Who could possibly give this a negative thumbs-down rating? You two people do know that this is one of the most prominent economists of our time, right?
awesome lecture, was a bit over my head in places, but got a bit lost at the end, so what was he meaning that there was no longer enough savings/credit to complete investment projects? did he mean that companies that borrow money to invest go bankrupt as they can't complete their projects? and has this problem occurred yet? or is it yet to occur?
The problem has already happened. Yes, when those people who developed houses in 2008 cannot sell because there is no more credit. So the developer goes bankrupt because there are no buyers.
Thanks. Hey do you know anything about the Alt-a and Option ARM mortgages resetting to higher interest rates in America? according to a few youtube video's I watched, they were due to start resetting upwards increasingly from the second half of this year up into 2011, the wave is supposed to be 1.7 times bigger than subprime mortgages, but I heard a rumor that this resetting has been postponed a whole year which would have them begin in late 2010. So any idea if this is still a threat or not?
ARM's typically take 5 years to adjust, but if you let the balance increase to maybe 110% or 125% then it can adjust then. It depends on the loan. We are certainly not out of the woods with foreclosures. They haven't really let up yet. And it isn't just sub-prime or ARM loans. Many traditional prime loans are going bust. Yes, Obama did delay the adjustment for a year. But like I said it is prime loans too.
The increase of a loan balance means that you are talking about a negative amortization loan which has nothing to do with adjustable rates. You can have negative Amortization ARM's, but it has always been pretty rare.
For residential loans: the most popular ARM's were 3 year and 5 year. However Fannie Mae and FHA offer rates currently that are still extremely low allowing borrowers to refinance. The problem is really overpriced real estate not merely the price of interest. A big problem which lags behind residential is commercial. Most commercial loans have always been short term: 1 years to 3 years fixed. That has been the norm for commercial prop for hundreds of years.
The problem was not a lack of credit unless you are saying that credit is synonymous with savings. Credit in our system is a mixture of fiat and real savings. Increasing the money supply does not increase the pool of real resources in the economy. FED low interest rates were a false signal to developers which caused them to build too many houses. The increased amount of money was a false signal to consumers causing overconsumption. Resources went to houses that could have gone to other sectors.
And then there is Commercial real estate. Is the same going to happen to it? It kind of already is, but it doesn't seem to be Bursting.... just deflating. Of course business' usually keep higher savings then consumers.
Yes, it is indeed. Hans Hoppe is a scholar at the Ludwig von Mises Institute. Von Mises is one of the most famous Austrian economists. Peter Schiff also gave a talk at the Mises Institute a year ago. You can find it by searching for 'why the meltdown should have surprised no one' on Youtube.
Sorry for late reply. In short, due to the fact that the actual level of savings is lower than the signal sent out to businesses previously (low rate), when banks discover the error, they raise their prices, and the higher rates tend to cause long-term investments susceptible to this less affordable, such as housing, causing a cleansing recession to occur. It helps to think of the interest rate as essentially the price charged by lenders for savings, and low rates discourage savings further.
The increase in money supply went into housing. Capital good prices were bid up. This caused costs in other sectors of the economy to increase beyond what would have occurred had there been no artificial increase in money supply. If the increase in credit were the result of real savings, it would be a signal to developers that consumers were willing to forgo consumption today for consumption tomorrow. Truth is consumers were never willing to forgo consumption today, thus overconsumption.
Who could possibly give this a negative thumbs-down rating? You two people do know that this is one of the most prominent economists of our time, right?
MrRDGriggs 2 months ago
awesome lecture, was a bit over my head in places, but got a bit lost at the end, so what was he meaning that there was no longer enough savings/credit to complete investment projects? did he mean that companies that borrow money to invest go bankrupt as they can't complete their projects? and has this problem occurred yet? or is it yet to occur?
mlndstream 2 years ago
The problem has already happened. Yes, when those people who developed houses in 2008 cannot sell because there is no more credit. So the developer goes bankrupt because there are no buyers.
theoriginalanomaly 2 years ago
Thanks. Hey do you know anything about the Alt-a and Option ARM mortgages resetting to higher interest rates in America? according to a few youtube video's I watched, they were due to start resetting upwards increasingly from the second half of this year up into 2011, the wave is supposed to be 1.7 times bigger than subprime mortgages, but I heard a rumor that this resetting has been postponed a whole year which would have them begin in late 2010. So any idea if this is still a threat or not?
mlndstream 2 years ago
ARM's typically take 5 years to adjust, but if you let the balance increase to maybe 110% or 125% then it can adjust then. It depends on the loan. We are certainly not out of the woods with foreclosures. They haven't really let up yet. And it isn't just sub-prime or ARM loans. Many traditional prime loans are going bust. Yes, Obama did delay the adjustment for a year. But like I said it is prime loans too.
theoriginalanomaly 2 years ago
The increase of a loan balance means that you are talking about a negative amortization loan which has nothing to do with adjustable rates. You can have negative Amortization ARM's, but it has always been pretty rare.
ccarterc1984 2 years ago
For residential loans: the most popular ARM's were 3 year and 5 year. However Fannie Mae and FHA offer rates currently that are still extremely low allowing borrowers to refinance. The problem is really overpriced real estate not merely the price of interest. A big problem which lags behind residential is commercial. Most commercial loans have always been short term: 1 years to 3 years fixed. That has been the norm for commercial prop for hundreds of years.
ccarterc1984 2 years ago
The problem was not a lack of credit unless you are saying that credit is synonymous with savings. Credit in our system is a mixture of fiat and real savings. Increasing the money supply does not increase the pool of real resources in the economy. FED low interest rates were a false signal to developers which caused them to build too many houses. The increased amount of money was a false signal to consumers causing overconsumption. Resources went to houses that could have gone to other sectors.
ccarterc1984 2 years ago
And then there is Commercial real estate. Is the same going to happen to it? It kind of already is, but it doesn't seem to be Bursting.... just deflating. Of course business' usually keep higher savings then consumers.
theoriginalanomaly 2 years ago
Makes sense,thanks again
mlndstream 2 years ago
Is this Austrain Economics like Peter Schiff studies? Peace!
Lingerfoot 2 years ago
Yes, it is indeed. Hans Hoppe is a scholar at the Ludwig von Mises Institute. Von Mises is one of the most famous Austrian economists. Peter Schiff also gave a talk at the Mises Institute a year ago. You can find it by searching for 'why the meltdown should have surprised no one' on Youtube.
Nielsio 2 years ago
Sorry for late reply. In short, due to the fact that the actual level of savings is lower than the signal sent out to businesses previously (low rate), when banks discover the error, they raise their prices, and the higher rates tend to cause long-term investments susceptible to this less affordable, such as housing, causing a cleansing recession to occur. It helps to think of the interest rate as essentially the price charged by lenders for savings, and low rates discourage savings further.
KraljevicPavle 2 years ago
The increase in money supply went into housing. Capital good prices were bid up. This caused costs in other sectors of the economy to increase beyond what would have occurred had there been no artificial increase in money supply. If the increase in credit were the result of real savings, it would be a signal to developers that consumers were willing to forgo consumption today for consumption tomorrow. Truth is consumers were never willing to forgo consumption today, thus overconsumption.
ccarterc1984 2 years ago