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Assorted links
1. Jeff Hummel blames Bernanke and Paulson for what has happened. I don't agree but we are committed to passing along many different points of view.
2. My favorite Greg Mankiw column so far.
3. Dividends vs. share repurchases: an excellent post.
4. New blog on cognition and culture, via Razib.
Posted by Tyler Cowen on October 26, 2008 at 06:55 AM in Web/Tech | Permalink
Comments
Mankiw states: "...Deflation across the economy is not a problem (yet), but deflation in the housing market is the source of many of our present difficulties. With so many homeowners owing more on their mortgages than their houses are worth, default is an unfortunate but often rational choice."
I expect this is clear to most readers but not me. Assuming no adjustment in my monthly payment, why would I default on a no equity 25 year mortgage of, say, $500,000.00 when the house is currently worth only 400,000.00?
Isn't it just as likely, perhaps more likely, that by the time I'm ready to sell, the value will approximate (or exceed) the $500,000 I've paid for it? Even if it's still at the $400.000 value, haven't I lived at an annual rent of $4,000.00 plus the opportunity cost of my mortage payments? Given the many costs of defaulting and perhaps foreclosure both monetary and psychological, I don't understand the default scenario. Can you help?
Posted by: Richard at Oct 26, 2008 10:12:19 AM
Dividends vs. share repurchases should probably be:
http://www.interfluidity.com/posts/1224982646.shtml
Posted by: Douglas Knight at Oct 26, 2008 10:59:47 AM
Richard -
The smartest move would be to default, live rent free for one year in the house for one year whilst the foreclosure process drags on, then repurchase the house at $400k.
Posted by: Mercutio.Mont at Oct 26, 2008 12:15:10 PM
Obviously I should add that with the hit to your credit rating, it would likely not be possible to purchase another house. My post is intended purely to demonstrate the perverse incentives at work in the current market.
It's not good.
Posted by: Mercutio.Mont at Oct 26, 2008 12:19:08 PM
Who is Steven Randy Waldman? The blog is very interesting, but with no background information those of us without extensive financial background have some difficulty assessing the sense of his comments.
Sounds good, but then no one ever said that Paul Krugman couldn't write well.
Posted by: RP Johnson at Oct 26, 2008 11:37:06 PM
Who is Steven Randy Waldman? The blog is very interesting, but with no background information those of us without extensive financial background have some difficulty assessing the sense of his comments.
Sounds good, but then no one ever said that Paul Krugman couldn't write well.
Posted by: RP Johnson at Oct 26, 2008 11:37:41 PM
I think that somehow Government should attempt to equalize taxation on all income. Dividends are much easier for casual investors to track than is the number of stocks outstanding.
Posted by: floccina at Oct 27, 2008 9:09:27 AM
