.68/mo. DTI = 920.68/2854.8 = 32.25%.
Throw on another $300/mo car payment and back end DTI is $1220.68/2854.8 = 42.76%.

Assuming good credit and a stable employment history, I do this every day. :)

OTOH, I'm not sure percentages are the whole picture, nor should they be. There are minimum dollar amounts that matter more for lower earners like utilities, car insurance, food, clothing, cheap cell service, internet & so forth. The woman in question doesn't have nearly the room to move around that stuff as higher earners. 42.76% debt ratio is a lot different at twice the money.
 

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Elite Member
Super Moderator
Oct 28, 1999
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Yeah, I'm a bit biased on the rent vs own thing and percentages as an absolute.

2 months ago my furnace shit out. $8400 to fix.
Last month I had to have a dead tree removed from my property and the stump ground down. $700.
Today I come home from work and find that my refrigerator is hemorrhaging water all over the floor. Compressor is shot and the food is all warm. It's a Samsung (came with the house) and is a shit product. Replacemen fridge is $1300.

I just dropped $10,400 in three months fixing stuff around my house.

When you gross $32,000 a year, you sure as hell aren't netting $32,000 a year. You've got state, federal, FICA, maybe even a local tax you have to pay. Health insurance. Heat, water, garbage, food, just basic stuff. That 32% for just housing. She has maybe $1200 a month left over after taxes and mortgage are taken out. Then add in all of the other basic utilities required for normal home ownership. You start bleeding pretty thin.

If you have $200,000 in income, that same 30% can leave you upwards of $8000 a month for all of your other expenses.

Comparing Debt to Income as absolutes is just flawed. There is a base line of income required to meet the needs of basic utilities and living expenses that a simple ratio can't define.

At $200,000 you can absorb those household repairs and not worry about. At $32,000 you have to decide if you are going to eat for the next couple weeks.
 

Vic

Elite Member
Jun 12, 2001
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I completely agree that the $1600/mo residual income is a red flag. This certainly isn't a low risk deal, but (assuming good credit and a stable employment history) it isn't a high risk one either. The 32% housing ratio is affordable by any standard. We're assuming she had the car loan before the mortgage when the article doesn't actually say that. I do know (from my own personal experience) that homeownership sometimes comes with unexpected expenses, and I'd also prefer to see some real wage growth, but in the meantime, all we can do is hope she gives the mortgage payment the priority it deserves.
Because homeownership is, in most cases, the single biggest opportunity that most lower and middle class people will ever have to build genuine wealth and upward social mobility. Over 30 years, the principal and interest payment on a fixed rate mortgage will never go up, but home prices and rents always will.