Worth noting that this is the blog's first post. I like the tone, the humor, and the sheer nerve of writing something like this. It's inspirational without being preachy.
It's also highly actionable. Here's how to apply it right now. Close your browser and all other applications. Open a text editor (or a can of paint or whatever). Reflect on something, anything. Then give yourself permission to make the worst possible version of something you like consuming. Write one sentence (or make one stroke), then another, and another. Eventually, rework the mess you've created.
Having forced myself to do this on several occasions, I can say it becomes addictive after a few days. And tiring. Which is why I also know it's easy to relapse on an off day. Finding a way to keep motivated independent of external praise is critical.
I’ve been thinking a lot about how I can enforce discipline in myself to accomplish specific tasks similar to OPs. I agree that that external praise can be a game changer but man of the habits you want to develop are trivial and not worth bringing up but can have a huge impact. For example, instead of being creative, maybe you want to floss consistently or walk 10k steps. Both of those habits are just as important as creating but writing a blog post about it isn’t as sexy, nor is bringing it up in conversation.
I’ve been thinking about creating systems that help keep me going in the right direction even though I know I’m going to have an off day because discipline is so fleeting.
Wave was a perfect example of leading with technology rather than the problem to be solved. Nothing I ever saw or read about it spoke to a specific user problem. Sure, Google has problems in spades that can be solved by Wave (engaging users, crushing upstart social media companies to name two). But in terms of eliminating something costing large numbers of computer time or money, Wave brought absolutely nothing to the table.
I remember seeing the hyperventilating response to Wave by tech people at the time and wondering what they were actually experiencing. Because what I saw was yet another Google initiative that would be shut down and forgotten fairly quickly.
I don't the problem was the maturity of the technology (much of it very quickly migrated over to Google Docs soon after the Wave shutdown). Wave was built in the original Google model of an open garden; parts of it were based on XMPP (like Talk was) and all of it was designed to support multi-instancing and federation between instances similar to both XMPP and email. It launched just in time for the Google+ efforts to decide the future of Google was only in an entirely proprietary walled garden.
I remember watching a presentation that the creators gave. In it they described the issues of email, and how wave addressed them. So those were at least a few problems that it was trying to solve. Once I actually got in and started playing with it I felt pretty overwhelmed and didn't really feel how great it was to have those problems solved.
It would have worked better for me if they had kept it simple
Neither Google Reader nor Talk had been shutdown until 2012, so the whole storyline of Google constantly shutting down stuff hadn’t started yet, this seems like a false recollection.
Though Reader, Talk, Buzz, and Wave were all killed in quick succession and to arguably the exact same forces (Google+), for very similar reasons (walling the garden, "reducing redundancy"). That shutdown wave was brutal and nearly simultaneous enough that of course it defines the narrative of Google constantly shutting down stuff.
> “What Elon Musk wants to produce is a lifestyle,” Zulkifli said Wednesday when asked about the entrepreneur’s comments. “We are not interested in a lifestyle. We are interested in proper solutions that will address climate problems.”
Electric cars are poor, even counterproductive stand-ins for long term solutions such as public transportation and the elimination of the suburban commuter lifestyle. They hide a multitude of externalities forced on the public and not paid for directly by owners or manufacturers.
Climate change aside, it's not hard to imagine a country as densely populated as Singapore opposing electric cars.
Electric cars are not at all "counterproductive" for long term solutions to climate change. They are one piece in the big picture of fixing climate change, drawdown.org ranks electric vehicles as #26 on their solution list. (https://www.drawdown.org/solutions-summary-by-rank)
Also, by your qualifying "long term" I assume you think they are fine short and even intermediate term? Given the urgency of the climate crisis, short and intermediate term matters - a lot.
I agree with you that public transportation and the "elimination of the suburban commuter lifestyle" (hard to define, but giving you the most charitable interpretation here) is very important. However, we don't have to choose one or the other, the decision as to which car to buy is typically an individual decision and I would think it correlates well with support for greener public transportation. Additionally, I fine it hard to believe that even in the long term there will be no need electric cars in more distant areas. Finally, development of electric cars and their infrastructure will also support electric public buses used for public transportation.
I'm glad Singapore is pursuing public transportation (a no-brainer in a city state) but the claim that it is not a "proper solution" isn't helpful and worse, it assumes that there is a solution. There isn't. There are MANY solutions which will be implemented at different speeds, with different levels of effectiveness and by many different organizations and individuals.
In general, it is better to encourage any useful efforts on this front rather than arguing that solution X isn't "proper" or less effective than solution Y.
> Electric cars are not at all "counterproductive" for long term solutions to climate change. They are one piece in the big picture of fixing climate change, drawdown.org ranks electric vehicles as #26 on their solution list. (https://www.drawdown.org/solutions-summary-by-rank)
That thing is literally written by Americans who are 95% likely of living in a car suburb. Of course I’d also put electric cars as a necessity if I were them, they don’t want to change their lifestyle (which, you know, is why we’re in this in the first place).
> Connect suburbs to viable public transportation solutions
This is the thing that can't work. Public transit inherently requires density. Otherwise you have a bus that only comes twice a day and is still mostly empty because there aren't enough people per unit area to fill it.
Expecting commuter rail to eliminate cars in Spokane or Colorado Springs is delusional. It only works at all in major cities and even most of the cities in the US don't have enough density to make it really efficient -- and are prohibited by zoning laws from building at the density necessary to make that happen.
More to the point, even if we fixed the zoning today, it would take many years to actually build the density required to make it work, and until then people are still buying cars. And electric cars are better for the climate than gasoline.
It's way better to ride an ebike to the commuter rail station than a tesla to work. Build excellent bike networks for the suburbs. It's as cheap as sidewalk and/or paint.
I want to know AnthonyMouse's response to your argument: the treshold density in walking distance versus the treshold density in cycling distance will scale quadratically with the distance (since area is quadratic function of the radius), an electric bike that extends your range twice, will result in a 4 times higher "effective population density" for public transport to make sense.
Edit: just adding that any environmentally responsible form of personal transport doubles range, also results in quadratically (so four times) fewer stations and stops to be built, and linearly (so only half) the total length of rail or road to be laid and maintained
> the treshold density in walking distance versus the treshold density in cycling distance will scale quadratically with the distance (since area is quadratic function of the radius), an electric bike that extends your range twice, will result in a 4 times higher "effective population density" for public transport to make sense.
That's exactly the problem you're working against. A bicycle doubles the radius from walking, but a car at 70MPH on the highway multiplies it by 20 or more, so you get hundreds of times the area and consequent sprawl. And ebikes at those speeds are fatally dangerous, so they can't be a replacement.
The thing that can actually be competitive is trains that can go as fast as cars, but then you need the density to fill them.
Restructuring communities around bus hubs doesnt sound like an awful idea to be honest. Even if everyone had a car, since it's the suburbs, it would probably cut down on day to day traffic and allow people to have more affordable housing.
> Electric cars are poor, even counterproductive stand-ins for long term solutions such as public transportation and the elimination of the suburban commuter lifestyle. They hide a multitude of externalities forced on the public and not paid for directly by owners or manufacturers.
Sure, but that's the solution you get from people who've never really experienced a well designed public transportation system. It's essentially a "faster horse" solution to traffic pollution issue which doesn't address the reasons behind the insane amount of tarmac space in modern US cities.
People aren't dumb. Building a city requires decades of coordinated action by thousands to millions of people, and it only works if rich people volunteer or are coerced to give up the disproportionate amount of real estate they enjoy, and no one gets a luxurious amount of space. It's not a matter of individuals seeing the light.
It's also a matter of the government allowing a city to be built. This sounds trivial, but is actually the biggest component to the lack of affordability in SF and NYC.
There are places where a lot of people want to live, but the gov't is actively preventing housing being built there. Instead of allowing the next increment of development (SFH -> missing middle -> mid-rise apartment buildings -> high rise apartment buildings), many US cities do their best to block development wherever possible. The only developments that can make it through the process are 1) huge, 2) well-backed by capital, and 3) hugely profitable.
Public transit doesnt have to be publicly run. I mean it can be, but services like cruise in SF are not and are better than individual cars as is uber pool. Both let many people in san Francisco live without cars.
Also in san francisco, many of the ferry lines are or were run by private companies. I dont understand how one can oppose the idea of available transit.
In reality what is needed is for governments to deregulate transportation. It is actually ridiculous that the city originally demanded uber drivers have medallions to pick people up. That should be a basic right so that transit companies can start to provide cheap and reliable transit options for city dwellers. If I recall correctly, Cancun has a mostly privatized bus system that works very well.
Finally, roads are also currently publicly funded and governments already have a huge say in transit that individual citizens cant really affect. Having multiple private transit options would mean larger organizations able to stand up to the authorities.
You make some fair points here but overall your argument seems to come from a point of paranoia of the communist boogeyman.
You deride a lot of public transportation points but don’t offer an alternative. Are we to believe automotives are satisfactory by your own yardstick?
* Automotives have way higher health risks than your pathogen boogeyman. Blaming 100M deaths in 1918 on public transportation is a reach when Germ theory was only really widely accepted a mere 50 years earlier. On the other hand automotive incidents remain the top cause of death for individuals ages 15-34 in the United States
* Goverment incompetency in public works is not anymore unique to public transportation. The government still operates the roads and bridges that the automotives drive. Look no further than Boston’s big dig where a project was overrun by 10 years and several billion dollars.
* Again, government mismanagement is not something unique public transportation. Are we to pretend cronyism didn’t exist before the SJW Boogeyman?
* For your final point, why are the externalities of cars not applicable here. It’s certainly not 0 - without the obvious threat of climate change, I’d rather have alive annoying tourists than dead adults from automotive fatalities.
Your only strong point, to me, is high availability transportation. However is high availability actually needed or is it just the comfort of knowing that is actually desired. How many people actually need to be able to drive anywhere at 3am on a consistent basis - and for those that do why wouldn’t they be able to accept the economic premium of doing so?
Wow. Was a relative of yours hit by a bus full of communists?
You're making taking public transit sound like the modern equivalent of storming Omaha Beach.
All of the problems you list apply just as well to any department of transportation that is responsible for building and maintaining roads... With taxpayer money, collected not from drivers, but off the backs of working people, regardless of how much they use those roads.
Which us city lacks public transit in the city center?
Not trying to be thick but in all american cities ive lived in, there was sufficient transit in the urban core. I understand arguments that it doesnt extend satisfactorily to the suburbs but your claim is much more specific
The problem isn't that there is no transit in the city center, the problem is that the city center isn't allowed to expand or increase in density, so more people can't actually live there.
Then more people live in the suburbs, but you need a car to get from the suburbs to the city. Then you get more demand for roads and parking in the city and people stop using the public transit even there.
> Then more people live in the suburbs, but you need a car to get from the suburbs to the city.
Your assertion ignores the fact that network coverage means nothing if the time to traverse the network just to get from point A to point B is much more expensive, time-wise and economically, than simply using personal transportation to get to where you want to go.
That isn't inherently true in the city center. If you have the population density to run subways every ten minutes that aren't subject to traffic jams, you can get from one part of the city center to another faster on a subway than in a car. But that only works if both of your endpoints are on a subway line, which requires more people to live in the city center than they currently do.
I've traveled extensively in Europe. While transit was available in most cities, and usable, aside from the real metros, like London and Paris and Barcelona, and a few gems, like Budapest, transit was often not frequent enough and clearly took longer than a car. The reason I took transit was it was cheaper in absolute terms, and, as a student, my time wasn't worth much. Also, that was pre-uber. I daresay that if I visited those places today -- places like Oslo, Prague, Porto, Rome, Dublin, etc -- I would have taken uber. It would be faster, and my time is worth more.
The only Asian cities I've spent any noticeable time in are Bombay and Hong Kong. Bombay -- I guess it's called Mumbai now -- is a shit show, in every sense of the word. It's one of the largest cities in the world. Transit is awful and dangerous. The only reason my parents took it growing up was because when they were young they were too poor to afford anything else. When we go back now, as rich foreigners, we always take a private driver or taxis everywhere. It's just not worth it.
Hong Kong is a different story of course, due to the British influence and the fact that it was Britain when I last visited. Also, its constraints as a small island mean transit is a must have. And I would agree that it's transit system is better than most American cities.
That all being said, the American cities with densities approaching that of London, Hong Kong, etc all do have rather good transit options. As I stated elsewhere, the issue is the US has no large cities in the European and Asian sense. Our cities are sparsely populated. Yes, a lot of that is due to government policy, but it's also due to the fact that America is -- for the most part -- completely empty land.
I agree, the buses are usually empty to half full. Unless you get soldiers marching people out to buses the US to go work for the "greater good" everyone is going to use cars until the traffic jams become simply too long.
No disagreement there. I'm just curious what this looks like if we advance our infrastructure enough. I'm not suggesting we prioritize suburbs at all. (I wasn't actually suggesting any course of action)
I am curious if the intent here is that people should not live in the suburbs or the country, just in cities where transportation can be most efficient.
The car is one of the ultimate goals of individualism: constant access to what Mills called "Negative Liberty", essentially the freedom to do whatever physical thing you desire to do at any given time. Unfortunately, that means that the subject must self-coerce themselves into believing it's ok that everyone own a car, and something that we can maintain forever. I wonder how many people in the US refuse to believe climate science simply because the idea of losing their car is physically painful.
When individualism leads us down a path of bad decision making (building electric cars rather than the far superior collective path of building up mass transit), I'm always reminded of a scene from the Cixin Liu "Rememberance of Earth's Past" books, where an individualist decision is made that ultimately dooms the people of the solar system, and the person who would have been the true hero of the story only gets to tell that decision maker that they are a child before he is sent off to prison.
This is essentially our battle against climate change right now: technologists trying to make enough toys to keep the rabble of toddlers happy so that we can actually fix the problem.
Owning a car is absolutely not an example of negative liberty. Owning a car is a privilege. Negative liberty is the freedom not to have your basic freedom infringed (it's essentially analogous to the non-aggression principle). Not the freedom to do "whatever physical thing you desire to do."
There's huge tradeoffs between cars and mass transit that you're completely failing to acknowledge. Mass transit works fine when you have a high density urban core. It doesn't work well for suburban or rural populations, which is most of the land area of the U.S. Not everyone is going to live in a dense city nor should they.
Even if electric vehicles do not substantially reduce greenhouse gases, they do pollute the air far less assuming you have cleaner electricity generation.
Moreover, ending the reliance on unsustainable fossil fuels is an end in itself. It would reshape global geopolitics and of course there’s a ton of destruction that happens from oil spills and oil extraction. Going full electric has many benefits beyond just reducing greenhouse gases.
Population control isn't the issue because we're already consuming far more than we should per person. Even if you completely stopped the growth rate of all nations, that doesn't change the fact that the first world lifestyle is at odds with climate change.
The birth rate in Singapore is one of the lowest in the world at 1.14 children per woman, far below the replacement rate of 2 and below the United States at 1.8.
From all the cities that I used, Singapore was the one where I used most often taxis, because they were so cheap. It may have changed since 2004, but I think even for Singapore having electric cars, even for taxis might be better. What am I missing?
Other than this I agree that for cities public transportation, together with good infrastructure for bicycles is very important, because in most cities driving your car yourself is so bad: it is slow, demands a lot of attention, getting a parking place is often very difficult.
What about inspiration? Huh? The fact that you can buy salvaged tesla batteries and experiment for an even greener future. We gotta take steps, and this company is feeding the american keep up with the joneses framework along with car heads desire for horsepower. Don't give me this externalities BS. We need it mass produced because it's a stepping stone.
I don't agree. I think it's a positive. Not everyone agrees with your utopian public transportation and cutting back to as minimalist a life as possible.
If you correctly price in the negative externalities of burning gasoline, then the suburbs suddenly get a lot more expensive, and it makes more sense to densify.
It's not working well in France with the Giletes Jaunes. Basically taxing the suburbs told a large social class of working poor people they have no right to exist. I suppose you could try warehousing them in the projects, but good luck with that.
Building the physical infrastructure for all those suburbians to live in the cities would also have a carbon impact.
In practical terms, in five years or so it's not going to be hard to get people to buy electric cars instead of gasoline, but it will still be practically impossible to get them to give up their houses, back yards, and cars to go live in the city.
I am largely opposed to regressive measures like this, but in this case I tend to believe the continued survival of our species and our planet supercede concerns about temporary inequalities imposed by our solutions.
Still we must be vigilant that our solutions don't accidentally (or intentionally!) factor down to "there's too many humans, lets starve out some of those poors".
I completely agree with you about that. There are a number of climate change solutions (particularly around population control measures) that land uncomfortably close to eugenics. As a side note, my wife and I are not having children precisely because of the climate crisis. We don't want to bring children into a world that is looking increasingly unsurvivable.
There are much better solutions that target the actual large polluters. People living in suburbs is a small percentage of total global emissions, especially when you consider transportation of goods. Transporting goods across the oceans is a far larger percentage of emissions than people living in suburbs.
If the goal is to continue to survive as a species, there are much more effective strategies to implement.
Suburban living on average doubles the climate impact of the same number of people in a city. The OP notes correctly that this externality is not correctly priced in the current market.
How do you calculate the value of such an externality? Even if for argument's sake I were to just accept that it's double the climate impact on average, doubling a very small value is not really meaningful. The average American carbon footprint is roughly the same regardless.
You also haven't considered that as you move people into cities you need to scale up infrastructure in the city itself. Living spaces, transportation around the city, supply lines for supermarkets. Everything needs to scale. It's not black and white that moving everyone into a tightly packed city is going to make a meaningful difference to global emissions.
What would make a tremendous difference is turning the entire grid into a green smart grid powered by solar, wind, geothermal, etc. That would change things regardless of where people live, because the sources of energy are decentralized and can exist basically anywhere that natural resources like solar and wind exist.
You sort of can’t directly calculate externalities. That’s what makes them externalities.
The common answer is to not calculate it but to add a carbon tax. If you make gas more expensive, road taxes higher and non-renewable energy higher cost, the market actors will change their behavior.
As for the infrastructure cost, you pay that in either case and it’s more efficiently built the denser things are.
This isn’t a bottleneck style problem where removing the worst thing reorders the thing underneath it. We need to start targeting all of the inefficiencies and carbon emitters. The suburbs are worse for the environment plain & simple so we need to improve on that.
The amount of carbon emitted from people driving to and from suburbs is actually a small amount compared to the real big polluters. It makes no sense to target such a giant restructuring of society for so little gain.
instead of trying to quantify this statement, let's look at trends and actions in governance (since this is not new)
from the Global Climate Action Summit 2018, convened by CA Gov Jerry Brown:
Every 5 weeks, China adds a fleet of electric buses equivalent to
the entire London bus fleet – 9500 buses. Technologies are now
market ready, societally acceptable and economically attractive to
reduce greenhouse gas emissions from transport by 51% by 2030,
through electric vehicles, mass transit and adapting the global
shipping fleet. A complete global and technological shift to electric
vehicles now looks very likely and, given recent announcements from
cities, countries and car manufacturers, is possible between 2020
and 2030. However, the transformation will slow dramatically without
strong national and city policies, for example setting target dates to
ban internal combustion engines.
Have a look at a google search on “cargo ship pollution” and draw your own conclusions.
Simply moving cargo, the lifeblood of our economy, across the oceans burns hundreds of tons of fuel oil - releasing more (and more varied) pollutants into the atmosphere and oceans. One ship, by some reports, emits as many emissions as some 50 million (or more) cars. And there are well over 9,000 on the ocean.
And that is why researchers are proposing we bring back Zeppelins! Zeppelins that are 10x as long as the Empire State Tower is tall, to be exact. Way better for the environment, can be operated autonomously, and cheap to produce.
If I take hanniabu's numbers, that ends up with 8000 ft. zeppelins--the length of airport runways. That's probably not going to be operationally viable: going by the space the largest seaports take up today, you have space to berth only a few of them--maybe 5 at best--at the very largest of them. There's therefore going to be very poor operational flexibility for choosing routes, and with the sheer size and capacity, multi-destination itineraries are going to struggle with long dwell times to partially load/unload them.
You figures are incorrect, this is taken directly from the linked article:
> As proposed in a recent scientific paper, the new airships would be 10 times bigger than the 800-foot Hindenburg — more than five times as long as the Empire State Building is tall
Those numbers are for some very specific substances (which are also bad, nobody's contesting that), but not for CO2-equivalent emissions. It's the same kind of dumb number as that cloth bag reuse count vs plastic. Technically true for some aspect, but utterly misleading.
The Wikipedia article does not say this: « It also includes greenhouse gas emissions. The International Maritime Organization (IMO) estimates that carbon dioxide emissions from shipping were equal to 2.2% of the global human-made emissions in 2012 »
As well, is this really something that harmful to the environment? I get that people driving > people not driving when it comes to climate harm, but I don't want to live in a city and I feel like there are much larger climate concerns (in manufacturing, for example) that outweigh passing the blame onto suburban commuters.
The most ecological thing to do is to kill ourselves. Any environmental plan has to allow for people to love rewarding lives, or else it's not a good environment for humans.
and the energy/greenhouse gas emission costs of cremation, I can see this taking off.
There's a picture and caption not discussed in the text:
> Katrina Spade, upper left, the founder and CEO of Recompose, a company that hopes to use composting as an alternative to burying or cremating human remains, looks on Tuesday, May 21, 2019, as Washington Gov. Jay Inslee, centre, signs a bill into law at the Capitol in Olympia, Wash., that allows licensed facilities to offer "natural organic reduction," which turns a body into soil in a span of several weeks. (Ted S. Warren/AP Photo)
Was Spade involved in bringing that legislation about?
I'm sure the emotions are genuine, but articles like this leave me with a sense that those concerned are waiting for others (especially "leaders") to make something happen. They want electric cars to be mandated so they can continue their addiction to the automobile despite the severe environmental effects of car culture regardless of the fuel source. They want government to force companies to develop carbon neutral everything so that they can continue their lives of consumption uninterrupted.
We control our own actions. Our continued individual consumption leads to CO2 emissions. It's in our power to radically reduce our own carbon footprint by scaling back our lives. Not seeking out environmentally-friendly alternatives, but by curbing our out-of-control consumption urges which lie at the heart of this entire mess.
However, this requires painful, life-changing choices for many. Foregoing the house in the burbs for a walkable/rideable commute. Shunning unsustainable locations like Silicon Valley, even if that means reduction in income. Scaling way back on air travel. Avoiding foods grown in rainforest whose consumption encourages deforestation (e.g., coffee). Living far below our means, in other words.
Stop blaming Trump. Rejoining the Paris Accords won't solve the problem. Far more radical adjustments will be needed to prevent even the mildest effects now being predicted.
I want to see people voicing climate change concerns recommending the only thing that audience members can directly control - live a far simpler life and start doing it now. Stop complaining about how impractical this option is. This is what every "leader" is doing, from CEOs to presidents. Act - just like you are expecting others to do so.
The trouble is, making sacrifices for yourself, as a voluntary moral choice, and just expecting other people to do the same is not going to be a successful strategy, because you're up against human nature itself.
Any pragmatic strategy to reduce the impact of climate change must start with international cooperation. From the point of view of the USA, this must start with a new administration. Then, with this cooperation we could find actions not strictly rooted in dreamy idealism, including enforcing the changes in lifestyle you mention at scale. (Through agreements, tariffs, etc.) A real global strategy also needs to involve some very bitter pills and compromises, e.g. taking a fresh look at nuclear, geoengineering research, and having the hard conversations about global population growth in emerging countries, and what people will do in the vast regions of the world which won't be habitable for much longer.
Any other strategy is just wishful thinking, and avoiding the cold hard facts. And the facts on this will catch up. All the trees you can plant or the most frugal lifestyle you are capable of will make precisely zero difference if it isn't based on global cooperation. Andrew Yang in the most recent democratic debate was right: a lot of the damage is already done and some of the discussion needs to be about how we can move to higher ground.
> making sacrifices for yourself, as a voluntary moral choice, and just expecting other people to do the same is not going to be a successful strategy, because you're up against human nature itself.
I have the opposite experience in my life so far (40yo), and I am a perpetrator of this “strategy”.
Ask yourself, for example, why the nature of humans is that hopeless for you. How are the humans around you? (also those in the news)
What if - before fixing earth - i fix myself? My circle of friends, of colleagues, the family... from my most intimate partner to the whole society it looks like a long way .
But I will be surprised how many humans can change for good, just because I was the one changing first.
Is not the personal, voluntary choice to use Facebook a decision that matters globally? There is no compulsion or legislation there. At least not in the form that many might think.
Assuming these figures report thousands, nothing really jumps out as being >500, expansion year or not - 2009 included.
Edit:
I suspect the article is reporting total jobs, not jobs change, but I'm not sure. The BLS link appears to be reporting change in nonfarm employment. Surprisingly poor labeling of data sets in both cases.
For those wondering why anyone would buy such a thing, consider:
- Many financial institutions are required to hold a certain percent of portfolio in safe assets. German bunds are among the safest in the world.
- A holder of a bond earns a capital gain (bond goes up in price) when interest rates fall. In that sense, zero is no limit at all because there can always be a buyer willing to accept an even lower (more negative) yield.
- Bond investors are well-aware of the two points above. When they sense that interest rates and/or inflation are headed lower, they know they can profit by buying, regardless of yield.
- Anticipated rate of inflation matters a lot because investors seeking return through yield focus on real interest rates (nominal rate - inflation). Inflation can be negative as well (deflation). If inflation is lower (more negative) than the bond's nominal return, that's a real positive yield. And that positive yield is locked in for the term of the bond, which in the case of the story is 30 years.
- The European Central Bank has repeatedly signaled its belief that zero is no barrier and that negative yields will be tolerated indefinitely. The ECB stands ready for quantitative easing (QE), in which the central bank buys bonds with money it creates from thin air. Investors know this and this compounds the incentive to pile on and buy bonds to enjoy the capital gains (and real returns if the investor believes that deflation is inevitable).
It's likely that all these factors combine to create the current environment. How long all of this can continue is anybody's guess because the situation is without precedent.
It's as if the financial crisis of 2008 was never resolved - just papered over through massive central bank purchases of treasuries and stocks (Japan's central bank owns a major fraction of the value of the Japanese stock market at this point).
> - Many financial institutions are required to hold a certain percent of portfolio in safe assets.
In practice this is turning into unnatural demand guaranteed by the law, which goes against free markets and will eventually implode upon itself. If you force the market to buy a certain product regardless of quality, then the underlying quality of that product will erode (as there is no longer an incentive to provide quality and quality implies cost), and the market will evaporate as stakeholders disappear and move to other markets which do assure real quality. That there was natural demand for such products in the past, and indeed that natural demand may coincide with unnatural demand in the present, is not a guarantor for demand levels staying natural in the future.
In context, this creates underlying pressure for investors to divest from Euro holdings. It's likely that investors are currently sticking with the Euro because they have few other avenues for escape, but this is not likely to hold - whether due to Brexit/Euroskepticism or some other external crisis which changes the playing field.
When you have a central bank that can control rates, no alternative money, and the bank can set rates negative, the equilibrium is for the government to own almost all assets. I'm not kidding. You will end up with communism, only via government regulation of rates, unless something breaks this up.
If our capital markets are so unproductive that having the government own the assets is considered a net economic gain, we'll need all the communism we can get.
The central bank does not "control" rates, they respond to the market signaling where rates should be.
Good post that covers nearly everything. The only thing I would add to this is that the ECB's deposit rate of -0.40% is the only thing that has enabled all of this.
This would explain negative bond rates down to -0.40%. Because if you need to park a very large amount of euros safely, banks will start to apply that rate to your deposits so it's better to get any rate that is less negative.
But curiously 10y german bund yields have recently hit -0.70%, and a couple other EU countries (France, Netherlands, Belgium) have also dipped below -0.40%.
So it must be more than the negative deposit rate. It's also the QE program which buys bonds (though it's on hold since the start of the year), and the expectation of lower deposit rates, and the expectation of more QE.
I agree with all of this and probably could have phrased my original post better. My main point is that none of this is really possible without ECB rates being set where they are. Successful monetary policy requires multiple tools to be utilized and the deposit rate is the main tool that anchors everything else. QE in itself does not mean rates are going to be lower. You need central bank rates to also be low in order to have lower government rates. Rates didn't suddenly skyrocket after the ECB announced the end of QE.
> Rates didn't suddenly skyrocket after the ECB announced the end of QE.
That's because the QE program only stopped increasing the ECB's assets. When bonds that are held by the ECB mature, the equivalent amount in new bonds is still being re-bought.
I don't think negative deposit rates are really needed to have negative bond yields. You only need a bond buyer (e.g. the QE program) who drives up bond prices beyond the face value + all coupons. Negative interest rates were just a natural step in the progression of lower rates, zero rates, negative rates, and QE. The next thing will be some form of helicopter money.
> That's because the QE program only stopped increasing the ECB's assets. When bonds that are held by the ECB mature, the equivalent amount in new bonds is still being re-bought.
Reinvesting maturing proceeds does not produce the same effect as net purchases. One, maturities are lumpy vs regularly scheduled net purchases. There have been rate shocks where idiosyncratic country events happened outside of maturities. Two, while the ECB can basically do whatever it wants, no new net purchases restricts its ability to act in an emergency. Three, size is much smaller.
>I don't think negative deposit rates are really needed to have negative bond yields. You only need a bond buyer (e.g. the QE program) who drives up bond prices beyond the face value + all coupons. Negative interest rates were just a natural step in the progression of lower rates, zero rates, negative rates, and QE. The next thing will be some form of helicopter money.
Note how I didn't mention anything about negative rates in particular; just low rates and that the deposit rate anchors things. Whether rates are negative or not really doesn't matter in isolation. What matters is the spread vs other less risky assets for the goals of the central bank. If a central bank indiscriminately purchases bonds without regard for existing yields or the deposit rate, they will quickly lose control over the market.
The ECB printing money is a factor in stabilizing rates but it in itself does not create conditions where governments are able to borrow for 30 years at negative rates. For example, if the deposit rate was at 3.00% instead of -0.40%, governments would not be able to issue at negative yields; QE or no QE. Additionally, the ECB stopped net QE purchases at the beginning of the year and negative rates are still a thing.
>- Many financial institutions are required to hold a certain percent of portfolio in safe assets. German bunds are among the safest in the world.
Can you explain how this can possibly beat cash? If I say to you "I'll let you pay me ten cents to hold onto your $100 bill for a while, and give you a paper showing the obligation to repay your $100" (the meaning of a negative yield bond), how can the offer to let you pay ten cents to let me hold your $100 possibly be less risky than just holding the $100?
Why would a bond with a negative yield ever be a safer asset than just holding the cash?
Holding cash usually means putting it in a bank account. The banks are going to put a significant portion in their country's central bank; the European central bank and member central banks are currently charging banks to store money; at large balances, those banks will charge customers.
Now, you could put cash into a USD account at a US bank, where interest is still currently positive, but if you were storing Euros, you now have currency risk and jurisdiction risk. Negative rate German bonds have less risk than that.
Of course you could take physical cash and put it in a safe or something, but that doesn't scale well. Although maybe it does suggest a lower limit on negative interest rates, where it would actually be cheaper to store large amounts of physical cash...
You have to buy a safe, you have to have a location to store it, you need to secure the location. You need to ensure that the safe is temperature and humidity controlled, so that the currency doesn't mold, rot etc.
These costs add up. Once you've done all of those things, you're essentially a bank.
+this. As a thought experiment, assume you need three full-time guards to store 100M €. Two physical and one watching the video. (why two? Less likely your guard steals all the money).
Salaries of 30k €/year. 8760 hours/year, one FTE works 2080 hours/year, so that's 4.x times 3x redundant guards, or about 500k €/year with overhead.
That's half a percent negative return.
Presumably, the physical storage cost creates a lower bound on how negative the inflation rates can go, but I'm sure I left off a bunch of other things that would add to the bottom line costs of this proposal, such as insurance.
Instead of having a vault with just 100M euros, it probably makes more sense economically to build a huge vault that can store billions of euros, and then charge people to use the vault.
It seems absurd that the cost of storing physical notes should have an impact on workable interest rates. Surely if the government wanted to allow you to sock away vast sums of money, they should provide a secure electronic sock and avoid the destruction of wealth that is your security costs.
And conversely, if they didn't want to provide the bed for you to keep your money under because it would defeat their interest rate policies, they should (and might) make putting money under beds illegal.
It just doesn't make sense for the sizes of socks and beds and cash denominations, and the security of locks, and the wages of security guards to determine macroeconomic policy.
Cash is universally considered the most liquid asset because it can most quickly and easily be converted into other assets.
If the amount of physical cash is huge however, say 1 billion euros, it can be less liquid than German government bonds. There is cost of moving, counting, securing it and significant delay for buying and selling. If you try to buy something for 1 billion EUR in cash, it might cost 100k EUR to do so and few days until you can buy anything.
But you are correct, there is probably a limit after wich banks start to convert some part of their assets to cash.
Indeed. 500€ bill was known as "Bin Laden" because it was so hard to find one. It was estimated that 90% of the bills were held by drug dealers, money launderers and other criminals.
They're gorgeous though. Because they're so low circulation, when you do get to see one they look brand-new. My father got one from a currency exchange this year and when he mentioned that I had to take a picture of it: https://imgur.com/a/aiaZmP2
Edit: I suppose since it was an exchange outside of Europe, they probably wanna put them in circulation before they lose legal tender status.
They will maintain their legal tender status. ECB just stopped printing more and existing notes will be removed from circulation when they enter the banking system.
The world is different when you're dealing with really large amounts of cash. You can't just store it yourself; your mattress isn't big enough. And if you ask a bank to store it for you, the bank will charge you for the service. (Banks that work in this line of business are known as 'custodian banks'.) Consequently, the effective interest rate on cash for large amounts of cash can be negative.
You can argue safety (bonds you have sovereign default risk vs cash will have bank credit risk) but your math is not incorporating how a transaction in this case would actually take place. It's not as simple as just holding onto $100. You have a deposit rate of -0.40% at the ECB. So instead of -0.40%, you settle for -0.14% which is what these newly issued Bunds are yielding.
Of course if interest rates go up, you have to keep the bond until it matures (earning less interest than you would with a new bond), or sell it for a capital loss. But this is always a risk with long-term bonds, and institutions still hold them.
You really don't want $10 billion in a bank. Laws mostly guarantee a few hundred thousand per account holder if the bank itself has financial issues. You would have to spread that amount over quite a few banks if you wanted it secured.
As some people already mentioned, the problem is the amount of cash you would have to keep safe somewhere. As far as I know, there are companies that use tunnels in mountains to act as huge cash depots. But such a storage also comes at a price. Also to prevent this kind of business, the European Central Bank already considered dismissing the 500 Euro bill. With that the physical amount to store would be even bigger. (The german economics professor Hans-Werner Sinn mentioned this once in a talk)
A lot of commentators are discussing the drawdowns of storing cash bills. However, who buys bonds by paying with physical cash bills? Most of us have a number in our bank account that reflects some sort of wealth? (Ownership of a security elsewhere or an I Owe You?) People with a salary directly deposited and big companies do not need a bank to store their physical cash bills.
I’m still trying to understand how this all happened.
The ECB charges banks -0.40% to deposit money with them. These bonds are currently yielding -0.14%. Rates are not low enough to the point where physical cash is a thought. Rough estimates are a deposit rate of -0.75% where you would make more by holding physical cash.
OK, so you have a bank balance of $1m, rather than paper bills. Your bank can go bust -- it does happen -- and you'll probably find that the Government only insures/guarantees something like the first $100,000 of that. However, the government here are selling you 30 year storage and guarantee of your balance at a small cost (the negative interest).
> - Anticipated rate of inflation matters a lot because investors seeking return through yield focus on real interest rates (nominal rate - inflation). Inflation can be negative as well (deflation). If inflation is lower (more negative) than the bond's nominal return, that's a real positive yield. And that positive yield is locked in for the term of the bond, which in the case of the story is 30 years.
But for this and the other reasons you mention, wouldn't cash be in any case better than the bonds?
> Some $2.5 billion worth of subprime loans, those with FICO credit scores below 690, ended up in mortgage bonds in the first quarter of 2019. That is more than double a year earlier and the highest level since the end of 2007, according to Inside Mortgage Finance. There was $1.9 billion worth of subprime mortgage bonds in the second quarter.
Statements like this are hard to evaluate without knowing the denominator: the total value of new mortgage bonds in each period.
All too often, an author who should know better throws the reader a scrap like the following sentence:
> The market for unconventional home loans is still tiny compared with the rest of the mortgage market as well as its precrisis past, when unconventional borrowing peaked at more than $1 trillion.
But this still doesn't convey what percentage of the loans are to sub-690 FICO borrowers.
I see this all the time and wonder to what extent it has contributed to mistrust of the traditional media.
If we find out that the percentage in 2019 is 1% but in 2007 it was 56%, that casts the entire story in a different light.
The problem is that most journalists are innumerate. As Matt Yglesias notes, "many reporters and editors don't really understand what they're doing. Reputable colleges hand out degrees to people who have almost no understanding of quantitative methods." [1] These journalists see the numbers as garnishes on a narrative point. They're not trying to put the numbers in some sort of mathematical context to draw sound conclusions. They may not even realize that there is a difference between using numbers for garnish and deriving meaning from numbers.
'[X market/stock] slumps as [thing related to X] [does something]'
Yet when you go and look at the long-term graph, it's well within normal variance. There's no evidence they're connected at all. I'm sure it happens with other media providers too.
Why? Because they didn't have the numbers right, or just didn't check at all. Well, if I'd written a statement like that in an essay during my schooling, I'd be marked down for unsubstantiated claims at best or admonished for plagiarism at worst.
I find it irresponsible that the news rarely cites its sources beyond admitting they bought it from AP/Reuters. I believe it should be enough to prevent them being cited as a trustworthy secondary source until they at least have their justifications to a level that would be considered adequate by a high school history class. It's the only reason citogenesis happens on Wikipedia.
The problem is that "Sellers outnumber buyers as equity markets fall" and "Buyers outnumber sellers as equity markets post gains" are not compelling headlines.
As you've noted, financial news is post-hoc analysis. It is narrative-based, and not fact-based. Sometimes the narratives and facts coincide, though.
That’s how financial news has always been reported. They need to sell papers, and technically they’re just mentioning two things that happened to happen at the same time.
I think you're conflating whether or not there's correlation/causation with whether or not the result is significant. If a stock appreciates or depreciates at the same time that something related to that stock happens, a relationship between the two is not an unreasonable hypothesis.
Of course, there's still the matter of actually validating that hypothesis, and examining whether said hypothesis actually holds true or the coincident timing really is just coincidence and nothing more (or, indeed, if the timing really was coincident between the two events, e.g. whether or not the stock move happened before the event that allegedly "caused" it).
And of course, even if the event did cause the stock move, that's still a separate concern from the long term impact of that stock move. It could very well just be a temporary blip, or it could be a harbinger of some more significant change.
> Yet when you go and look at the long-term graph, it's well within normal variance. There's no evidence they're connected at all.
What a completely mathematically and financially illiterate thing to say. Whether or not a market move is within “normal” variance has nothing to do with whether or not it is clearly attributable to a particular economic event. If Jerome Powell says something about rates or Trump tweets something about tariffs and the market moves 1% in the exact minute that happens you can pinpoint the cause of the move with pretty high confidence even if 1% is not significant relative to the long term variance.
I’ve seen this bizarre sentiment propagated on HN before. A lot of people seem to think it’s never possible to identify the causes of market movements (even when obvious market moving news is released).
Matt Yglesias himself fits that mold perfectly -- studying philosophy at a prestigious university -- and going on to write about economics, politics, and foreign policy, not philosophy. Best I can tell he's never had any kind of role other than blogger/journalist.
He's probably been a full-time journalist much longer than he was a college student.
My spouse works in e-commerce as an expert in international payments systems. Her undergrad degree was an Art/Asian Civilizations double major (with honors work in historic Chinese painting), and her master's degree is in Chinese pedagogy.
By your standards, she's not qualified for the field she has worked in for the past 15 years. Then again, you can't exactly get a college degree in international payments.
The other problem is that for-profit media would never have an incentive to hire journalist with quantitative skills. There's very little demand for it outside of trade and professional presses and I would bet media companies would have to pay quant journalist at least twice as much as regular ones.
So why should media companies hire and publish quant journalists? There's no good reason.
And that's also why journalism programs don't teach serious quantitative methods - there's not going to be demand for journalists with those skill sets.
The obvious exception to this is trade and professional publications, but those are often subscribed to by businesses with a vested economic interest in the information.
I think it's a bit more complex than that though. Experts within these fields should be a resource for journalists to access, perhaps in some fields - like economics or legal matters - it's prudent for the news organization to have internal specialists that can evaluate the raw data and draw independent conclusions - but that's not scalable. I think the issue is more that experts with vested interests who lie repeatedly to news organizations don't end up being ostrasized and instead thrive, leading more experts to follow suit and putting news organizations in the position where they either need to accept the interpretation at face value[1] or else try and make an inexpert evaluation of those facts. I think this is associated with the fact that the world is growing in complexity. A hundred years ago most people had built or helped to build a house and could call B.S. if a poorly constructed building collapsed and the constructor tried to claim unexpected ground instability - now a-days if the wiring in a building causes a fire that results in fatalities most members of society aren't able to go and look at the sight and reason whether that wiring was faultily installed or whether there really was a crazy factor out of the electrician's control.
The specific example I used above is actually perfectly terrible because I think we do still have accountability in a lot of the "trades" since so many people work independent of large firms and feel empowered to call out bullshit, but that's sort of what I wanted to highlight - it's when we're talking about an industry that is largely consolidated or centralized (like say banking) where everyone who knows what's going on is employed either by the primary party or a friend of the primary party that we get a breakdown of the truth.
1. I.e. Those iraqis have weapons of mass destruction because intel and this mustard coloured powder.
I think the problem is they're not entirely innumerate but they have precious little time or resources to really do their articles justice, and they aren't as facile with numbers as engineers are so they botch them a little bit.
Exactly this, and then there are people who exploit this in order to skew perceptions as described in "Proofiness: How you're being fooled by the numbers."[1]
I think the problem is more that most economists are innumerate. Economics meets virtually all of the definitions of a pseudo-science. Just because there are differential equations in a paper doesn't mean it's real science with proven predictive power.
(Anecdata, but why not?) In the run-up to 2008 I was having regular random conversations with non-technical people about the fact that the bubble was about to pop. It was obvious to them that valuations were divorced from all common sense.
But most expert economists and/or bankers were insisting the valuations were correct, and there was no cause for concern.
In this kind of context - and there's a very long history of it in finance and banking, so it's hardly a one-off - it seems a little strange to be picking on journalists for alleged innumeracy.
Put crudely, it isn't journalists who do the damage.
imo part of the problem is our liberal arts influenced college education system.
because college has moved away from being a luxury of broadly educating landed gentry to being a signaling of "i can be employed and responsible" the train a generalist approach doesn't really work.
To be specific, there are two types of journalists/writers
1. domain experts that are good writers/communicators
2. good writers/communicators with an ability to pick up domains quickly
at some point the 2nd type of person will be out of their depth. but the 1st type of person is expensive.
Why are Matt Levine and Adam Minter (even Krugman sometimes) such great journalists? All were domain experts first.
Great journalists that were not domain experts still exist, but they are more of the investigative variety. the ones that win Pulitzers.
i think those reduce to the first two types. paid shills is subjective and can be a domain expert. some even think krugman is a neoliberalist shill.
many hacks are also the first type. see degrasse tyson, jared diamond, malcolm gladwell, arguably pinker. very little substantive base, but great storytellers
activists reduces to the second type imo. if you have domain expertise, you usually hold a more nuanced view and don't come off as an activist even if you are very active. those with a preconceived notion are typically not a domain expert and just use their superior communication ability to prove their axe
I think this is due to how writing is taught throughout school. It’s all about a thesis and supporting evidence. There are a lot of parallels between a good essay and a math proof. And yet, there will always be a gap between them because prose does not have space for the rigor required by math. That gap gets filled with bullshit because the path of least resistance is to pick a thesis first, and then cherrypick evidence to support it.
The best journalists are aware of this and also remember the other lesson from English class, which is to consider counterarguments. But even then, there is never enough space for all the counterarguments, so those are cherrypicked too.
In 2015-16, there were 1.9 million bachelors degrees awarded, of which about 1.1 million were in business, engineering, science, math, psychology, or health fields, all of which would involve significant math/statistics. A further 160,000 were in social sciences, which typically involve a significant statistics component these days. So only a minority, 35-45% graduate in fields like communications and journalism, where math would not necessarily be part of the curriculum.
A start would be that the rest of us stop considering these type journalists. Call them reporters. Call them writers. But journalism is a verb. And if you're not going to act appropriately then you're not worthy of being labeled with the title.
Seriously, what is it going to matter what a few semi-anonymous comments on the internet are going to say? The news media has all the exposure and presumption of telling the truth, whereas people writing blogs and posting comments do not.
Having a stethoscope doesn't make you a doctor. Having an index finger doesn't make you a photographer. If you want better and more complete news we'd be wise to stop calling sloppy lazy hacks journalists.
Words matter. If we're going to misuse words then we deserve the (intellectual) abuse we get from those we are allowing to run wild.
The Orwellian use of the word journalist / journalists is one of the most ironic quirks of the 21st century.
Metaphorically it's a verb. It is the things you do or not. For example, fact check. The problem is, the belief that it's a noun and a noun one can assign to themselves; that has no formal definition.
If we want to user the word journalism / journalist properly and fairly then the easy way to do is to think of it as being a verb - like leadership. Leader isn't a title. It's actions you take. Just like journalism.
Calling the absolute numbers re subprime loans a "garnish" is subjective at best and wrong at worst. Even if the subprime-to-prime ratio hasn't changed much, a large increase in the ballooning subprime total may still be newsworthy in its own right.
I don't understand this criticism of the article. The point of the article is that lending standards are starting to loosen. The article provided a handful of numbers and one anecdote.
The article title and first sentence are: Mortgage Market Reopens to Risky Borrowers. Strict lending requirements that were put in place after financial crisis are starting to erode. The risky mortgage is making a comeback.
Supporting facts are:
- "Borrowers took out $45 billion of these unconventional loans in 2018, the most in a decade, and origination is on track to rise again in 2019."
- "Unconventional loans are largely being extended by nonbank mortgage lenders. But big banks have found another way in ... Some $2.5 billion worth of subprime loans, those with FICO credit scores below 690, ended up in mortgage bonds in the first quarter of 2019. That is more than double a year earlier and the highest level since the end of 2007."
Then there's the single anecdote about a borrower with a sub-690 FICO. Is sub-690 arbitrary? Yes. Is this borrower an example of an egregious loan? No. But is this someone who could not have gotten a loan previously? Yes. It supports the article.
The article is fair in its assessment:
- "Big banks’ mortgage arms are still avoiding riskier borrowers, leaving them to nonbank lenders. Still, the increase in unconventional loans shows that lenders are looking farther afield for customers."
Let me put it another way: at what point should the WSJ write an article like this? The 2008 financial crises cratered the economy after previous lending standards became lax. We put regulations in place to prevent that from happening again. Those regulations are starting to be weakened again. I want to know that.
"The most in a decade" is where all the shenanigans of the article lie.
Let's say Peak 2006, Sub-Prime Loan was $600B
Let's say the average, natural Sub-Prime Loan is $100B
After the crash, may be the market over-corrected way to much and slowly crawling back to it's natural $100B.
With this perspective, the narrative becomes totally different. The lending standard is still too tight and still way below what the natural / average economy support.
Remember there has to be a balance between exuberance and over-cautious. A journalist should find out, what the happy medium is
I'll also throw in there that it could be simply that mortgages are increasing overall, and that the sub-prime share of the mortgage pie isn't increasing at all.
This line implies otherwise, since we can safely assume mortgage originations overall didn't double YoY:
> Some $2.5 billion worth of subprime loans, those with FICO credit scores below 690, ended up in mortgage bonds in the first quarter of 2019. That is more than double a year earlier and the highest level since the end of 2007.
Although the phrasing makes me wonder if more subprime loans are being originated or if more are just being securitized as opposed to being held on balance sheet.
The FICO score is only one consideration. The biggest problem with the loans in 2007 was lack of verification of income and buyers qualifying on a mortgage amount that would eventually go up. A 650 FICO borrower with a good job, downpayment and an affordable monthly payment is a pretty good risk.
FICO score for mortgages is not the same score as the modern FIDO score. The mortgage score is often what's called FICO v2 and the modern one is something like v10. They've even branded their different old versions as Insurance score, Auto score, Mortgage score and those industries kind of stick with it.
To illustrate why this matters. My modern FICO score is something like high 700s, low 800s (depending on credit data vendor). My V2 score is like 690.
How did that happen? Turns out when I moved out from my last house (5 years ago) and canceled my internet with Time Warner they failed to charge me $31 which was always set to auto-play. I actually settled 5 months after the move when TW sent me to collections. The shady collection agency promised to remove it off the record if I paid (they didn't). Instead, it shows up as a 5 year old, $31 late payment, paid in full.
How did I find out, while looking to refinance at these current rates. I'm getting this sorted out now. Both TransUnion and Experian got it fixed in a few business day.... fucking Equifax cannot get their shit together 3 weeks later.
For me it's a hassle, annoyance and wasted time. But as you can see it can impact real people and the score methodology is pretty dumb.
It's insane that a 5 year old, paid in full debt for $31, that's not even my fault drags my credit score down ~100 points (that's what it is once corrected) and prevents from getting a refi. Doesn't matter that all my other credit cards are always paid in full, no late payments on mortgage, car, insurance ... which all add up to several magnitudes more then $31 over the 5 years.
"That made him an appealing borrower to an unconventional lender, according to Tom Jessop, a loan consultant at New American Funding. Mr. Jessop arranged a $675,000 loan on the $1.1 million property, leaving the lender with a significant buffer should Mr. Licht default."
Also, this is a TERRIBLE example of a pending subprime crisis. A guy borrows $675K on a $1.1 million property.
>Also, this is a TERRIBLE example of a pending subprime crisis. A guy borrows $675K on a $1.1 million property.
Well isn't the point that you/they are making that determination on equity alone? As we saw in 2008 all that equity can disappear in a blink of an eye. Equity has no bearing on ability to repay. So before deciding if this is a good or bad loan wouldn't we need to know his outstanding debt to income ratio?
And neither Equity, or ability to repay (debt/income ratio) has anything to do with subprime lending or a subprime lending crisis. Subprime generally means enticing debtors with interest rates below prime, with a loan that will adjust to above prime (and many times even into a single balloon payment at the end which statistically almost no American can make). No one should qualify for such loans on the basis "you may be able to refinance again at the end to avoid the balloon payment", if you don't have the cash on hand to pay the balloon payment, you shouldn't qualify for these types of loans.
> Subprime generally means enticing debtors with interest rates below prime
No, subprime lending refers to riskier loans, usually with commensurately worse terms, offered to people with less-than-prime credit status. It has nothing to do with the prime rate, and I have no idea where you got that idea. I mean, as folk etymology goes it's superficially plausible, but it's one of those things that I think wouldn't survive even the most casual contact with the use of the term in the wild.
>It has nothing to do with the prime rate, and I have no idea where you got that idea.
Everything you say is true, but its also true over 90% of subprime loans were ARMS (adjustable rate mortgages)[1], leading to the subprime mortgage crisis, where the interest rates started off below prime and gradually increased to over prime to compensate for the risk of the borrower.
1. SOME of the equity can disappear in the blink of an eye. The lender has a nice cushion when the buyer puts down 40%. That's hardly considered risky, which is why this is a terrible example.
2. Subprime refers to the class of borrower, typically based on their less-than-ideal credit scores. The term does not mean that the bank is offering a rate below the prime interest rate to "trick" potential borrowers into taking on debt.
>The term does not mean that the bank is offering a rate below the prime interest rate to "trick" potential borrowers into taking on debt.
Its not a trick, just something the Borrower's en mass did not understand. They just understood the initial low payments, anyway as I replied above, leading to the mortgage crisis over 90% of subprime loans were ARMS that started off below prime and gradually increased. I did use the word "generally" because its not all, but I think 90%+ is a good use of generally.
It is safe to say that most people don’t understand algebra.
In theory the banks didn’t put a proper interest rate on the loan, since interest rates are mainly to compensate for the risk of lending to the borrower. Although it doesn’t matter since the banks bundled the mortgages together, sold them to each other, and were bailed out.
>It is safe to say that most people don’t understand algebra.
Yes, but most people are not entering legal agreements that require them to understand algebra. One would think, especially with the most uneducated and highest risk borrowers, it would be necessary to understand the initial payment under ARMs are temporary for 3/5 years (depending on the terms, but 3/5 year were the most common) and thereafter the monthly payments will go up (statistically by 75% - so your $1,000/month mortgage payment will go up to $1,750).
>In theory the banks didn’t put a proper interest rate on the loan
Yes, that was one part of the problem (obviously the most uneducated and riskiest borrowers should not have been eligible for these complex adjustable rate mortgages), why on Earth would the riskiest borrowers have gotten loans with temporary interest rates below prime? These were the most likely borrowers to not understand adjustable rates. Other major issues were of course stated income (no proof of income required) and 100% to even 103% financing (no downpayment, banks will even pay your closing costs).
>Although it doesn’t matter since the banks bundled the mortgages together, sold them to each other, and were bailed out.
That is exactly why it matters, because laws were passed to prevent these kinds of loans, and here we are full circle, and the banks are offering these loans again.
A loan at 95% loan to value is risky because a decline in the home's value for any reason, even just price fluctuations in a normal economic cycle, could put the loan underwater, and the bank would get less than the loan amount in foreclosure. At 61% loan to value (the example above), it would take some sort of catastrophe not covered by the home owner's insurance for the bank to not get the principal back, even if the borrower never makes a mortgage payment. Depending on local laws, the bank might be out some legal and administrative fees.
> And neither Equity, or ability to repay (debt/income ratio) has anything to do with subprime lending or a subprime lending crisis.
No, that is exactly what it means.
> Subprime generally means enticing debtors with interest rates below prime, with a loan that will adjust to above prime (and many times even into a single balloon payment at the end which statistically almost no American can make). No one should qualify for such loans on the basis "you may be able to refinance again at the end to avoid the balloon payment", if you don't have the cash on hand to pay the balloon payment, you shouldn't qualify for these types of loans.
No, those are teasers with a low-fixed rate for 2,3 or 5 year, with the rate resetting to a very high adjustable rate after the teaser period. Teasers technically are 30 year amortizing mortgages, but you are correct in that they should be treated like balloons, because the payment after the reset is higher than the borrower can typically make.
In an environment of rising home prices, it should be easy to refi on similar terms at the end of the teaser period, but if prices are not rising, you can see what happened in 2008.
> wonder to what extent it has contributed to mistrust of the traditional media.
Is anyone's experience that "non traditional media" or news sources are more mathematically rigorous?
I understand that all media has bias, lots of content is written by non experts, and presenting data (especially statistical data) is really hard and rarely done well. But any "alternative" or "non mainstream" news source I've seen is _way_ worse at those things than traditional mainstream sources like NYT, WP, Economist, Foreign Policy, NPR, 538, etc. Even while those sources still make noticeable blunders.
(Curious because I've seen this statement before.)
Yea agreed. It’s almost a straw man of sorts where there’s this proverbial “they” that gets it right and uses rigorous standards that the traditional media falls short of. But I’ve yet to find these sources of information in the wild.
I see this all the time and wonder to what extent it has contributed to mistrust of the traditional media.
I'd say it's more likely that people are mistrustful of the media because the media will say things they either don't like or don't agree with personally, rather than a specific concern about articles lacking certain context on complicated topics.
Exactly so. That and continuous denunciation of the free press by a certain category of new politicians.
Actually, this article differs in no way from similar articles written since printed news was invented. Which of course means that all the other criticisms, including imprecision, are still valid. It just means that it is not the source of the recent spike in media dislike.
I believe the news here is a resurgence of growth in a mortgage type that has otherwise been declining or stagnant the last 10 years, not so much an alarm about the current state of affairs. So what you said is correct and all, but I think you miss the point.
> The market for unconventional home loans is still tiny compared with the rest of the mortgage market as well as its precrisis past, when unconventional borrowing peaked at more than $1 trillion.
And the number of defaulted loans/foreclosures was tiny compared to the total toxic (sorry, not letting them re-brand toxic loans as unconventional) assets. However, that tiny number of defaults/foreclosures, was enough to overturn the entire economy...but for Bush's $1T+ bailout followed by Obama's $1T+ bailout, banks and wall street would have crumbled, instead the got to consolidate with their new taxpayer cash on hand.
The banks and wall street recovered, of course homeowners and American working class taxpayer never did, so its time to run the whole scam again and get those devious working class American's who escaped 2008 unharmed.
appears to be incomplete. Specifically, pages 3-7 appear to be missing.
From the article:
> Suess [the state’s Spill Investigation Program Manager] defended his agency’s methods. “What I believe the North Dakota public wants to know is not how big is it, but is this spill a risk to me,” he said. “Personally, I have actually been told by others that we are one of the most transparent agencies out there. My boss is the North Dakota taxpayer, and my door is always open, any citizen can walk in at any time and talk to me.”
That statement sets off all kinds of alarm bells. Forget the facts. You can count on us to tell you what you need to know.
The comment isn't supposed to persuade anyone, it's supposed to be a fig leaf for people who already support the political party in question, to cite in defense of their party.
This shifts debate into an unanswerable questions - whether or not the official in question is lying.
It's also highly actionable. Here's how to apply it right now. Close your browser and all other applications. Open a text editor (or a can of paint or whatever). Reflect on something, anything. Then give yourself permission to make the worst possible version of something you like consuming. Write one sentence (or make one stroke), then another, and another. Eventually, rework the mess you've created.
Having forced myself to do this on several occasions, I can say it becomes addictive after a few days. And tiring. Which is why I also know it's easy to relapse on an off day. Finding a way to keep motivated independent of external praise is critical.