Of course, if he “owned” a house, he could live for several years without worry. Nice.
On March 31, 2010, In Uncategorized, By Chuck Ponzi
On March 30, 2010, In Uncategorized, By Chuck Ponzi
When the first alarm subsided, the tulip-holders in the several towns held public meetings to devise what measures were best to be taken to restore public credit. It was generally agreed that deputies should be sent from all parts to Amsterdam, to consult with the government upon some remedy for the evil. The government at first refused to interfere, but advised the tulip-holders to agree to some plan among themselves. Several meetings were held for this purpose; but no measure could be devised likely to give satisfaction to the deluded people, or repair even a slight portion of the mischief that had been done. The language of complaint and reproach was in every body’s mouth, and all the meetings were of the most stormy character. At last, however, after much bickering and ill-will, it was agreed, at Amsterdam, by the assembled deputies, that all contracts made in the height of the mania, or prior to the month of November, 1636, should be declared null and void, and that, in those made after that date, purchasers should be freed from their engagements, on paying ten per cent to the vendor. This decision gave no satisfaction. The vendors who had their tulips on hand were, of course, discontented, and those who had pledged themselves to purchase, thought themselves hardly treated. Tulips which had, at one time, been worth six thousand florins, were now to be procured for five hundred; so that the composition of ten per cent was one hundred florins more than the actual value., Actions for breach of contract were threatened in all the courts of the country; but the latter refused to take cognisance of gambling transactions.
The matter was finally referred to the Provincial Council at the Hague, and it was confidently expected that the wisdom of this body would invent some measure by which credit should be restored. Expectation was on the stretch for its decision, but it never came. The members continued to deliberate week after week, and at last, after thinking about it for three months, declared that they could offer no final decision until they had more information. They advised, however, that, in the meantime, every vendor should, in the presence of witnesses, offer the tulips in naturta to the purchaser for the sums agreed upon. If the latter refused to take them, they might be put up for sale by public auction, and the original contractor held responsible for the difference between the actual and the stipulated price. This was exactly the plan recommended by the deputies, and which was already shown to be of no avail. There was no court in Holland which would enforce payment. The question was raised in Amsterdam, but the judges unanimously refused to interfere, on the ground that debts contracted in gambling were no debts in law.
Thus the matter rested. To find a remedy was beyond the power of the government. Those who were unlucky enough to have had stores of tulips on hand at the time of the sudden reaction were left to bear their ruin as philosophically as they could; those who had made profits were allowed to keep them; but the commerce of the country suffered a severe shock, from which it was many years ere it recovered.
Remind anyone of something?
All because of tulips; consider how much worse a housing mania can be. Look to Japan if you want to see how housing bubbles end. Theirs ended in 1990.
On March 26, 2010, In Uncategorized, By Chuck Ponzi
Thanks, LOLFED
On March 26, 2010, In Uncategorized, By Chuck Ponzi
Mark Roth answers the question in Businessweek yesterday.
I say yeah, right.
In most cases, short sales are heavily weighted towards the lender in California. In many cases, borrowers are better off allowing foreclosure. Tell the bank to pound sand.
Of course, this is not a moral discourse. I’ll assume that you’ve done your diligence in trying to keep your property, and haven’t heloced the heck out of the place.
Is a short sale right for you? In most cases, no. Mark is dead wrong about California.
What do you think?
One of the most powerful experiences that investment bubbles can teach us collectively is how conservative we should be when burned multiple times. Unfortunately, for many of those newly exiting business schools or unaffected by a downturn show an uncanny ability to ignore others’ experiences. The most powerful lessons of this past “lost decade” in the US (if we will but open our eyes to learn it) is that outsized returns cannot be depended on, and that risk does not equal reward, it just means risk.
CALPERS, the California Public Retirement Pension fund is about to learn that lesson the hard way. Formed in the 30′s, but built on the back of the 50s through the 80′s, it’s investment options expanded from solely bonds to real estate, to equities. During this time, America experienced the greatest growth of real estate, equity, and bond values. But most of all, of leverage. Sadly, most of the value “growth” in the US over the past 20 or so years has been attributed directly to monetary growth. Indeed, as yields on lower risk returns shrink, perception of higher risk equity values go up. Unfortunately, for many, this mirage has much more power, and this perception that trees grow to the sky and all charts go up and to the right meant that there was little risk in promising free healthcare and pensions to the moon for all who worked for the grand state of California.
Except that it can’t. The high profile failure of CALPERS has been nothing short of stunning. Having lost more than 30% of its total value in 2008, it is unclear how the future promises made to state employees can be filled. Especially when those promises are built on expectations that returns are 7.75% over the long run.
SFGate recently reported that they are considering lowering their benchmark rate above. As reported:
Larry Fink, CEO of the giant money management firm, BlackRock Inc., with which CalPERS has invested, told its board in July, “You’ll be lucky to get 6 percent on your portfolios, maybe 5 percent.”
Even that might be optimistic. When mortgages were returning 10% and you could expect a 1% chargeoff ratio and a 1% management fee, you could maybe meet the goal with a moderate amount of leverage. When mortgages are yielding sub 5% and chargeoffs and management fees eat up most of that, you’d have to create an insane amount of leverage, which only increases your risk, to make it even rationally feasible, if even possible.
Why is this important? Well, the benchmark rate determines the contribution rates, both of members and the State Government. This is only one of many elephants in the room in California that noone wants to talk about it. At precisely the time when the state can least afford to spend even more money, it may be required to. Which only makes the situation more dire. State and local government employees in California (in many, but not all cases) already enjoy higher pay than their private enterprise counterparts. In addition to that, they are afforded better health benefits, vacation packages, and generous pay packages and benefits upon retirement. When the world has all but forgotten pensions, many state employees enjoy the grandaddy of them all, a defined benefit pension plan.
It even seems quaint to talk about it since few still understand the difference between the defined benefit and defined contribution pensions. It will suffice to say that the defined benefit is almost always much, much better, and much, much more expensive. It’s quaint because most people who are not state employees in California do not even have a significant 401K, much less a crappy pension. This is nothing compared to the Cadillac pension plan that virtually ALL state employees get.
So, to sum it up, California faces a budget shortfall of epic proportions. It has parlayed every non-GAAP accounting trick in the book to delay the day of reckoning, hoping that pink ponies save them, but they have not. The bill is quickly coming due, and indeed, the state may have even more troubles. There is no way out. Without serious pension reform (hand their asses back to them), taxes will have to be raised. Given that the state already recalled one governor over licensing fees, I see this one going over like a lead balloon. Meg Whitman has been campaigning that she can fix this mess. I’m sorry, but there is nothing that will fix that mess except for a miracle or much higher taxes. This still will need to invent something seriously out of this world to make that happen, or bite down on the bullet of austerity to balance the budget and maybe put something away for a rainy day (if it gets any rainier, this place is going to figuratively float away).
We need another investment bubble. Luckily, the goldrush of 1849 proves that there is significant gold in them thar hills. Perhaps we can put a tax on pickaxes and heavy machinery that will help us cover some of the shortfall. With the bubbly prices that gold is now fetching, it might just do the trick. However, I wouldn’t expect the Marijuana tax proposed earlier to make a big dent. We’d need some serious potheads to move here to make it work (and they’d have to be stinkin’ rich to boot).
No, perhaps we we all need to collectively do as Californian’s is to do what CALPERS will in the end be forced to do. Lower our expectations. But, when have you ever known Californians to do that?
On February 25, 2010, In Investing, By Chuck Ponzi
I often get questions from others as to why I seem negative on California. I’m not. I have lived here for nearly a dozen years, and have loved living in many areas throughout the southland. I believe strongly in the positives of the state. I have had opportunities to leave and not taken them.
However, focusing our entire energy on the positives means that we cane easily forget what we need to improve. A great leader has the ability to both celebrate the successes while not forgetting the risks and failures. One of the great potentials of this state is its ability to adapt; and many long-time readers know that I follow alternative energy very closely. In particular, I love the ideas of small-scale energy production. Not only because of personal independence, which I greatly favor, but mostly because so much waste and risk is created in large-scale generation and transmission. Distributed energy grids mean that local generation can be more adaptive and reduce the possibility of large-scale outages (like during the California “brown-outs”) and grid cyber-attacks.
I see hope in California through emerging technologies. Technologies that answer the problems of today. If you haven’t yet heard of the “bloom box”, I recommend the below video.
Long-term California is a great place to be. We only need to fix what is wrong with our present problems, and everyone can share in the prosperity together.
By staying current on emerging trends, you might also be able to increase your investments. I know that my personal accounts more than doubled last year (2009) due to some timely purchases of energy-related investments. Let’s all hope more come from our state.
On February 24, 2010, In Housing Crash, Prop 13, By Chuck Ponzi
Proposition 13 was the “biggest tax revolt” in California’s history.
KPBS San Diego did an interesting piece on raising taxes in California and Prop 13′s effect on this.
Thirty-two years ago, Californians en masse went to the polls and approved the largest tax-limiting legislation in recent history. Basically, it limited the property taxes that could be assigned to a property.
In response, many municipalities responded by building more hotels, retail, and more while limiting the amount of houses (municipalities earn more money from sales and occupancy taxes than on property tax). This leaves the state perpetually building too few houses, and worse, restricting adaptive reuse of residential real estate into higher density because of the reassesment rules.
Personally, there are 3 major qualms I have with Prop 13.
1. This is not a homestead exemption, so it does nothing to favor homeowners over landlords (who already have strong incentives through. This is landlord welfare.
2. Commercial properties are not exempted (they have a fixed base as well). This is fundamentally flawed, since it favors property-owning companies who lease as their primary business. This is corporate welfare.
3. There is no means test. Millionaires have the same exemptions as indigent elderly. This is welfare for the rich.
Unfortunately, taxpayers were sold that little old ladies were getting kicked out of their homes. While this is true, we could avoid the landlord, corporate, and rich welfare by instituting some changes to the original proposition.
Instead, we have serious imbalances because cities favor not building homes unless they have significant Mello-Roos attached to them, allow corporate transfer of assets to perpetually avoid reassesment, and allows non-citizens and non-tax payers of California to receive the benefits of everyone else’s pain. How do you feel about prop 13?
The money shot for me?
RAND (Caller, La Jolla): Thank you for taking my call and thanks for this discussion. I would just like to put two issues on the table. The main one is something that really shocks me, never comes up in these types of discussions, which is the distinction between commercial properties and homes. Of course, nobody wants homeowners to be taxed out of their homes but Prop 13 also holds down the property taxes paid by shopping malls, office buildings, all kinds of commercial properties. And they have a loophole that homeowners don’t have, which is that they can sell the holding company that owns the property and then someone else can take ownership of that property but, theoretically, it hasn’t changed hands, just the company has changed hands. And so there’s many commercial properties in the state that have not been reassessed for many years and they’re not paying the cost of the essential services that they need to stay in business. And I think that that aspect of Proposition 13 is very unfair and needs to be changed.
On February 23, 2010, In Uncategorized, By Chuck Ponzi
On February 16, 2010, In Uncategorized, By Chuck Ponzi
As if there weren’t enough disinformation about what’s really happening with the climate, we get the following, direct from the scientists who brought you global warming:
The dog ate my homework:
The academic at the centre of the ‘Climategate’ affair, whose raw data is crucial to the theory of climate change, has admitted that he has trouble ‘keeping track’ of the information.
Yeah, but…
Professor Jones also conceded the possibility that the world was warmer in medieval times than now – suggesting global warming may not be a man-made phenomenon.
And he said that for the past 15 years there has been no ‘statistically significant’ warming.
At least we’re staying scientific:
‘Of course, if the MWP was shown to be global in extent and as warm or warmer than today, then obviously the late 20th Century warmth would not be unprecedented. On the other hand, if the MWP was global, but was less warm than today, then the current warmth would be unprecedented.’
