FishingBanter - View Single Post

**[email protected]** · October 1st, 2008, 04:03 PM posted to rec.outdoors.fishing.fly

On Wed, 1 Oct 2008 06:12:15 -0700 (PDT), wrote:

On Oct 1, 5:33 am, wrote:

Real money, like matter, is neither created or destroyed.

I was with you up until here. Yes, indeed, money is created all the
time. Ben "printing press" Bernanke makes sure of it. Each new (not
replacement) dollar that rolls off the presses devalues the ones in
your pocket by a little bit. The government can create as much as it
wants. Secondly, our money isn't "real" anyways, since there is no
standard behind it. It's just paper we place a perceived value on.
That value can change anytime, just ask the Zimbabweans...

That's cash, not money. IAC, what I mean is that for every winner in a
financial transaction, there is a loser. For example, if you sell me
1000 shares of XYZ Corp at 100.00USD per (or 100 goats per, or 100 grams
of gold per, or whatever unit), and it plummets to 50 the next day and I
bail, I lose, you win, but have the whole 100K and you have the 50,000 I
lost, it didn't "evaporate." OTOH, if it jumps to 200 per and I sell, I
now have 100,000 profit. If it drops back to 100 the following day, I
still have the 100K, and the buyer I sold it to lost 100K, but I have
it.

So, let's move to the current mess. To keep it simple, let's take Pat
Homebuyer. Pat buys a house for 500K. The seller gets 500K (the
alleged "market value" at time instant to the exchange of consideration)
and some entity gets a mortgage/DOT/whatever claim on the house. The
market tanks, the house is now only worth 300K and Pat, who never really
could afford the house, bails out. The holder of the recourse has a
house worth 300K, but the seller has 500K, which was worth exactly what
500,000USD was worth when they received it, the net present asset value.
It makes no difference what it is worth at some point in the future,
whether up or down, regardless of how much cash is printed in the
future. Now, if the mortgagee sold their rights (let's assume instantly
for simplicity's sake) and recourse in some complex bundle, they now
have 500K plus fees, so they did business as usual and are in line with
expectations. Whomever is holding the paper when the music stops loses,
but "the economy" didn't lose, in the above example, 200K, and no one
"created" money, it simply changed hands.

OTOH, if Pat could afford it, is keeping up the payments, and intends to
live in it for 20 years, it has no "market value" 3 years after the
purchase because there is no willing seller, regard of potential willing
buyers or for what the house next door sold. Pat's house may have an
appraised/assignable value for whatever purpose, but that, again, is a
different matter. Whatever happens to the mortgagee or holders in due
course is of no consequence to Pat and Pat has lost nothing because of
whatever trouble they may be in as a result of whatever they used their
interest to do - Pat has a house, owes a debt secured by it as agreed,
and someone has recourse should Pat fail to live up to that obligation.
The fact that someone along the way lost their ass, along with their
recourse, to someone else in a crap game they themselves helped rig
isn't Pat's problem and it sure as **** isn't mine.

And I hope the current "credit crunch" does stop "average Americans from
the dream of home ownership" right slap in its tracks if those dreamers
can't afford the payments any more than those folks whose mortgages are
now or soon will be foreclosed because they can't afford them. Keep in
mind that this wasn't some unforeseen force that suddenly took a 500K
mortgage, which amortized at X percent for 30 years at Y per month, to a
800K mortgage at 2X percent for 15 years at Y-plus per month. And no,
bad and/or inappropriate financial _choices_ on the part of homebuyers
regarding ARMs, equity lines, desires, overbuying, speculation,
believing the "bubble" would never burst, etc. don't fall into
"unforeseen force."

TC,
R

Jon.