Sucking Beer Out Of The Carpet: Nicole Foss At The Great Debate in Melbourne

 

Home Forums The Automatic Earth Forum Sucking Beer Out Of The Carpet: Nicole Foss At The Great Debate in Melbourne

This topic contains 51 replies, has 18 voices, and was last updated by  TonyPrep 4 years, 4 months ago.

Viewing 12 posts - 41 through 52 (of 52 total)
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  • #19468

    Cory
    Participant

    Caper – Cory is dead. But if I do see him in some sort of afterlife, I will tell him what you think of him. Thanks.

    Nicole, if you look closely, Cory was not looking for someone to blame, but for an act of contrition. Had the 8 letter combination “I was wrong” clicked off your keyboard would he still be here today? Hard to say for sure, but alas, now we will never know.

    Ann

    #19471

    caper
    Participant

    Cory-
    The only thing dead on you is your conscience for a stunt like this.

    #19475

    TonyPrep
    Participant

    Why is Caper’s comment still here? (Sheesh, some people have no empathy)

    Nicole is right, she’s not to blame (i.e. her accepting blame is “inappropriate” as she inappropriately puts it). However, this episode does highlight the tendency of bloggers (and, perhaps, all of us) to put across their views as though they were the absolute truth (“hold a position one <b>knows</b> to be right”) and never admit when they got it wrong. I see it everywhere, not just here. For sure, Nicole got the timing wrong and she may get the sequence wrong, also. Gosh, if I had blindly followed the advice of every blogger who sounded plausible, I’d be in a perilous position now, hanging on for the long term which would surely prove them all right. Eventually. One has to take account of one’s own situation before acting on advice from others. Nicole’s notion that renting gives flexibility to move for work may be fine, if one ignores friends and family and is not intent on finding somewhere for the long term, whilst society is just about holding together. But it’s far more complex than that.

    Read opinions and perhaps weight them appropriately but, in the end, you make your own choices; no-one else makes them for you.

    #19501

    caper
    Participant

    TonyPrep-
    I’ve got plenty of empathy for real events but in this case I think cory is lying and is just trying to find another way to post here after saying he was done. Let “Ann” post a link to an obituary or something to prove me wrong. Unless I see some real proof otherwise I hold the view that this is a tasteless move to get back at somebody he blames for his choices.

    #19507

    Cory
    Participant

    Tell you what Caper, the family really doesnt want me to be here and air all our dirty laundry but you really really need to be put in your place.

    The attorney handling his estate is Jim Donovan 571-236-9534. Cory was a pesudonym but if you ask about case number 631-001, they will confirm his real name and date of death (December 18, 2014, aged 44 years) as a matter of public record.

    I told them to be on the lookout for someone going by the name of “Caper” so please inquire to your hearts content. Once done, may you kindly go to hell and dont bother me about this again. Ann (not my real name either).

    #19512

    Nicole Foss
    Moderator

    Ann, Cory was asking us to repudiate our entire analysis in previous exchanges. It is not wrong. A probabilistic assessment of timing is the issue, and that is a minute fraction of the body of work presented here. Credibility does not hang on one dimension of a complex picture. I spent considerable time explaining to Cory in detail the complexity of the picture. All of us are going to have to get to grips with both complexity and probabilistic risk, since we’re going to be facing far more of both that we’re at all used to. No one can give exact predictions of all the specifics, but it is possible to provide the big picture, which is what we do here. That big picture is quite stark, and will come as a major shock to most people who are going to feel that the rug has been pulled out from under their feet. For anyone who understands the scope of that picture, exact timing is very much secondary. The point is to remove oneself from the leveraged position and sit on the sidelines in cash. This was then and is still our position today. Leverage is incredibly dangerous. Cory would have been vindicated if he had stuck it out. I am sorry he did not. Any death is a tragedy, particularly a premature one where children are left behind. We are all going to have to learn to be very adaptable in the face of considerable uncertainty if we want to survive. The future belongs to the adaptable who can roll with the punches. Many people will struggle enormously with this, but we will have no choice but to get on with it.

    #19514

    Cory
    Participant

    Nicole – no one is asking for “exact timing” but when you are now 7 years into a 5 year timeline, you have the right to ask questions. I understand that forecasts are probabilistic, but as with all things, enough time will prove everything wrong. 1 year ago Cory put it best when he said:

    “What really sickens me is to think that had I done nothing, I would be 11 years into a mortgage with about 14 to go until complete freedom.”

    Today, he would be 12 years in, with 13 years to go until complete freedom.

    If things held together until 2018, he would be 15 years in, 10 years to complete freedom.

    If things held together until 2023, he would owe about the same as your “90% off peak prices” forecast.

    If things held together until 2028, he would have complete freedom.

    So you tell me, when in the next 13 years is it fair to say telling someone to sell and wait for the crash was a really really bad idea?

    #19519

    Nicole Foss
    Moderator

    Ann,

    You essentially suggest that holding a long term leveraged bet for over a decade, on a property market clearly in a bubble, would have been a good bet. The assumption is that the balance of risk would favour this choice, but that is absolutely not the case. It is an extremely high risk choice with no exit strategy, other than foreclosure and probably bankruptcy, if such as thing is even available down the line.

    Property ownership is a long term commitment, and can only reasonably be assessed as an option through an understanding of the market and the longer term macro trends involved. Most people who own mortgaged property have no idea of the risk they are taking. Their choice seems so normal because almost everyone is making the same one. There is an assumption that if everyone is allowed to borrow large amounts of money to purchase a home, then nothing bad can happen because ‘someone’ would not let such a bad thing happen to so many people. Unfortunately, just because something will be bad for so many will not stop it from happening. The ‘someone’ being looked to as a rescuer, whether it be the Fed or the government, does not have the capacity to prevent this eventuality even if they wanted to.

    Just look at what is happening in the parts of the world at the leading edge of the deflationary crash. Property markets crater under these circumstances. At least most Americans can walk away (jingle mail) because mortgages are non-recourse loans in most states of the US, unlike the rest of the world.

    There is another assumption, that the smaller the mortgage gets, the safer one becomes over time, so holding leveraged property would become less risky. Unfortunately this is not the case. In a financial crisis, banks will likely call in the loans (ie make a margin call on your home). The smaller the mortgage as a percentage of the home’s value at that time, the more attractive a target it will be, since there will be money to be made by the bank on the sale. Loans can be called in even if you have never missed a payment.

    Even paying off a mortgage completely does not equal ‘complete freedom’ as there are many other costs of ownership that may not be serviceable if one has not taken many steps to prepare for an economic depression. Property taxes are a major one. As I said, it is a complicated picture. Even a paid for home is a liability, not an asset, if it is the wrong place to be stuck in an illiquid market. Assessing whether or not it would be the right place to be stuck involves a assessing a long list of potential advantages and disadvantages (dependencies, vulnerabilities). One the good side of the ledger would be no debt, proximity to friends and family (ie social capital), proximity to depression-proof employment, proximity to essential goods and services, ability to provide for essential goods and services from the property itself etc. On the bad side would be debt, social isolation, no ability to provide for food/water/energy, dependence on ephemeral employment, dependency on travel etc. Everyone needs to perform the cost-benefit analysis for themselves in order to decide where the balance of advantage lies. It may be best to stay put and commit all resources to one location, accepting that one will be stuck, but in a good place, or it may be best to remain flexible. Renting allows for flexibility. It doesn’t mean one has to be highly mobile, but it allows for that possibility, whereas ownership does not.

    Please understand that you are looking at this issue as if it were simple, but it is not. Treating complex issues as if they were simple leads to a blinkered, one-dimensional view, predisposing people to placing all their credibility eggs into one basket. This is what leads to tragedy, and what we are trying to save our readers from.

    #19554

    Cory
    Participant

    Nicole – while I will respond more substanitively later, may I ask how/where you got your understanding of US consumer finance & residential property law?

    For starters, the vast majority (approx 75-80%) of US states are recourse. The so called “jingle mail” (in so far as that was a thing a few years back) was a practical step lenders used to condition behaviour. The tacit understanding was, if the borrower plays nice and turns over the property in OK condition (i.e. do not destroy the place with a crowbar the way some desperate people do), the lender will agree not to exercise its recourse rights against them personally.

    That aside, the bigger problem in your understanding is the statement “Loans can be called in even if you have never missed a payment.” is at best highly misleading. Before any lender can foreclose, an event of default (such as missing a payment) must occur. In all cases, events which can lead to a default are all in the sole control of the borrower. A lender in some states may (and I stress “may”) be able to begin proceedings against a perfectly paying borrower under the doctrine of waste, but the chances of this happening against a habitable property are essentially nil.

    That aside, the practical point is what lender in their right mind would pay 15K or more in attorneys fees against a perfectly paying borrower? Even if they had a staff on retainer, those hourly resources are always better used against a nonpaying borrower versus the paying borrower (who essentially funds their ability to have attorneys on retainer).

    Larger point being, your misunderstandings of US residential property law will undoubtedly affect your judgment regarding the probability of certain events and potential downside for someone who decides to take on debt to gain longer term control over their own life as my brother did. Before you can advise or even state potential consequences for a certain course of conduct, it is essential to have your facts straight.

    In the instant situation, the fact is that for 99.99% percent of borrowers who make their payments on time, they will never be dispossessed of their residence on loan. Thus, if you were assigning a value any higher than 0.01% in your modeling of outcomes, it is time to re-examine/re-weight the formula.

    #19557

    TonyPrep
    Participant

    Interesting back and forth. I must admit that I found the notion that banks would call in loans from sound mortgagees, during a financial crisis, bizarre. Aside from what Ann writes, wouldn’t that be cutting off their noses to spite their faces? With good payers, they have a steady income and the property as collateral (and all bankers know that property values can only rise in the long term ;)).

    One of the lessons, though, that I hope Nicole has learned is not to place time lines on her analysis because they are virtually certain to be wrong. I think it would be appropriate for Nicole and Ilargi to admit that they got the timing wrong 6 years ago. Nicole seems to be desperately trying to avoid saying that, even though it is patently obvious (indeed, a fact of history).

    Exactly how to approach our uncertain future is a gamble. All one can do it try to take on board what everyone is saying, examine it, and take a stab at some strategy for oneself, accepting that the only one truly responsible for that decision is oneself.

    #19560

    Nicole Foss
    Moderator

    Recourse versus non-recourse varies by state. We have covered these issues extensively in previous years. Non-recourse is very rare internationally and is merely an aberration of parts of the American system. Loans will be called in at some point in my opinion. It may not be considered likely at the moment, but laws will be changed retroactively if necessary to permit it when push comes to shove. My own family has seen this happen in the UK previously. I have a background in law myself, although I do not regard it as immutable when the ‘needs’ of the 1% ‘need’ to be defended.

    As I have said before, timelines are probabilistic. The overall model presented here is not. There is a great deal of information on the details of our analysis in our archives, going back many years. It is not possible to replicate that here. In any case, this is not a discussion about property law, but about finance. I don’t think there is anything to be gained for anyone by continuing it.

    #19562

    TonyPrep
    Participant

    Nicole, you may have said the timelines are probabilistic but in the quotes from 2009 that Cory gave, last year, I don’t recall any probabilities being attached to the “within 5 years” thought. To be fair, though, you did say, then, that you “think” prices may have fallen that far within 5 years, which is different from saying that they “will” fall that far.

    So, do you have any thoughts now on when house prices will tumble here in New Zealand, and what probability is attached to that? (Aren’t I evil?). I ask only because I also expected prices to start falling after they stalled about 5 years ago. But the pressures that stopped prices falling much before recovering to new highs (average asking price now over $500,000 and well over $700,000 in Auckland) seem to be set in for some time.

    I was hoping to see some comments from you when you became a spokesperson for the New Economics Party, last August, but haven’t seen anything from you in that time. Anything planned?

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