Most Vulnerable Market? - NYC Metro area

wait..have we learned the true identity of our beloved somewhereelse?

only diff is this guy is a $psf guy--elsewhere cites medians

they are both compelling, if a little lonely in the face of all those with optimistic anecdotes

Within a year, I expect many of the weakest markets to show signs of unraveling

What's the catalyst? And what do you see that the market does not? Radar Logic NY condo index has been rising since bottoming in 2009.

>What's the catalyst?

columbiacounty wants you to read books by Malcolm Gladwell.

Sounds right

try a little herb stein.

Herb is dead.
I prefer the living guys, they happen to be more up to date. But everyone's got to go with who they relate to.

"Predictions are always iffy. But I am convinced that things will get ugly from here and that there is no solution that can prevent this collapse. The wisest thing is for you to do is prepare for the worst. Is there anything wrong with renting a nice house or condo to ride out this perfect storm?"

is this what's already happening in NYC. more are RENTING.

Recently, we are seeing people displaced by their rentals. How many people are coming on streeteasy complaining because they can't afford the increase?

They can't afford the rent increases, but they can afford to buy? Doubt it.

That is a remarkable article.

Why can't the banks just sit on the pre-foreclosures or just slowly put them on the market as short sales?

For the 5th time, can someone please summarize for us the reasons why we have seen the bottom?

because a single anonymous poster with hundreds of different log on names said so.

Manhattan is different:
- they're not making any more land
- everyone wants to live here (or as hol4 would say, Grindr requires density)
- Brazilians, Russians, Chinese and (insert foreigner of choice) are stepping in to support the market
- strict coop boards have prevented over-leveraging
- there is little or no foreclosure activity in prime manhattan
- there is still lots of pent-up demand from buyers wanting to trade up
- interest rates are at historic lows
- jumbo lenders have re-entered the market
- quality of life has changed greatly since prior busts, eg mid-1990s
- NYC economy is more diversified and thus less reliant on Wall Street to support prices
- most people will always prefer to own despite high price/income or price/rent ratios
- NYC real estate is always a great long-term investment
- it's a baby boomer retirement mecca
- supply of new construction units is highly constrained
- Barbara Corcoran said so
- and the number one reason why Manhattan is different - OUR banks are too big to fail!

supply of new construction units is highly constrained

with steel and copper prices at decades lows that will not be true for long. From my midtown window I can see five buildings that are either new construction residential or renovated buildings with added floors for residential.

W34, you forgot:
-Prices are determined by demand, which is rising because people know that Manhattan RE is a good investment
-RE investors never expect to make money by renting because NYC RE always goes up in the long run
-Europeans will buy NYC RE to protect themselves from European deflation and depression
-RE is a great investment because the economy is about to collapse into hyperinflation because the Fed is screwing up
-The Fed's policy is motivated by the desire to keep NYC RE prices high and the Fed is all-powerful
-Inventory is tight because sellers won't sell unless prices rise
-Developers won't develop because banks expect prices to drop
-Renters are shlubs who don't want to work hard and choose not to make enough money to afford to buy
-The NY Times rent-buy calculator asks you to assume that prices will go up and you made a reasonable assumption about how much they will go up that is lower than during the bubble
-Shiller's long term analyses and Case-Shiller's index don't apply to Manhattan because the data is based on the metro area and no one would move to Alpine NJ just because its cheaper

-Prices haven't come down yet, much, except for the exceptions which are just exceptions, and the trend is your friend, especially if it's bubble trend extrapolated indefinitely

And:

-Urbandigs' up-to-date information shows a tight market this week, which is highly predictive of market conditions when you are likely to sell in the future.

and-

--Because RE brokers tell you prices are going up.

badaboom

And:
-Market prices that are far higher than costs of production typically remain so absent a "precipitating factor" such as "Armageddon"
-1% expected return on capital for investing in a condo is pretty good because US Treasuries pay less, and it is highly likely that the US will default or hyperinflate without affecting NYC's economy or RE
-Buying is cheaper than renting because the equity portion of the price would earn nothing anyway, so for cash buyers buying is always cheaper so long as maintenance/taxes are less than rent.
-They aren't making any more pre-war coops and all right thinking people prefer condos anyway.
-Owners "own" and renters do not, except for coop leaseholders, who "own" even though they lease.

But most important of all:
-As a buyer, you get tax subsidies while sucker/welfare cheat/lazy/dependent renters have to support the costs of civilization.

Brooks2 laying the truth!

financeguy: that is both brilliant and hilarious. and did i mention downright scary.

Something that is negative/scary is amusing to apt23. What does that say about her?

Financeguy wants homeowners to lose their deductibility of mortgage interest but a rental company will still get to deduct its own interest expense and depreciation from its rental income. Why is fg pro corporate and against individuals?

HB -- You are confused. The tax subsidy is to owner-occupants, not individuals.

Landlords are allowed to deduct interest because it is a cost of producing the income they pay taxes on. That is a normal part of an income tax. It is not a subsidy and there is nothing objectionable about it. It also has nothing to do with whether the landlord is an individual or a corporation. If the rule were reversed, landlords would be paying income tax on gross receipts, not income.

Owner-occupants do not report the income they receive in the form of rent they pay themselves. This is a tax subsidy relative to an ideal income tax system. If you rent, you pay from after tax income; if you buy you pay from before tax income. However, the rule -- even though it is a subsidy -- is sensible anyway, because the opposite rule would be unenforceable and too complicated. How would the IRS and the taxpayer agree on how much rent owner-occupants pay to themselves?

However, the other subsidy is just pure Reverse Robin Hood -- taking from the rest of us to give to mortgage borrowers (or, in NYC, apartment sellers, since prices currently assume that buyers will give the entire benefit of the subsidy to sellers). Business expenses, including interest, are deductible because they are a cost of creating taxable business income. But here there is no taxable business income. So the interest expense should be treated the same way we treat interest to buy tax-free muni bonds: it should not be deductible. Under current law, owner-occupants are allowed to deduct the expenses -- and not report the income. That's double-dipping, unfair, and a straight gift from the taxpayers to borrowers or their sellers.

The mortgage interest deduction is a distorting subsidy of mortgage loans, leading to larger RE loans than there would be without the subsidy. This, in turn, drives up house prices unfairly and leads to overinvestment in residential RE instead of more productive parts of the economy. The price is paid by all of us in the form of slower economic growth, by prospective buyers who have to pay artificially high RE prices, and by renters who are forced to pay taxes to subsidize mortgage borrowers, banks, banker pay and bank shareholders.

By the way, there is nothing negative about lower housing prices: the end of bubble prices would just mean that New Yorkers would have more money for more productive investments and more interesting, useful or imaginative parts of life.

To clarify: Owner-occupants get two tax subsidies.

The first is that they do not have to report the rent they pay themselves as income. This is justifiable because the theoretically correct rule would be impractical.

The second one is that they are allowed to deduct mortgage interest paid -- even though they do not report the associated income. There is no theoretical or practical justification for this. It is a simple forcible transfer from everyone else to subsidize borrowers. In NYC, as you can see (e.g.) from the buy-rent calculations of several regular posters, borrowers are expected to give the entire subsidy to their sellers in the form of higher prices.

So, at least in NYC, the mortgage tax deduction takes from taxpayers and gives to those who've already profited from the bubble.

"You are confused. The tax subsidy is to owner-occupants, not individuals."

It's not a "subsidy". It's a tax DEDUCTION. Not taking as much of a chunk of my paycheck is NOT the same thing as me getting a share of everyone else's.

Might I suggest an elementary economics course?

NYCMatt: Um, having the government write you a check, and having the government exempt you from paying for services you'd otherwise have to pay for, are the same thing. You shouldn't need an economics course to figure that out.

Or are you one of those people who think that taxes are theft; that firemen, policemen, school teachers, road builders, MTA employees, courts, prison guards, EPA enforcers, food inspectors, health officials, sewer operators, garbage collectors, securities and bank regulators, researchers and educators should work for free; and social security should be abolished because old people should just starve?

"NYCMatt: Um, having the government write you a check, and having the government exempt you from paying for services you'd otherwise have to pay for, are the same thing. You shouldn't need an economics course to figure that out."

Um, no they're not. Particularly when I'm OVERpaying for said government services, especially when people on the lower end of the economic spectrum are getting a hell lot more of those "services" than I ever would.

re: especially when people on the lower end of the economic spectrum are getting a hell lot more of those "services" than I ever would.

no more subway for you Matt! you now must walk from your place to the real city down here.

I pay as much for the subway as the next guy. In fact, I pay a hell of a lot more state taxes than most that eventually find their way into the MTA.

Care to try again?

Uh, financeguy is right. Tax deductions have the same affect as a subsidy - either way you get a benefit at the expense of the government because both reduce revenues that the gov't takes in.

The US is one of the few industrialized countries that still allows the mortgage tax deduction (even if you're subject AMT). So it is, in a sense, a subsidy for folks who hold a mortgage on their homes (compared w those who are eligible for public housing).

the writer is not dumb, he just forgets obailout will use our tax money to save the deadbeats and flippers again

the "bailout" to the banks were actually loans, which were mostly paid back within a year, and w interest So the gov't made $.

Re: the Busienss Insider article - it mentions "NYC Metro" as one area lumped together. I think Manhattan and certain areas in the other boroughs are different markets alltogether.

"Uh, financeguy is right. Tax deductions have the same affect as a subsidy - either way you get a benefit at the expense of the government because both reduce revenues that the gov't takes in."

Uh, financeguy is wrong from the get-go.

There's this insane assumption by so many people that every dollar earned in this country is the property of the U.S. government, and it's the government that deigns to decide how much of "its" (your) money it "gives back" to you by not taxing it.

You all forgot another reason NYC RE will hold up:

- Miami is no longer an alternative for foreign investment now that the zombie apocalypse has begun there.

Vegas could have a zombie apocalypse but who would notice a difference?

NYC Matt, the idea that the gov't owns 'every dollar earned" is not the assumption here. We're talking about tax revenues that the gov't receives. Tax deductions are not the gov't "giving back your $ by not taxing it" - you've already spent the money, you just get to deduct it from your taxable income.

"the "bailout" to the banks were actually loans, which were mostly paid back within a year, and w interest So the gov't made $."

There was also a great deal of stock and warrants purchased by the government, so not just loans. Overall it is hard to say if we have or will "make money" on the bailouts. Also much of the bailout(s) was authorized under president George "bail out" Bush and not under president obailout as some have suggested, but don't let facts get in the way of a good story.

Pro Publica has a great timeline and accounting of the bailouts

http://projects.propublica.org/bailout/main/summary

Disappointing that financeguy looks for loopholes and long excuses to benefit corporations but to hell with individual rights and economics. I was mistaken when I thought financeguy was to the left of "corporations are people" Mitt Romney.

NYCMatt -- It is highly unlikely that you are overpaying for government services. Total taxes don't cover the cost of the government, so in the aggregate Americans are underpaying. Nor are you likely to an exception to that rule. Taxes have been radically shifted downwards -- with greater reliance on sales taxes and social security collecting more than is necessary in order to fund tax cuts for the upper class and, to a lesser extent, the upper middle class. Since you are affluent enough to own an apartment, it is unlikely that you are in that part of the bottom half of the income or wealth distributions that has a reasonable claim to be paying more than its fair share.

But in any event, any taxes you pay are far smaller than the benefits you receive.

First, your life. Absent sewers and garbage collection, public vaccinations, Pasteurization, publicly funded medical research, safety and environmental regulations, food inspectors, police, and the disestablishment Clause, odds are you'd be dead of disease, accident, poisoning, pollution, crime, or the Church Militant burning deviants.

Second, your income. Your job wouldn't exist without massive government intervention and support, beginning with the courts that enforce the contracts you so love, but more importantly the education, regulation, transportation, public health, cultural activities, etc that make a city and its jobs possible.

Third, your assets. Your apartment would be valueless without tax funded services such as (1) the FDIC, (2) the implicit and explicit government backing of home mortgages and the lenders that make them, (3) zoning, (4) the MTA, (5), the Erie Canal and other government works that made NYC into a center of commerce and finance, (6) air, auto, and train transportation, (7) functioning sewers, (8) the street grid, etc.

If you don't like using intrinsic value as a measure, try market price: If the government charged according to free market principles -- i.e., prices equal to marginal benefit to the marginal consumer -- your taxes would be far higher. You'd probably be willing to give up 80% of your income to avoid living in Somalia. If you wouldn't, plenty of other people would, so the market price would rise that high anyway.

And if, as you suggest, all that matters to you is whether you are receiving "more" services than some lucky ducky of your envious imagination, the cost of your education (and the education of your co-workers and customers), the infrastructure that makes your job possible, the security of a minimum retirement and medical care in your old age, and the social control apparatus that allows you to live peacefully in Washington Heights, obviously far outweigh any benefits that the lucky duckies at the bottom of the social pyramid may be receiving (free meals in prison? random stop & frisks on the street? what exactly are these benefits?).

At least the plutocrats of a couple of centuries ago understood that most government services go to the wealthy (that's why they thought the poor shouldn't vote -- they have no 'stake' in the government). The affluent, after all, are the ones with the property that most government services are designed to protect. NYCMatt thinks that sewers and police and contract courts and SEC and FDIC and schools and EPA are to protect the poor from him...

The bailouts were mainly loans and purchases of toxic assets. But the loans were at interest rates that did not reflect the risk involved and the assets were purchased at far above market prices. Allowing a bank to borrow from the Fed at .25% and lend to the Treasury at 1% is pretty much the same as simply handing them the keys to the Treasury and allowing them to help themselves. Allowing JP Morgan to gamble knowing that if its bets work out, the proceeds go to bankers managers and shareholders, while if they don't, the taxpayers get the bill, is no different than allowing them to simply take the money in our accounts for themselves.

These were enormous gifts to the banks. Bailing out the banks may have been justified because allowing the banks to fail might have caused a massive depression. However, there was no public benefit to bailing out the bank shareholders and bondholders and managers along the way -- that was just a Reverse Robin Hood transfer to people far less deserving than mortgage borrowers.

And there is no reason why ordinary Americans couldn't have been bailed out too. Giving money to people who need it -- for example, by guaranteeing a job to everyone who wanted one, or by forcing the banks to write down underwater home mortgages to market value (as they routinely have to do with commercial loans), or by funding undergraduate education with a new GI bill, or by enacting Medicare/VA for all, or by having the government borrow at 1% to invest in public infrastructure that is going to return more than 1%, such as high speed trains, insulation, hydrogen-based cars, pure science, or publicly funded arts and theater -- would have been a far more effective way of increasing demand than giving to bankers who don't need it except to overpay for NYC RE.

FG, so if someone pays 95% of their income in taxes, they should be happy because

1 - They are alive
2 - They wouldn't get that 5% without a job
3 - Their assets like an apt would be valueless
4 - Anything but Somalia

bob420: "FG, so if someone pays 95% of their income in taxes, they should be happy because"

Smoking too much 420? Who pays 95% of their income in taxes?

hey fg, thanks for saving me the trouble of typing that response to Matt. nice job.

and nice bailout comment too. There's nothing more annoying than the new myth that "the Banks paid back the bailout". actually, Matt's wrong answers to most questions are almost as annoying.

I would be happy to 95% in taxes if my peers are pay 96-99% or my 5% take home is 10-100 times more than the take home of others who are paying 0-94% in taxes.

I am not saying anyone is paying 95% but all the points he made can be said of any tax rate. Whether it's 10% or 95%.

bob420, just because FG's points can apply to any tax rate does not make it any less valid. What's important is how much you have compared to everyone else regardless of your tax rate. FG's comments is directed toward those on the 'top half of the income/wealth distribution': "Since you are affluent enough to own an apartment, it is unlikely that you are in that part of the bottom half of the income or wealth distributions that has a reasonable claim to be paying more than its fair share."

are these guys simply out of touch or pretending to be retarded?

Obailout bailout the housing flipper and deadbeats the 9th time early this year, who's talking about the banks here? (and even on the banks issue, obailout used our tax money to enrich the crooks)

"Total taxes don't cover the cost of the government, so in the aggregate Americans are underpaying. Nor are you likely to an exception to that rule. Taxes have been radically shifted downwards"

Dude, what PLANET is this guy living on?? We're certainly NOT "underpaying". We are over-spending. If my deadbeat cousin bought a $400K Bentley, only paid $370K for it, and declared bankruptcy, he would ***NOT*** be "underpaying"...he would have overspent on something he didn't need and couldn't afford. And that's what we've done in the U.S. with gov't that not only provide basic necessities (water, sewer, police, national defense) but provide TONS of stuff we don't need and which are hurting us. The same is true of Greece, Spain, Portugual, Italy, France, etc. If they got real value for what they paid for, they wouldn't be in trouble they are in.

>that was just a Reverse Robin Hood transfer to people far less deserving than mortgage borrowers.

financeguy's posts frequently are peppered with statements about who is deserving and how much they are deserving on a relative scale.

>I would be happy to 95% in taxes if my peers are pay 96-99% or my 5% take home is 10-100 times more than the take home of others who are paying 0-94% in taxes.

Why bother being a taxpayer then? Why not just be a non-taxpayer with all that money collected by the government to benefit programs for you the non-taxpayer?

Luxemburg

It does matter. He isn't making a point that Matt is underpaying. He is basically saying that no matter how much you pay, you are underpaying which is ridiculous.

Re "over-spending".

We are the richest country in the world, our government can borrow at negative real interest rates, and we have 9% of the work force who want to work sitting at home doing nothing and far more underemployed while companies can't find anything profitable to invest in. Right now, public investment costs less than nothing: it makes money for us.

Yet we have a medical care system the generates public health that rival Cuba's at a cost that is double any other country's and -- really -- unaffordable, a train system that would be unacceptable anywhere else in the developed world, radically underfunded universities that the middle class can't afford and schools that don't meet the needs of the citizenry or employers alike, a NYC sewer system that overloads every time there is a big rain, utterly inadequate support for scientific research, a completely obsolete air traffic system, schools and bridges and highways that need to be rebuilt, shortages of libraries and museums and parks, buildings that need to be insulated, an electrical system that is unable to handle modern requirements, internet that is a decade behind Korea, a securities regulatory system that is so starved it can't even stop the most blatant theft, veterans health care that would be an embarrassment to any country with a sense of shame, a retirement system that is going to leave most of the current upper middle class without sufficient protection, greenhouse gas production that threatens the global eco-system, and on and on.

Overinvestment is the last of our problems (except in prisons and "out-sourced" war-making and subsidies to rescue incompetent private sector elites from their bad decisions, where we always find enough money whether it is useful or not -- and, of course, in private sector construction of single family homes in the exurbs due to our failure to build enough mass transit to allow people to live where they want to be).

Our problem is that we've radically underinvested in the public sector for over a generation and we weren't doing enough before that. We need far MORE spending if we want to return to prosperity.

Investment is what leads to growth, not foolish subsidies for incumbent companies and tax cuts for the wealthy. Any company that turned down loans at negative interest rates when faced with this array of investment opportunities, instead focusing on cutting R&D and ever larger bonuses to executives would, fortunately for us, quickly be out of business. Unfortunately, Al_Assad and his peers keep supporting politicians who promise to force the government to follow this disastrous path.

where is the razor?

Re: Greece, Italy, etc.

Greece's problem, of course, is that they don't collect taxes, not that they overspend. They don't have nearly enough government spending, as is obvious the moment you cross the border (or compare their statistics to better run countries). On top of which, the endemic corruption that results from a culture of tax-avoidance makes things much worse -- too much of the government spending they do have is wasted.

As for the rest of the countries on this list, they were all running public sector surpluses until the housing bubble burst. Their problem is that the housing bubble led to vast PRIVATE sector lending and borrowing to overinvest in housing, that their banks (like ours) were grossly incompetent and bankrupted themselves, and that the Euro made it harder to rescue the banks (and unnecessarily subsidize the bankers/shareholders/bondholders) without wrecking the public finances. And, that the ECB, like our Fed, sees its primary role as protecting (mainly German) banks and bankers from the consequences of their incompetence, not preventing mass unemployment.

We don't have the Euro problem, although the overvalued dollar certainly makes life much harder for ordinary Americans. But we do have our own version of the Greek culture of entitlement -- people who believe they are entitled to all the benefits of civilization without paying the taxes that are the price.

>But we do have our own version of the Greek culture of entitlement -- people who believe they are entitled to all the benefits of civilization without paying the taxes that are the price.

Right, we have a huge population of people who pay no or little taxes and receive huge benefits from the government. Also, they should stop blaming employers or colleges.

Financeguy: I am with ya 100% but the intransigence in the thinking of the entitled is alarming. I have argued directly with wealthy friends--and with the most tact that I could muster-- that the status of their wealth is due the grace of the American legal system and that they should pay proportionally for that privilege, as well as many other points your raise here. Yet, the wealthy friends who listen to that argument will not hear it.

I believe I should be paying more in taxes but only if it is paid out in infrastructure which stimulates the economy as well as makes life more pleasant. Yet, Greenspan was on television this morning saying that to do so is inefficient!! He states that the markets -- the many-- should collectively decide rather than a few decision makers in the government deciding to repair a bridge!! . FDR built the public park system which put thousands to work and we as a nation are still benefitting from that decision 80 years later. Today's job numbers are terrible primarily because of fall off in construction jobs. If the government had put money into infrastructure repairs, we would not be facing the possibility of QE3 which will only benefit people like me who have the means to invest -- and it will only create more wealth disparity which is toxic for this country.

People need to remember that the government invested heavily in the creation of the internet. That has been a boon for the wealthy in this country. Yet there has never been a tax on the insiders who create wealth off the internet -- nothing has been returned to the taxpayer for the government's investment.

>I have argued directly with wealthy friends--and with the most tact that I could muster

>People need to remember that the government invested heavily in the creation of the internet. That has been a boon for the wealthy in this country. Yet there has never been a tax on the insiders who create wealth off the internet -- nothing has been returned to the taxpayer for the government's investment.

Beyond an absurd statement. And just at the beginning of the prior paragraph you state, "I believe I should be paying more in taxes but only if it is paid out in infrastructure which stimulates the economy as well as makes life more pleasant."

So for all of the benefit society has derived from the internet, you ignore that benefit, and are only concerned if money goes to the government.

It is simply astounding what can pass for intelligent and "informed" knowledge amongst even the very bright people of our city.

We are underspending? So our problem with our education system is that we don't spend enough? Or is it that there is a lack of people wanting public sector jobs where you get pensions equal to or greater than your base pay. That these pensions start after 20 years (if you work the system properly), continue for life, are exempt from NYS income tax (yes they are.), and come with full health benefits in addition.

The government built out the internet? While there are arguments that it wouldn't exist without Arpanet, Arpanet and Usenet existed for decades, growing slowly in Academia and corporate research. But if it wasn't for the huge commercial uses and advances we would still be able to suffice our needs with 9600 baud modems. The build out was financed by the myriad users and creators working on the platforms of large corporations like Intel, Cisco, etc. The people who invested int he expansion were Verizon, ATT, Worldcomm, and their European and Asian cousins. No government could have built the mass we have now. Nor would they have wanted to. Politicians, and especially bureaucrats crave control. Corporations do too, but they have competitors, politicians and bureaucrats don't.

Wow. Apt23 makes some impressively ,uh, strange statements. They sound like idiotic jargon that isn't actually thought out in a coherent way.

Who are the "insiders" apt23 refers to? Apt23 seems to say that internet related companies were created by insiders.

Education systems: Yes, we are starving our schools. Only in the public sector do people imagine that you can get better quality and more dedicated workers by cutting pay, worsening working conditions, and understaffing.

Not so long ago, teachers made middle class salaries and professors were paid like lawyers. The U. CA system was the best in the world. Longer ago, CUNY was too. Even their buildings looked like institutions the public could be proud of, not discount malls or repurposed prisons. No one went to private school or private university for a better education; they went for the connections.

Now --- the people we don't lose by underpaying, we drive out by making them work in conditions where it is impossible to do a good job. And -- astonishingly! -- the great universities and the great schools all have huge budgets, pay high salaries with great working conditions, and offer all the parts of the curriculum that the public institutions long ago were forced to drop.

Nor are we helped by the constant talk about violating contract rights in order to retroactively rescind pensions that people earned years ago. It only makes it clearer that accepting lower pay in return for promises of future security is a fool's game. Listen to the AvUWS's of the world long enough, and even the most dedicated potential public servants will conclude that they'd be better off going for cash now, thus making government more expensive still.

As for the internet, the government neither built out the internet nor set the standards and rules that would have led the private sector to do so in a modern fashion. That's why we pay more for less service than citizens of countries where the government did.

Does anybody not know that reallynow is the troll hunters burg

Financeguy aka (krugman,hugochavez,lenin, karlmarx) take your pick.

You can go on and on with your posts defending a road to ruin. You have been well-educated by the extreme leftist thinking and economic justifications of tax and spend. Its a failed model and it doesnt take a degree from princeton to figure it all out.

Look at today's unemployment numbers, euorope's issues are just the tip of that iceburg and asia will soon be next year's headline. Yet, you cling to your socilist ideals and dogma.

Get a clue.

I could counter you point by point but you are so far gone its not worth it. WE ARE STARVING OUR SCHOOLS???!!! Do you know how much per capita the taxpayer in NYS/NYC pays in to the public education system with possibly the worst results or bang for the buck in the country? Are you serious?

You are no doubt a greybeard, clinging to the last vestitages of hope in the far left failed policies and basic thought construction.

Your solution, we are under investing, under taxing and ignoring the obvious 3 ton elephant in the room. HAHAHAHAHAHAHAHAHA! Pitiful.

apt 23 - i said it on this board three years ago. Those "shovel-ready" jobs are going to save us - NOT! my story of walking an extra three blocks to the subway station as one of the stimulus projects amounted to digging a street up for six months only to fill it up six months later with a bad repaving job was a stroke of genius. Definitely money well spent.

LOL. I get it now. financeguy is Krugman in disguise!

So "Public investment ... makes money for us." Then why aren't there any examples of countries getting rich that way?? Soviet Union, Cuba, etc - how many ever grew to prosperity through massive government spending? Even China - who made no pretense about wanting to retain the totalitarian aspects of communist government - realized that to be prosperous they needed to replace socialist economics with a less government, more market-based approach.

"Radically underfunded universities that the middle class can't afford" - Do you even realize the impossibility in what you are saying. Lets start with the obvious factual error: our universities, unlike our high schools and grade schools, are the envy of the world, which is why so full of bright international students - they can't be simultaneously so competitive and "radically underfunded". Radically underfunded as compared to WHAT? Some ideal in some liberals mind? The reason the middle class can't afford them is not that we spend so little on them, it's that we spend so much! How would spending more on them ever make them MORE affordable?? Oh, I see - the "government" would pay! But where does the government get its tax dollars from? That's right - the people. How would taking away MORE of the peoples money leave them with more money to pay for these exceptional schools?

"Our problem is that we've radically underinvested in the public sector for over a generation and we weren't doing enough before that. We need far MORE spending if we want to return to prosperity." So, at a time when governments around the world are in trouble because bond markets refuse to continue funding their profligate spending, you think we should be borrowing and spending MORE? That's like telling the fat guy the only way to lose weight is to eat more donuts!

"Investment is what leads to growth, not foolish subsidies for incumbent companies and tax cuts for the wealthy." It takes capital to make investment. And who should make those investment choices - the government folks who picked winners like Solyndra and the Chevy Volt? Or actual investers using their own capital? Why should we believe that it is better for the wealthy and for companies to give their taxes to a bloated and sluggish government to invest, rather than invest it themselves? Where has centrally-planned governme nt investment EVER worked?

"Yes, we are starving our schools. Only in the public sector do people imagine that you can get better quality and more dedicated workers by cutting pay, worsening working conditions, and understaffing." South Korea, Denmark, and many other countries with FAR more effective grade schools than us have far higher student/teacher ratios. The efficacy of "small class size" is a fiction created by the teachers unions to create more jobs for teachers. The reason our schools suck is tenure: there is no COMPETITION amongst teachers. Want to make our schools the envy of the world? Remove tenure and fire the bottom 10% of teachers EVERY YEAR. Introduce success-based bonuses for teachers whose students outperform on standardized tests.

"As for the internet ...why we pay more for less service than citizens of countries where the government did." Thank GOD, the U.S. government has largely been stiff-armed OUT of Silicon Valley. Now, how has the U.S. tech sector performed the past 20 years vs other countries...

Financeguy - While I often enjoy your posts, mch of them bely an ignorance of the systems about which you speak. bureaucracies, in the minds of those who control them, exist first and foremost to propagate their power and monopoly and they will do this at the expense of both the mission and the rank and file. I know few teachers who enjoy the system under which they work, but who can go to great lengths to tell you in detail of the deficiencies of their systems. I am not even talking about the egregious behaviours like the famous "rubber rooms".

In California the teacher salaries are among the highest in the nation and the reults among the poorest, particularly in LA. LA has 20,000 teachers and in a decade has spent millions trying to fire a dozen of them, succeeding in only (I think) 5 cases.

Financeguy - You have the ability to analyse quite elegantly about markets, but are you familiar of an organization, ANY organization, where only 12 out of 20,000 people OVER A DECADE reach a level of incompetence so great the organization is willing to spend years and millions of dollars to fire them? And then fails? More to the point, don't you think that such a failure informs all the rest that they can do less, less well, and still maintain their jobs? In addition to encouraging sloth and malfeasance among the less motivated, what does an incentive system like that do to encourage the capable and motivated members? Of course they need more money, that is the only way the motivated and capable can assuage the pain of working in such a cesspool.

You love markets. I can tell that from your other writings. But markets behave that way because they are agglomerations of individuals. Bureaucracies evolve to become anti-market. What does that imply about their effect on individuals?

Teachers making middle class salaries - One of the reasons the unions look to be failing the Wisconsin recall election is that teachers now make above average salaries, and that is without accounting for pensions and benis and summers/school vacations. On top of that, masters degrees in education have been proven through economic analysis to be of absolutely no value. As a manufacturer (two different businesses) I can tell you that the product of our high schools is p-ss poor. Their science education consists of recycling and global warming, but their knowledge of the relationship between volume, temperature and pressure is non-existent. This is not an example of how to prepare a work-force but of indoctrination of an electorate.

As to our costs for the internet - Our cost of access is not indicative of market forces since there is not free market in internet service. You have the choice of choosing between a government sanctioned phone company with a monopoly or a government sanctioned cable company with a monopoly. In fact, once you have the choice of both, your costs actually do drop. (now that I live in a Fios building I pay far less than when I lived in a TWC-only building). Your other choices are Wireless companies where the number of players is diminishing and where the capacity of any given player is severely constrained in our country by bandwidth restrictions (we have much less bandwidth allocated to cellular and wireless than other countries).

We are also much more spread out. In S. Korea you can reach some 70% of the population within 100 miles of Seoul while in the US the greatest concentration is in the Northeast corridor, which is the size of Europe but still only holds some 30-40% of the US population. Distance costs when it comes to communication. Not to mention that our infrastructure is older than that of other countries. Putting in first time, advanced infrastructure is cheaper than replacing old infrastructure.

Everyone who disagrees with apt23 is me

By the way, I would love it if the public servants "went for the cash now". It would create a clarity of what the costs really are. We have this in the private world where someone has a salary, the benefits have a defined cost (what the company pays to the health insurer) and the long term cost of the pension is defined.

That we don't know the long term benefit that result of those defined costs is, well, a matter of how reality works. You can't know both the present costs and the future benefits at the same time. That is not possible in ANY financial situation. In fact, it is this fiction that such is even possible that has lead our financial markets into such turmoil and to people learning of the existence of "black swan" events (which turn out to be much more likely than the birth of black swans).

If our financial institutions were real businesses their reaction to current market forces would be very different. In a market where the margins on your products have shrunk, and the number of competitors remains, business cut costs. If they can't cut the cost of the product (increase margins) then you cut your overhead. But in financial markets the response was different. Instead of increasing the margins or cutting the costs, they leveraged up the company. This increased returns but also risk. But who cares about the risk since that can be offloaded, if not on some naive regional German bank then on the taxpayers? Was this a concious decision? often probably not. Read Matt Levine's long posts on Dealbreaker and you realize there are a lot of REALLY smart people out there who have figured out all the angles, except of course perhaps the one or two that ends up (invariably) happening.

Businessmen in the real world are often not as smart. But there are a lot of successful ones because a lot of them know that some things can't be done. you can't eliminate risk. And such a businessman's gut will tell him that if you ever think (or your numbers show) you have succeeded in doing that, then it is more likely the models or algorithms are wrong than that you succeeded.

Al-A:
-The US would be a good example of public investment making the country rich: the canals; the NYC grid; the sewers and public school systems; the railroads; the Homestead Act; the anti-trust laws; the food and drug purity rules; the land grant and state university systems; the highways; rural electrification; the water systems of the West; the Military-Industrial complex; the GI bill; the NIH; the FDIC; the SEC; the FAA; the 30 year mortgage, roads, subsidized oil and the suburbs. US prosperity has always and everywhere been government led.

Obviously, the public sector, like the private sector, has plenty of bloopers (although Solyndra is a rather trivial one -- private equity normally assumes a 90% failure rate, and an attempt to jump start an industry that fails because the industry develops unexpectedly fast is hardly the worst sort of government error one can imagine). Thus, the drug patent system has far outlived its usefulness; we need to revamp highway funding and stop forcing people to move to the suburbs; the current regulation of finance is a disaster. But these mistakes are trivial by comparison with the non-governement alternatives. Would you really prefer Enron, MF Global and JP Morgan running the world? Or to live in Somalia?

-If the bond markets are telling governments to stop borrowing, negative real interest (US, Japan, UK -- basically every advanced country that controls its own currency) is a very strange way to do it.
Usually, markets drive prices up when they want MORE bonds, not less.

- As for Silicon Valley, I have trouble seeing the government "stiff-armed out" of a business sector that is more than anything else about (1) creating and resisting patent and copyright monopolies, (2) using and abusing the highly regulated IPO structure, and (3) evading income taxes, sales taxes and other local regulations. Most of what keeps Silicon Valley humming, much like Wall Street, is basically regulatory arbitrage.

Al-A:
-The US would be a good example of public investment making the country rich: the canals; the NYC grid; the sewers and public school systems; the railroads; the Homestead Act; the anti-trust laws; the food and drug purity rules; the land grant and state university systems; the highways; rural electrification; the water systems of the West; the Military-Industrial complex; the GI bill; the NIH; the FDIC; the SEC; the FAA; the 30 year mortgage, roads, subsidized oil and the suburbs. US prosperity has always and everywhere been government led.

Obviously, the public sector, like the private sector, has plenty of bloopers (although Solyndra is a rather trivial one -- private equity normally assumes a 90% failure rate, and an attempt to jump start an industry that fails because the industry develops unexpectedly fast is hardly the worst sort of government error one can imagine). Thus, the drug patent system has far outlived its usefulness; we need to revamp highway funding and stop forcing people to move to the suburbs; the current regulation of finance is a disaster. But these mistakes are trivial by comparison with the non-governement alternatives. Would you really prefer Enron, MF Global and JP Morgan running the world? Or to live in Somalia?

-If the bond markets are telling governments to stop borrowing, negative real interest (US, Japan, UK -- basically every advanced country that controls its own currency) is a very strange way to do it.
Usually, markets drive prices up when they want MORE bonds, not less.

- As for Silicon Valley, I have trouble seeing the government "stiff-armed out" of a business sector that is more than anything else about (1) creating and resisting patent and copyright monopolies, (2) using and abusing the highly regulated IPO structure, and (3) evading income taxes, sales taxes and other local regulations. Most of what keeps Silicon Valley humming, much like Wall Street, is basically regulatory arbitrage.

again, fg, your post is filled with purposeful deceit and half-truths:

"PE normally assumes a 90% failure rate" - says who? I have never seen an offering doc from a PE fund (any reputable one) that projects such a failure rate for its prospective investments.

government did not unleash the forces of riches to this country - the framework of the consitution and the liberty and freedoms it gave its citizens unleashed the power of the individual. Have you met any bureaurcacy or government agency that you think is not worthwhile?

bond markets are "turning" against profilgate government spending and unsustainable debt - and governments in europe and now the US are changing the rules and promoting banks to buy this debt and not forcing them to hold capital against it to continue their ponzi schemes.

again, truth does not matter to dogmatic slaves like yourself. the means justify the end.

AvUWS re Pension plans. As you say, the question is who bears the risk that the future will turn out to be different from our expectations. However, you are wrong to say risk cannot be eliminated. Many types of risk are very easy to eliminate. That's how insurance works.

If you place the risk on individuals, telling them they have to save their own pensions, I need to save for the worst: that I live a long time, very sick, after retiring into an extended recession where my investments do far worse than usual. If they succeed, that makes the plan very expensive: the average individual will be planning for a worse than average outcome. If they fail -- which we know is what is going to happen if you make people save for their retirements unassisted -- that means you have unnecessary hunger and sickness. That's inefficient and immoral.

If the government saves for me, it automatically eliminates all those risks. It can average out the individuals who live long with those who don't, and those who retire during a recession with those who retire during a boom. It only needs to save for an AVERAGE life expectancy, average health, and average business cycle. The risk is gone. And the cost is far less.

And if the government pays for the pension from taxes instead of investments, it also eliminates the risk of bad investment choices: its ability to tax is directly proportional to the size of the economy (barring too many victories by America-hating class warriors seeking to cut taxes at all costs).

Government pensions -- at least if there is no political party regularly demanding they be eliminated -- also frees individuals from having to worry about their own limited ability to plan for unexpected sickness, long life or business cycles, which means that they can be more adventurous, risk-taking and entrepreneurial in other areas of life.

If you place the risk on a national government that controls the currency, that's best of all: it can't go backrupt (and so needn't worry about business cycle). Indeed, if it has to spend more than it is receiving during a downturn, that's GOOD, since it puts people back to work and makes the downturn shorter.

The only reason to privatize pensions is to create unnecessary misery. Unless, of course, you are driven purely by envy of someone, somewhere, who might have a benefit you don't have. Or your goal is to skim part of the pension off as fees for private investment managers.

and the "trivial" failures like solyndra should not be compared to PE investments. solyndra was funded with taxpayer dollars and whose main investor was a significant obama bundler. the conflicts are borderline criminal. any pe failures are squarely on the backs of the company and its investors. btw, whats a half billion worth these days anyway?

government pensions - HUGE problem. in their most basic construct, public pensions and all of their goodies and benefits was negotiated by elected government officials who become instant slaves to the plans, the voting membership and the union heads whose demands were happily wetted by politicians eager to please a huge voting block. viscious cycle went on for years and now we are left with paying the piper.

again, conflicts are criminal and went unchecked for decades. the system was rigged but goes unreported in your posts that are elegant, academic but not realistic. NEXT!!!

AvUWS: Obviously it's tough to build effective bureaucracies and obviously mismanagement can turn even effective ones into failures quite quickly. However, that means that we need to run bureaucracies better, not that we need to destroy them.

Government has no monopoly on bureaucracy; the private sector is dominated by bureaucracies, often far more incompetent than their government equivalents (and all of which are agglomerations of individuals). Schools run by the HP's "customer assistance" department would make the rubber rooms look like models of good governance (please hold for an assistant in India who will hang up on you). Can you imagine Microsoft running air traffic control (crash? just reboot!)? Or General Mills in charge of NIH (problems of resistant bacteria? How about penicillin with cinnamon flavor?)? Or Facebook in charge of Social Security (privacy? That's so old-fashioned!)? or would you rather JPMorgan-London (oh we lost your accounts because a bigger customer asked us to use them, why do you ask?)? Reynolds Tobacco in charge of lead abatement (lead is so sexy, and anyway there's scientific controversy over whether it caused the fall of the Roman Empire)? Verizon running the IRS (that surcharge? those charges for services you don't have? just pay up!)? We tried outsourcing war to Halliburton, electricity to Enron, and bank-risk management to Lehman and JPMorganChase, and while the cost went way up, the quality did not.

And if you think the government has a poor record in picking industries to support (it does: big oil, nuclear power, aerospace, finance, single-family housing, urban removal), what are you comparing it to? Private equity vampire squids? The stock market's booms and busts? The banks' genius in funding Las Vegas' suburbs?

Rangersfan: Nuclear Regulatory Commission, TSA, Enron, JPMorganChase, ExxonMobile, every cable company and most cell phone cos, Bain Capital -- lots of terrible bureaucracies out there. And some may even be beyond salvage. But in general, smashing is a poor way to fix something that isn't working as well as you'd like.

fg, its just that your type is so predictable. "you" used haliburton as code during bush/cheney and now bain capital for romney. for someone who has seen the inner sanctum of the esteemed halls of education, its a fairly juvenile tactic and smacks of the "smashing" that you just referenced.

the folks at enron should have and were prosecuted on a criminal basis and i support that wholeheartedly. same with exxon. now putting jpm in the same sentence actually shows your lack of understanding of the matter but its certainly newsworthy enough to try and fortify your position with provacative and attention grabbing fodder for the masses.

and to compare the massive, inefficient bureacracies created and sustained by government to those of the private sector is just folly. surely, you know that already but as I said earlier, dogma slaves have no hope.....

financeguy apparently thinks toll workers need more than $320,000/yr..

http://www.elitetrader.com/vb/showthread.php?threadid=208947

right, bc gov't ONLY spends on schools roads and safety, oh to be young n naive as you pretend to be to collect your subsidized pay, OT, and bonus via ever rising taxes under the now transparent guise of 'social service.'

let's just turn a blind eye to the hundreds of thousands pocketing tax money of via double dipping pensions and other schemes...

10 More Charged In Long Island Rail Road Disability Fraud Scheme
http://newyork.cbslocal.com/2012/05/22/fbi-10-more-charged-in-long-island-rail-road-disability-fraud-scheme/

we need another MTA hike to fix our trains, aherm.

fg, the more i think about it (and i really need to stop wasting my time) you are painting a picture of government utopia ala michael moore in farhenheit 911 whose opening scene was a bunch of iraqi children flying their kites in the sunshine. no mention of the mustard gassing of their brethren.

wow.. this thread got way off track..

"Government has no monopoly on bureaucracy; the private sector is dominated by bureaucracies, often far more incompetent than their government equivalents (and all of which are agglomerations of individuals). Schools run by the HP's "customer assistance" department would make the rubber rooms look like models of good governance (please hold for an assistant in India who will hang up on you). Can you imagine Microsoft running air traffic control (crash? just reboot!)? Or General Mills in charge of NIH (problems of resistant bacteria? How about penicillin with cinnamon flavor?)? Or Facebook in charge of Social Security (privacy? That's so old-fashioned!)? or would you rather JPMorgan-London (oh we lost your accounts because a bigger customer asked us to use them, why do you ask?)? Reynolds Tobacco in charge of lead abatement (lead is so sexy, and anyway there's scientific controversy over whether it caused the fall of the Roman Empire)? Verizon running the IRS (that surcharge? those charges for services you don't have? just pay up!)? We tried outsourcing war to Halliburton, electricity to Enron, and bank-risk management to Lehman and JPMorganChase, and while the cost went way up, the quality did not. "

Why pick the worst case scenarios... the market sure doesn't. When you compare Verizon customer service to the IRS you are comparing a government sanctioned monopoly with a government bureaucracy. Of course Verizon doesn't have an incentive to improve. And yet, their landline business is shrinking every year despite the fact that it provides things people still need (internet access) and want (cable, at least at a reasonable price). So test it... see who would rather choose doing business with a disliked Verizon customer service over the IRS? I don't think you would do very well on that. And you didn't even pick a best-of-breed organization with which people like to do business.

And some examples of the businesses you picked as government supported winners... Nuclear? Because of teh politics we haven't approved a new nuclear reactor in 40 years. Though we probably have some of the best run installations in the world, they were designed before three point seat belts were in use, let alone air-bags and anti-lock brakes. Yes, we do a great job retro-fitting them, and we have multiple times the redundancies on our safety systems than those at Fukushima.

Schools run by HP's customer assistance? Didn't HP just announce an 8% layoff? Sounds to me like the market is working. I bet some of them (the good ones) end up at Apple stores. We already know LA schools are more expensive than any in the country with particularly poor results, and over 10 years they tried to layoff 0.06% (and failed). (hmmm, I think I'd rather leave my kids in the hands of HP than LA schools).

Bank-risk management? We already know you can't eliminate risk. You can create margins of safety (that is what insurance really does, it doesn't eliminate risk, it charges for it), you can build a system with fault tolerance, and you can build in redundancies, but those are risk-mitigation, not elimination. If you are really in finance (and I don't doubt it) and you believe risk can be eliminated then that bespeaks to why our financial systems have been such a weak point of our economy. Break the banks up to the point that a failure of any one CAN'T bring down the system. Limit leverage to the point that when the market moves against you, the system can absorb some of the shock and pain before it breaks. That is what people in the real world have to live with.

I am beginning to think you live in a cocoon. Lots of good knowledge, but very little experience with how the real world works. More to the point, you have a bad habit of using strawmen in your arguments. So let me use one as an example.

AvUWS - your last paragraph captures it all. lots of knowledge, lives in a cocoon but no experience how the real world actually works. Much like most of the bureaucrats. enough said.

brooks, you would rather the blather and tumbleweeds that have been populating the boards of late?

and AvUWS, he clearly does not work in finance. i have been saying that forever. he can define equilibrium in a way that would sound like he actually knows what he is talking about but without any real semblance to the real world.

For those interested in pursuing the macro-economics further --

Here's a piece from that well-known bastion of left-wing dogma, Reuters, that summarizes the mainstream economic view in a shorter post than I have time for: http://blogs.reuters.com/felix-salmon/2012/06/01/americas-jobs-crisis/

Here is the difference... HP's customer service sucks bad enough... it either improves or goes out of business.

Government agencies,or government supported monopolies, they generally live forever.

And we can all cherrypick bad examples... but government web sites are generally MUCH much worse than any of the regular companies I work with (including even verizon... time warner sucks, yet still MUCH better than the government sites I have to use for regular things)

mj

Financeguy never lets facts and reality get in the way of his ideological diatribes.

hmmm...posted this last week and then forgot about it. was there any consensus on the original post? is NYC going to pull back more or is this "wave of foreclosures" that we have been hearing about for years (nationwide) just a big figment of collective imagination?

Of course NY RE prices are going to pull back more. That's what happens as bubbles end.

But large scale foreclosures are unlikely. No one wants them -- not banks, not borrowers, not regulators. Better for all the relevant parties to let time, and (if the politicians/Fed ever get their act together) recovery and inflation, do their healing. Troubled owners will slowly get jobs, rent, or sell. In the meantime, banks will continue to mark-to-myth, crisis will be averted, and the bankers will keep their jobs to collect another round of handouts.

fg - you cant have it both ways:

NY RE prices are going to pull back more

vs

the bankers will keep their jobs to collect another round of handouts.

Pick one. You cant have both.

West34: That does not appear to be inconsistent

From Columbia Business School Economist and Nobel Prize winner Steiglitz: Recession more likely with Romney:

http://www.businessweek.com/news/2012-06-04/nobel-winner-stiglitz-sees-more-recession-odds-in-romney

obviously AvUWS is an finance insider, while rangersfan is just another brain washed fool

caonima you are no doubt from the age of enlightenment. talk about a fool.

http://www.nytimes.com/2012/08/05/realestate/big-deal-in-london-real-estate-taxes-rise-but-will-buyers-flee-to-us.html?_r=1&pagewanted=2&ref=realestate