Dan Melson: September 2006 Archives

Found an annuity article in the local paper with an error so glaring that I had to debunk it. Here's the article:Income for Life



And here's the critical error, conveniently in the first two paragraphs:

Interested in annuities? The type known as an immediate annuity may pique the interest of some investors. But the first step is to clearly distinguish between an immediate annuity and a variable annuity.



Both are insurance products. A variable annuity is used to invest for a future need, such as financing retirement, and the benefit comes after years of compounding. An immediate annuity converts a chunk of cash into a monthly income guaranteed for life, with the payments starting right away.

BUZZ! Thank you for playing, and be sure to pick up our wonderful parting gifts. Of course you won't be any good at the home game, either.



When considering annuities there are two main categorical choices you need to make, and they are completely independent of one another, as five minutes of research would have told this person.



They two main categorical splits of annuities are immediate versus deferred, and fixed versus variable. Whatever your choice on one axis, it has nothing to do with your choice on the other axis. I can name annuity products in each category of immediate fixed, immediate variable, deferred fixed, and deferred variable.



The immediate versus deferred choice has to do with whether or you start getting monthly (or yearly) checks immediately or at some point in the future. Actually, this is a less bifurcated choice than it appears on the surface, because the difference between deferred annuities and immediate annuities is that you don't have to annuitize a deferred annuity today when you buy it - but you can annuitize it tomorrow, or you might wait fifty years or more. Annuities in general are designed to convert a fixed sum of cash into a stream of income, whether right away (immediate), or after they have received tax deferred income for some period of time, which can be days or decades (deferred).



The fixed versus variable choice has to do with where the money is invested. In fixed annuities, the money is invested in the general account of the insurance company carrying the annuity. In variable annuities, the money is invested in subaccounts that work very much like Mutual funds. I go into moderate depth of explanation of pros and cons in this article on Annuities, Fixed and Variable.



"Well, how do you annuitize a variable annuity?" you ask. You've got all of the same payoff options as a fixed annuity, of which "life with period certain" is the most common, and the most common of those are life with ten years certain, which makes payments at least ten years or however long you live, whichever is longer, life with twenty years certain (as before, except the minimum period is twenty years) and joint life with twenty-five years certain, which pays as long as either member of a couple is alive, or a minimum of twenty five years. The account balance is still invested in the subaccounts, although there is less than complete control over the full balance. Then they make use of what is called an "assumed rate of return" of which 4.5 percent is probably the most common.



"That's a rotten rate!" I hear you cry, and correct you are. Nonetheless, it not only is very little below the guaranteed return of the fixed account of the company, which varies from about five to about six percent depending upon company, recent market experience, and other factors, but it is intentionally lower than the rate of return you will most likely earn.



This means you're likely to start off with a lower payoff from the same amount of money in a variable annuity than in a fixed annuity, but the cute thing is that this is typically a minimum guaranteed payout for then and forevermore (or at least until the end of your payout period), guaranteed by the insurance company. When your actual rate of return exceeds your assumed rate of return, your payout goes up. It can subsequently go down as well if you have adverse investment results as will happen, but over time the stock and bond market have a lot more eight and twelve and twenty percent years than they do zero percent or minus five percent years. The average over time is somewhere between about ten and thirteen percent, depending upon who you ask and how you frame the question and when you ask it. So given the gap between an assumed rate of return of 4.5 percent, and actual rates of return that average somewhere about ten percent, what usually happens?



If you guessed that over time, your periodic payout tends to increase at a more than the rate of inflation, then DING! DING! DING! DING!, you win the grand prize - knowledge of how the system really works, and how you can manipulate it to your advantage. Which answers these paragraphs below from the article, wherein the author makes another error that could also have been avoided by that same five minutes of research:

Keep in mind, though, that if you live for decades, the fixed monthly income may lose buying power due to inflation. A few insurers offer products that raise payments to keep up with inflation, but they start out paying much less. A $100,000 premium might get a 65-year-old man only $464 a month, about 30 percent less than with a fixed-payment annuity.



Also, this may not be the best time to get an immediate annuity, even if one would make sense for you eventually. Interest rates are relatively low these days, keeping these products' returns low. In 1999, when rates were higher, the 65-year-old man could get a return of around 8.6 percent.

As you've just seen, payoffs for variable annuities can and do increase over time, even after annuitization. The downside is that only the original minimum payoff is guaranteed, but most folks have better experiences over time.



Now the article does have some good information in other particulars. Women receive lower payouts than men of the same age because they tend to live longer. The older you are when you annuitize, the higher the payout per month (although this can be a trivial difference if you're choosing a long period certain).



However, I cannot finish this article without mentioning the worst abuse of the public trust. The last line of the article recommends a website that I just refuse to link, among several other reasons, because they are apparently trying to sell fixed annuities only. Why? Because they are more profitable for the company and therefore pay a higher commission. I tried seven different scenarios looking for one variable annuity quote, and despite the fact that several of their listed companies offer variable annuities, got not one quote based upon a variable annuity. Variable annuities also have somewhat smaller and shorter withdrawal penalties and periods that said penalties are in effect (I should mention that most annuities will waive any withdrawal penalty if you actually annuitize). But an idiot could and should have spotted the fact that it's a commercial website looking to sell annuities rather than looking to provide information to the consumer (there isn't an online Frequently Asked Questions or any education on what an annuity is and is not, instead, you are told to call a toll free number that shills for a sales appointment), and from what I can tell, the author did all of the minimal research he did at this one website shilling for the fixed annuity industry. He would have done better to check with a few people with actual experience in both fixed and variable annuities.



In short, whereas I cannot prove that anyone was paid by the companies involved to write or print this article, in my opinion it should have been labelled an advertisement for fixed annuities.



And people trust these writers for financial advice?

Caveat Emptor

Burnout



Do to a severe attack of burnout, I probably won't be writing much in the way of new stuff next week. I know that last time I said this I still kept writing new articles, but this is getting bad. Makes me wish all over for a good trustworthy co-blogger or two, because then when I go through these phases, there would still be new stuff posting here. Traffic's way off since early summer (averaging just shy of 3000 visits per day as opposed to about 4800 there for close to a month) probably because I'm stretched a little too thin at the moment, although some could be because of the time of the year no longer being prime real estate season. So don't be surprised if the morning article is a retread for about a week.



What I really need is a good RPG session.

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They found the Macon! New Photos Reveal 1935 Airship at Bottom of Pacific Ocean



This airship went down in a storm off Point Sur back on 1935. I've seen pictures and grainy newsreel type footage of the Macon (and its sister, the Akron, also lost in a storm) launching and recovering aircraft, an airborne version of an aircraft carrier. Fascinating stuff from the period where the world was figuring out the real engineering of aviation.

>broker incurred 19 inquires in 1 week dropping my score.



B.S.



I'd go the full Penn and Teller on this one if I wasn't trying to stay family friendly. The law is clear on this one, and practice is fully compliant with the law. I've seen thousands of credit reports, sometimes with dozens of recent mortgage inquiries. It could be 1, 19 or 19,000 inquiries. As long as they are all mortgage inquiries, all inquiries within thirty days count as one one inquiry. And the credit reporters and credit modelers I'm familiar with all comply.



Now, the best and the worst loan officers are brokers, who shop your loan around to multiple lenders. But you don't even have to stick with one broker, and you are silly to do so. Shop your loan with half a dozen at least, and apply for two or more. As long as you control the appraisal, the most you'll pay is a retyping fee, and you can play them off one against the other to see which delivers the most of what you want the fastest.



This used to be a real issue. Years ago, there would be a game as each inquiry was a hit to your credit, so prospective mortgage providers would run your credit again and again, until they drove your score under some noteworthy creditworthiness break-point. They could still use their original report, but since anybody who ran your report after that would see a 678 instead of a 686, or a 572 instead of 588, it would be unlikely that they could provide as good a loan.



However, a few years ago the National Association of Mortgage Brokers sponsored legislation in Congress to change this. It was hardly altruistic of them, people not having their score hurt by multiple inquiries means that they are more willing to allow brokers a chance to compete. Nonetheless, this was a major benefit for anyone who wants to be able to shop around for a mortgage like they might want to for any major purchase, and mortgages are the second biggest purchases most people make in their lifetime (the biggest being the property the mortgage loan secures!). No matter how selfish the motive, however, they still did you a major favor, as someone who might want to have a mortgage someday even if you don't now. Tell your mortgage broker thank you for that.



Now there is a limitation to this, and ironically it affects credit reports run at banks and credit unions, although not brokers. Because in order to qualify for this, the inquiry has to be run under a provider code that says, "inquiry for mortgage." Mortgage broker inquiry codes all say "inquiry for mortgage," because that's the only type of credit they've got. But banks and credit unions give loans for other purposes also, so they have a minimum of two inquiry codes, one that says "mortgage inquiry," and one that says, "general inquiry." If you are talking to a loan officer at a bank, who does car loans and credit cards also, sometimes they use the wrong inquiry code, and it counts as another inquiry. Talk to four banks, potentially four inquiries. Talk to four brokers, unless you space them out by 30 days or more, it's never more than one inquiry.



So anybody who tells you not to let other mortgage providers run your credit because they might drive your score down is either unaware of the law, or simply trying to scare you because they are frightened of having to compete. Incompetent or a liar, one or the other - maybe both. When you get right down to it, they are really telling you that their loans aren't very good. Because so long as they are done within a few days, the fact is that any number of mortgage inquiries all count as precisely one inquiry.



Caveat Emptor

UPDATED here

Carnival of Liberty

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Sometimes corporations are good citizens despite profits: 7-Eleven Dropping Venezuela-Backed Citgo

"Certainly Chavez's position and statements over the past year or so didn't tempt us to stay with Citgo," she added.



Instead, 7-Eleven, which sells gasoline at 2,100 of its 5,300 U.S. stores, will now purchase fuel from several distributors, including Tower Energy Group of Torrance, Calif., Sinclair Oil of Salt Lake City, and Houston-based Frontier Oil Corp.

and

7-Eleven sold half its interest in Citgo in 1986 and the remaining stake in 1990 to Petroleos de Venezuela SA.

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Surgeons do 1st near-weightless surgery



No, this wasn't a free ticket into space for some public health recipient.

The five-man team and the patient landed safely at an airport in southwestern France after a three-hour flight, although doctors said the midair surgery to remove a cyst from the man's arm took only about 10 minutes.



Chief surgeon Dominique Martin said the near zero-gravity operation, the first on a human, was not technically difficult, but was aimed at breaking a barrier in medical expertise.

Yep. This way there is some understanding of what needs to happen before some construction worker gets hurt in orbit and they have to figure out everything on the spot.



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Army medic who went AWOL surrenders

Aguayo said he expected to face a court martial and some jail time.



"It's something I can live with," he said. "Something I can't live with is being a participant of war anymore."

This I could respect. Somebody who is willing to pay the price for changing his mind about military service midstream. I can also respect him for removing himself from the combat situation where other people would be counting upon him. Mind you, he still agreed to do however many years as a combat medic, but he's willing to pay the price, however belatedly, for changing his mind. If only he wasn't suing in civil court to get out of his commitment as well.



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Amazing. Scientists uncover why Spanish Flu was so deadly



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Running outside the party in China - into resistance

Mr. Yao phoned another candidate who was supposed to be joining the gathering. Their conversation ended abruptly. Yao looked around the table, his can-do smile down a notch. He explained that they would be one short as the police had detained their colleague for telling voters to write his name on the ballot. "The pressure just gets more and more," he sighs.

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NASA: Mars rover reaches rim of deep crater



Later, from Mars Rover Reaches Rim of Deep Crater

"We made it!"said rover principal scientist Steve Squyres of Cornell University.



The road to Victoria Crater, a half-mile wide and 230-foot deep impact crater, was tough. The six-wheeled Opportunity drove through what scientists called a"wasteland."At one point, it spent five weeks stuck hub-deep in a slippery sand dune before freeing itself.

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Iran head unwavering on nuclear position

The statements from the negotiators and the Iranian president continue a pattern of past months, in which Ahmadinejad publicly states a hard-line position of no compromise, often in front of large crowds, even as Iran's negotiators try to reach deals behind the scenes.

That's because the Ahmadinejad is not stating a bargaining position; the negotiators are playing a delaying game. It is the european negotiators who are being played for suckers here, and when Iran publically announces they have nuclear weapons, those insisting upon a negotiated end to this thing are going to have placed us all in a world where the crazy mullahs have nukes. Maybe we can arrange to have them strapped onto the Iranian warheads so at least they will be among the first to go?



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China carries out test of fusion reactor



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4000 ex-parrots terrorists.



Vaguely on the same subject, Belmont Club has the analysis of a letter to Zarqawi, and of the declassified portions of the NIE, as well as a link to what the declassified sections say here.



Wizbang has more, as does Powerline:

That would be hilarious, if it were not so contemptible. When Democrats in the bureaucracy illegally leaked misleading portions of the NIE's "key judgments" in hopes of influencing the election, that was fine with Kennedy. But when the administration declassified the entire "judgments" section so that the American people can read it all and judge for themselves, now Kennedy complains that the voters aren't getting "the full story." Absolutely outrageous, but typical of the Democrats' ever more hysterical campaign.

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Via Argghhh!, The Best Milk Commercial Ever



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Wizbang notes more evidence of the AP being a supporter of one political party.

Is there any program that i can qualify for a home with no down payment?

Lots of them. We may not be talking number of grains of sand on the beach or drops of water in the ocean, but there are more ways to get get into a property with no down payment than most laypersons would believe.

Many loan officers would have you believe that it is a hard loan or that takes something special to get 100 percent financing. It doesn't. In 95 percent plus of all cases, that's just setting you up for three points of origination, setting them up to ask you for referrals, and trying to get you to not shop around. Nor is it a difficult loan to do. As long as you meet the guidelines, 100% financing is routine. Many lenders are begging for these loans. It's almost to the point where fat middle aged men like me have to be careful not to allow ourselves to be alone in the office with young attractive female lender representatives. In my humble opinion, some of these lax underwriting processes are setting the lenders up for unbelievable losses, but as long as I and my clients are telling the truth and playing by the rules, there is no reason why my clients should not benefit.

Now the first way to get 100% financing is obviously to have a lender loan you 100%. Now the best way to structure it, in the vast majority all cases, is the 80/20 "piggyback" loan. As I discuss in One Loan Versus Two Loans, this avoids mortgage insurance (PMI) which saves you money. But there are a plethora of other ways to structure it, if there is a reason to. One rule that I have learned the hard way is never apply for a first and a second from different lenders, even if it looks like the rates will be better applying that way. Even if both wholesalers swear on the name of Domingo Montoya, don't do it. You are wasting your time. If the lender who wants to do the first won't do the second, there is a reason, and the reason is that this person is unlikely to be approved for the second, and the transaction doesn't close until both loans are ready. If I've got the first with the lender, that's leverage that a good loan officer can use to get them to approve marginal seconds. Not so with lenders who are just doing the second. Not to mention that there is ten times the potential for confusion and several times the work coordinating between lenders.

What do you need in order to get 100% financing, you ask? Well, that's a variable. If you have can prove you make enough money to justify the loan (see Levels of Mortgage Documentation), a credit score of 580 is sufficient. Now, the higher the credit score the better the loan, but if you've got a 580 and can prove you make enough money, the loan can be done. The possibility does not vanish completely until you are below a 560 credit score, although comparatively few lenders will go below 580 for 100 percent financing.

If you can't prove you make enough money, lenders will do 100% financing on a stated income basis down to 640 credit score, and maybe down as low as 600. Now even a 640 credit score is 80 points below the median credit score in this country, so most folks can get 100% financing. However, be very careful about overstating your income as you are still going to have to make that payment every month. Stated income loans are a good way to get in serious financial difficulties if you don't understand their limitations. Therefore, despite the ability to inflate your income, I strongly advise against it. Furthermore, as I've said elsewhere, the rates for stated income loans are higher than for full documentation loans, and they become progressively more so the worse the credit score gets. At 600 credit score, not only is it unlikely that you will be able to get 100% stated income financing, but it will be perhaps 1.5 or even 2% higher than the rate that the person who can prove they can make enough money will get. For all of these reasons, I strongly advise you to stay within a budget where you can prove you make enough money.

Now things like being 30 days late on your rent, and how long of a rental history you have will also influence your ability to get 100% financing, not to mention the rate you will be offered. As with so many other things, take care of your credit and it will take care of you. Make payments of whatever nature, in full and on time. Better yet, don't incur any debts you don't have to.

Suppose your credit is so bad that you do not qualify for 100% financing from any lender? Well, not all hope is lost, although it really does constrain your choices. Most lenders will permit seller carrybacks, so long as they are subordinate to lender financing. So if the lender is willing to give you 90% financing, you can do one of the things that called 80/10/10 financing: 80% first, 10% second, 10% third that is a carryback with the seller.

Now not every seller is going to be willing to carry back money. They are selling the property because they want money, or something that money can buy but the property won't get them. If the seller doesn't have enough equity to cover the costs of selling plus what you're asking to borrow, your offer is probably not going to appeal to that seller. A good buyer's agent will steer you away from properties where the seller doesn't have the equity to work with you. Another thing is that sellers may want you to offer more money in order to accept your offer. Furthermore, they might charge you a really hideous interest rate as an incentive to pay them off ASAP. And they may realize that the reason the lenders won't give you 100% financing is because you are not the best credit risk out there. I certainly don't hesitate to tell my listing clients a lot more about the limitations of carrybacks than there is space for here. I'm a decided non-fan of seller carrybacks, as the request tends to indicate a poorly qualified buyer who may not be able to secure any financing. Nonetheless, given the current buyer's market, some sellers are willing to carry back financing in order to get rid of the property, particularly if the offer is for top dollar. Once the market turns back towards the sellers at all, the ability to do this is likely to vanish. There are many advantages to being willing to shop in a buyer's markets, of which that is only one.

So obviously, you need to know if 100% financing through the lender is possible or likely for someone in your particular situation. You need to know this before you go making any offers to purchase property - and there are types of property where 100% financing is only an option with a seller carryback.

Now, a couple of final points: Just because you can get 100% financing does not mean it's a good idea, or that you should. You get better rates from lenders if you put money down, and writing offers that include having money for a down payment shows a seller that you are serious about buying the property. Other things being equal, I'm going to counsel my sellers that an offer that comes in with even a 5% down payment is a much stronger offer than anything that comes in wanting 100% financing. As a loan officer and buyer's specialist, I've dealt with enough of these that I know the questions to ask to determine if it is likely to work, possible, or ain't gonna happen.

Furthermore, speaking of strong offers: You will need a decent deposit to convince the seller that you're serious about buying the place. The seller is going to spend a lot of money on the escrow for your attempt to purchase that property, and has to give you sole shot for however long an escrow period you agree to. This means they can't work with other offers while they're working with you, and time is money to a seller. They want to know that if you can't consummate this contract in a timely fashion, they are going to have some compensation for the trouble and expense. Prospective buyers with 100% financing can expect to have to put a larger deposit down. Somebody offers a $500 deposit on a $500,000 property, that's going to be rejected so fast and so thoroughly that your fax machine will spin. So if you really have no money, even though you can obtain 100% financing, trying to buy a property in this fashion is likely to be a waste of time.

Caveat Emptor

UPDATED here

Recently, the forty year mortgage has started to make a comeback, and a few lenders have started introducing the fifty year mortgage. The reason, straight from the horse's mouth, the lender's representatives, is lowered payments. In an uncertain and unstable market, investors are getting nervous about 100% interest only financing, and so the lenders are tightening up on the standards of who is able to qualify for that, while looking for another way to compete on the basis of lower payments. One way that they do this is the Option ARM, or negative amortization loan. However, to anyone who does even a minimal amount of investigation those loans are like cutting your own throat. A lot of people will still sign up for them, but now that Business Week did a feature calling them "Nightmare mortgages" more and more people are picking up on the tremendous downsides to this loan, but if they still want too much house and they've got to be able to qualify for, and make, the payment, they need an alternative. That is the forty and now the fifty year loan.



Now nobody does forty year fixed rate mortgages, let alone fifty. They do two and three year fixed rate loans, called the 2/38 and 3/37, respectively. Some lenders will also do a loan that amortizes over forty years, but the remaining balance is due in thirty years. This so-called 40/30 balloon has a lot in common with a thirty year fixed rate loan - including the fact that almost nobody goes more than five years without refinancing, so that the thirty year balloon should be no big deal. All of the preceding forty year loans are sub-prime loans, by the way, with prepayment penalties and higher rates than A paper. A Paper lenders doing the forty year loan are few and far between. People get longer durations from sub-prime lenders; A paper competes for the best borrowers - the ones who can really afford their loans - on rate/cost trade-off and underwriting standards. For those lenders doing the fifty year loan, it is pretty much the same story. The fifty year amortization due in thirty, the 2/48 and the the 3/47.



Now because the lender is risking their money for a longer time, and with less amortization and therefore more risk, most of the lenders - particularly the ones looking to compete on rate that you would prefer to do business with - charge a slightly higher rate for forty year loans than thirty, and a little higher still for a fifty. The difference is not huge, but it is there. Where a 2/28 might be at 7%, the corresponding 2/38 might be at 7.125, and the 2/48 at 7.25 for the same cost. Sometimes they'll say that the difference is as small as a quarter point of cost for the forty year amortization as opposed to the thirty - but that's an eighth of a percent on the rate, at subprime's usual 1 point equals half a percent trade-off.



Now in my opinion, these longer amortization loans are mostly a marketing gimmick to lower the payment - slightly - for those who do not qualify for interest only under lender's guidelines. The forty year amortization started making a comeback early in 2005, most as the 2/38, and the fifty year about March of this year.



My perception is that refusing interest only to these borrowers is a figleaf tossed to nervous mortgage investors. It's not like fifty year amortization is really going to make a difference, as opposed to interest only, if a 100% loan gets foreclosed any time in the first five years, or if property values decline further. Let's do some math.



Assume a $200,000 loan on a $250,000 purchase in California, just so I can do it in one loan without worrying about PMI.

Amortization Period 30 40 50

Interest Rate 7 7.125 7.25

Loan Payment $1330.61 $1261.07 $1241.78

Other costs $510.42 $510.42 $510.42

Total monthly $1841.03 $1771.49 $1752.20

Income to Qualify $3685 $3545 $3505

Now unlike everyone else who has written on longer amortizing loans, I'm not going to obsess about "interest paid over the life of the loan." People are going to refinance in a few years anyway. That's just the way things are. But let's do look at the difference between interest paid in the first two years, the fixed period for most of these at the end of which people will refinance.

Amortization period 30 40 50

interest rate 7.000 7.125 7.250

1 month interest $1166.67 $1187.50 $1208.33

24 mos interest $27,724.41 $28,374.03 $28,941.66

Remaining Balance $195,789.89 $198,108.53 $199,138.73

Comparative Deficit $0 $2968.26 $4566.09

Now the 40 year loan only saves $1668.96 in payments over the first two years, and the fifty $2131.92. So if we subtract these numbers off the deficit in the above table, we are left that the forty year loan costs us $1299.30 in net deficit as opposed to the thirty, and the fifty year loan costs us $2434.17 net of all savings. This on top of the fact that it really doesn't make that much difference in the income we need to qualify for the loan (which in my example is limited to cost of housing with no other payments). Just paying off a credit card that takes $100 payments per month will do more to help you qualify.



These numbers get worse, not better, in the bigger loans that the lenders are using them to justify. Let's assume a $400,000 loan on a $500,000 property instead:

Amortization period 30 40 50

interest rate 7 7.125 7.25

Loan Payment $2661.21 $2522.13 $2483.58

Other costs $630.83 $630.83 $630.83

Total monthly $3292.04 $3152.96 $3114.41

Income to Qualify $6585 $6310 $6230

Amortization period 30 40 50

interest rate 7.000 7.125 7.250

1 month interest $2333.33 $2375.00 $2416.67

24 mos interest $55,448.83 $56,748.07 $57,883.32

Remaining Balance $391,579.79 $396,217.06 $398,277.46

Comparative Deficit $0 $5937.30 $9132.95

Considering that over two years, the forty year payment saves $3339.92 in payments, it's still down by $2599.38 as opposed to the thirty year amortization, and the fifty is down by $4869.83 in just two years - never mind what happens if you have to do it again in two years, and once again, paying off a credit card probably will do more to help someone qualify full documentation.

Now I don't see anything particularly wrong with forty and fifty year mortgages, although a 30 year is better while making very little difference on the payments, I can see the benefits for those who lie in this income range. But pardon my lack of enthusiasm for something that makes very little difference to whether someone qualifies for the loan, while costing them far more than they save in terms of payments, even over the short term and disregarding the effects if the people do not refinance. Far better to just persuade someone not to buy quite so much house in the first place, even if it means you get less of a commission. But then if most real estate agents sold property on the basis of what people could afford rather than it's beautiful and they want it and therefore it's an easy sale and now let's figure out a way to get them the property even if they can't afford it, the southern California real estate market would not be in the state it is in.



Caveat Emptor

UPDATED here

Carnival of Investing



Carnival of Personal Finance



Carnival of the Capitalists Recommended: Econbrowser (changing the rules of the gam after you've been playing for a while)





RINO Sightings Recommended: Pigilito (a short article upon how moderate is relative)



Carnival of Real Estate Recommended: The Sharks Have Had Their Fill

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TF Stern "dumb like a fox." I remember it being "crazy like a fox," but it's a good article about the president. It's not everyone who has this strength of character, is it, Hillary?



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Tuberculosis Helped Bring Down Mastodons



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Hooray for Arnold: Calif. gov. vetoes universal health bill. Actually, this bill would basically have given free care to illegal aliens and the indigent, while still forcing those productive members of society who are actually working and paying the taxes that pay for that, to continue paying for their own health care.



And you know something? We've already got Medi-Cal.

Having written several articles on Negative Amortization Loans, telling of the details of what is wrong with them, and even destroying the myth of Option ARM cash flow, I sometimes get asked if I would like to see them banned completely.



Well, given the pandemically misleading marketing that surrounds these loans, and pandemically poor disclosure requirements, I am tempted. It only takes one person losing their life savings and having their financial future ruined to make a very compelling story, and I've seen more than one and read about many more.



However, when you ask if they should be banned outright, I have to answer no.



Part of this is my libertarian sympathies. Adults should be allowed to make their own mistakes. But there are economic and a realpolitik reasons as well.



The fact of the matter that just because Negative Amortization loans are oversold under all of the friendly-sounding marketing names such as Option ARM, Pick a Pay, and even 1 Percent Loan (which they are not), does not mean that there is no one for whom they are appropriate or beneficial. People for whom these are appropriate do exist. Consider someone with crushing consumer debt, and no significant usable equity on a home they've owned for a while. They sell the home, they end up with nothing and still have the consumer debt. They can't refinance cash out. But if you put them into an Option ARM for a while, you remove from several hundred to over a thousand dollars per month from their cash flow requirements. In three years, they will pay off or pay down those consumer debts, and then you refinance to put them back on track, and the money that has accumulated means nothing compared to what they've paid off. It's a very narrow niche, but it does exist.



Consider also someone starting a business. Cash flow insolvency is what kills most start-up businesses. Until the customer base builds, they don't have enough money to pay the bills. Lower monthly cash flow requirements on their house can mean the difference between success and failure of their business, far outweighing the cost of the extra money in their balance that they accumulated. Furthermore, the fact is that when their cash flow gets tight, they're not making the mortgage payment anyway. They are likely to lose both business (through insolvency) and property (through foreclosure) if the business fails anyway, and the lowered cash flow requirements of the Negative Amortization loan may give the business more of a chance to succeed, and once it is profitable it will pay back the investment many times over.



There's still a need to really explain what's going on, and all of the drawbacks of the loan, but people in these two circumstances really do have a valid possibility of it being in their best interest. Banning negative amortization loans completely takes away that option, thereby hurting those people.



Furthermore, in realpolitik, it is unlikely that any attempt to ban them will be successful, or permanent if it is successful. Let us presume some public spirited official in Congress or at the Fed decides to make the attempt. What do the scumbags who make their living selling these loans do? They won't go back to selling real loans with real payments - if they could do that, they wouldn't be selling negative amortization loans. Negative amortization loans are a way to sell property without the apparent up front costs of a higher payment that always will be indicative of the housing market. Given a choice between giving up screwing people and fighting back, they are going to fight back. Lobbyists, PAC, and grassroots deception en masse, and probably astroturfing as well. If the average voter gets a pamphlet saying Congress or the Fed is trying to ban these loans that "are the only way middle class people can afford a home!", they are not going to do research in order to educate themselves about what is really going on. They are going to call their congress critter and voice the opinion the negative amortization industry gave them - and they're likely go so far as to go apply for one themselves, unless they already know what a bad deal that loan is. Chances of congress resisting: Basically nil. There is no organized group in opposition, no budget for groups that want to push a ban. Any ban would be politically dead on arrival.



There is an approach that will work, however: Disclosure requirements. If these people have to tell the prospective victims in easy to understand language and easy to read print about all of the problems they are letting themselves in for with these loans, very few people are going to sign on the dotted line. "Caution: If you accept this loan, the 1% is a nominal, or in name only, rate. You are really being charged a rate of X%, and this rate will vary every single month. If you make the minimum payment, your loan balance will increase by approximately $Y per month at current rates, or Z percent within five years. You will have to pay this money back in lump sum if you sell, or with higher payments at a later date. If you cannot afford full payments now, you will unlikely be able to afford them in the future after your balance has increased. There is a three year prepayment penalty on this loan, and if you sell the property or refinance within that time, you will pay a penalty of approximately $A in addition to whatever additional balance has accrued. It is currently under consideration that the mere fact that you have one of these loans will have significant derogatory effect upon your credit rating, even if you never make a late payment, due to financial difficulties encountered by borrowers with this kind of loans in the past." I could go on in bullet points for a couple of pages, but I trust you get my point. You have all of this in writing from the federal government, the least an intelligent adult is going to do is find out what's really going on here.



Furthermore, the only way disclosure requirements could be fought by the industry is behind closed doors. The only way it stays behind closed doors is if nobody raises a political stink, and it's easy to raise a political stink about stuff like this. Newspapers and television reporters and bloggers all converge on the issue, and the industry is left in the awkward position of crying because they have to tell the truth. That doesn't play well with the American public. The way this plays with the American public is the major reason for the successes of Porkbusters. Despite some very entrenched and very powerful enemies lining up against them, they've won on a couple of big issues because of the power of the idea that the American people have that the truth should be told. Take the tack that all you want is for the industry to tell the truth, and watch the political wind die out of their sails. David beats Goliath reliably in American politics when the issue is "Do I have to tell the truth?"



To summarize, it is tempting to try to ban negative amortization loans. But it is far better social and economic policy to go the disclosure route instead, and far more likely to be politically successful.



Caveat Emptor

UPDATED here

Been a long time since I reviewed any recreational reading, so here's what books I've read for fun the last few months. It can take a while after release before I get to something (there are nearly 30 waiting to be read right now), so some of these might be out of print or remaindered by now. I know in some cases the sequels are out because I've got them.



Recommended:



Firestar by Michael Flynn tells two parallel but connected stories, of a public school being taken over by a corporation, and of the return to manned space flight - specifically, single stage to orbit. If you ever had the dream of going into space, or if you're young enough and still have it, you will love this book. The private companies in space part is starting to happen - If I weren't forty-something, fat and with health problems, I'd be looking for stuff I could do that might take me up.



Days of Infamy by Harry Turtledove is not what I hoped, the next book in his series that started with the South holding off the North in the Civil War, but a new series that starts basically in our own timeline, with the difference that the Japanese landed two divisions on Oahu in the immediate aftermath of Pearl Harbor and took the Hawaiin Islands. He doesn't flinch from the realities of war or from how the Japanese treated their subject populations or prisoners of war. He also seems to have a good grasp of the parts played by luck, planning, and skill in battle. I thoroughly enjoyed it.



Field of Dishonor and Honor Among Enemies are a couple of books in the story of Honor Harrington, modeled upon Horatio Hornblower (who was, in turn, modeled after Admiral Nelson of Trafalgar fame). I resisted this series initially, because it seemed likely to be a ripoff of the Hornblower series, but when the first in the series was re-issued I decided I should give it a try, and am glad I did. I'm now picking them up as I see them. They are quite enjoyable action/adventure stuff.



Over the Wine-Dark Sea and The Sacred Land are historical fiction by Harry Turtledove writing as H.N. Turtletaub. They are respectively, the first and third in a series about a couple of Greek traders from Rhodes, late in the fourth century BC. Not for the easily offended, because he shows the culture of the Hellenistic world as it existed at that time. The books tell of successive yearly trading voyages, the first in 310 B.C. to Greater Hellas (what is now southern Italy), the second (The Gryphon's Skull) in 309 BC to various poleis on the Aegean, and the third in 308 BC to Phoenicia. They are set against the canvas of the documented events of those times and places - for instance, the Carthaginian siege of Syracuse in 310 BC. Many actual historical figures make appearances. It also gives one an appreciation for modern law enforcement and rule of law.



Conventions of War by Walter Jon Williams is the third in a series of a far future where humanity has long been subordinate to the Praxis, an empire founded by the Shaa, whose technology was so far in advance of anything that there was never any serious challenge - until the last Shaa dies and there is civil war among the inheritors of the empire. It was fascinating to watch the evolution of the military from ceremonial to war footing. This tells of the end of the civil war, and perhaps Mr. Williams was getting a little bored, because it wasn't as good as the first two, but still very worth reading.



Curious Notions by Harry Turtledove is the second in a series of Alternate Reality stories he has written. In this case, America is under the German heel from a not quite World War I analog. It is not a sequel to the first, but a separate work tied together only by the thread of the same basic civilization travelling the alternate realities. Quite well thought out and believable, it tells the story of a young man who grew up in San Francisco of a reality of the future not too unlike ours, who assumes the identity of a stereo salesman in another San Francisco, which events have not treated kindly. Quite enjoyable.



Mixed:



Polaris by Jack McDeavitt is a science fiction mystery. Sixty years ago the Polaris was found, her crew mysteriously vanished. The story deals with the resolution of that mystery. Fairly absorbing, but there were times I was wanting him to get one with what was going to happen, and the resolution seems forced, as well as somewhat unlikely.



Legacies and Scepters by L E Modesitt Jr. These are the first and third in telling the story of a vaguely nineteenth century analog society facing an external technological threat. Modesitt being Modesitt, the main protagonist has special powers. I liked the first (and the second) more than I did the third.



Emerald Sea by John Ringo is not an easy book to describe the setting of. It is the sequel to another book, There Will Be Dragons. Good action/adventure yarn, and yet there was one action taken by the protagonists that turns out to be a little too much in the way of a magic bullet. I do intend to read future books in the series.



Luna Marine and Europa Strike by Ian Douglas. Military science fiction, plain and simple. Second and third in the series that began with Semper Mars. Alien technology is discovered in various caches throughout the solar system, and tells the story of the political and military manouevering that results. I do intend to continue reading his stuff.



Crown of Slaves by David Weber and Eric Flint tries to do too much with one book - it should have been at least two. A little too much tell and not enough show for my taste, as well. I'll keep reading the Honor Harrington stuff, but probably not any sequels to this, which is set in the same universe.



Noise by Hal Clement. As I said about Poul Anderson a year ago, there is something profoundly sad about one of the great masters of hard science fiction being reduced to this sort of book for his last work. There are flashes of his old brilliance, but that is all. Read Mission of Gravity or Iceworld or any of a dozen wonderful books he gave us. I found myself pushing just to get through it, not caring about the story, the characters, or anything else about it. If you picked up this book and did not like it, do not judge him by it.

Many people are unaware how profoundly lending policies influence the market for residential property. So I am going to go over the various gradations in available loans for various types of property.



Pretty much everyone is familiar with the standard house, built on site, mostly by hand, from basic materials. Called "stick built" to differentiate it from other building methods, this is the default housing that everyone is familiar with. Once emplaced upon that property, there is no real way of getting it off the property intact, and therefore it is appurtenant to the land. This might come as a shock to people who concentrate on the house, but when you buy a property, you are buying the land upon which it sits - the lot - and the structure comes along because it is appurtenant - because it cannot be moved off easily. It is this type of property which has been at the forefront of liberalization of lenders loan policies, precisely because it is both universally desirable and non-portable. That land is defined by its boundaries. It isn't going anywhere. The structure isn't going anywhere that the land isn't, because in order to remove it, you pretty much have to destroy it. It's built on a several ton concrete foundation, which, if you nonetheless manage to pick it up, is still overwhelmingly likely to crack if not disintegrate, not to mention ripping out plumbing, electrical, and other connections.



Now because the land isn't movable and the structure isn't either, lenders have gotten comfortable that you're not going anywhere with that structure. Because the combination is so universally desired among consumers of housing, they have gotten comfortable with giving loans for essentially the full purchase cost of the property, knowing that it takes a special set of circumstances for them to take a loss on the property, and they can charge higher interest rates in order to insure against that. (I am using insure in the statistical, law of large numbers sense that is the essence of insurance.)



Now once upon a time, lenders treated condominiums far less favorably than single family detached housing. But it was always obvious that condominium units weren't going anywhere, and in recent years condominiums, in all their incarnations, have reached a level of acceptance among housing consumers that assures their marketability, and even the price discrimination against high-rise condominiums is gradually dying out. It is far less than it was just a few years ago. For condominiums four stories and less, the only difference their status makes to lending policy has to do with required expenses and Debt to Income Ratio: There is no homeowners insurance requirement, because the association dues pay for a master policy, but there is the additional expense of Association dues to charge against the borrower's monthly income. As far as Loan to Value Ratio goes, condominiums are precisely like single family residences, and you can find 100% loans just as easily for them, at the same rate cost trade-offs, or very close. More and more, the fact that it's a condominium is becoming irrelevant to loan officers. Many lenders have completely eliminated the "percentage of owner occupied units" guidelines that used to be such a bugbear for getting condominium loans approved. For these reasons, among others, condominium prices have taken off. In the last fifteen years, they have gone from being about half the price of a comparably sized and furnished detached home, to the point where they are basically proportional to detached single family homes, and in some areas, higher price per square foot due to the fact that they are a viable less expensive consumer's alternative due to (usually) fewer square feet to the dwelling, and so less expensive overall if not proportionately so.



The first real step away from the "stick built' house is the modular dwelling. These are piece-manufactured at factories, and assembled in pieces on site. Usually, it's something like one entire room-wall in a piece, with all the necessary plumbing and electrical already embedded in it, although sometimes it does take the form of entire rooms. Think of it like modular furniture, which is manufactured in individual pieces, but those pieces are intended to be put together so that instead of an arm chair and an ottoman, you have a chaise lounge. The important difference is that unlike modular furniture, once that modular house is assembled on that foundation, it's not going anywhere. Try to disconnect the plumbing hookups, or disassemble the pieces, and all you will likely have is much smaller pieces than you started with. Modular housing, once assembled, isn't going anywhere. It is permanently attached to that land. For this reason, lenders are in the process of phasing out pricing discrimination against modular housing as opposed to stick built homes. For some lenders, modular gets the same exact loans as stick-built, for a few, there is a hit to the rate-cost trade-off that may be anywhere from a quarter of a point to a full point. Over half of the residential lenders in my database are happy to do residential real estate loans for modular housing on pretty much the same terms as stick-built. 100% percent financing, interest only, even the horrible negative amortization loan are all available on modular homes. As a result, prices of modular homes may be a couple percent lower than those of stick built properties, but they are very comparable and the the investment potential is just as strong and there is no large amount of difficulty getting them sold due to the difficulty of getting a loan. Some lenders still don't want to touch them, but it's pretty easy to find lenders that will, and on the same terms as they do any other property, so the lenders who still will not lend on modular properties are hurting no one but themselves by dealing themselves out of possible business.



The next step away is manufactured housing on land owned by the home owner. Now technically speaking, modular housing is a subset of manufactured housing, but when most lenders are talking about manufactured housing, they are talking about homes built at the factory in entire sections, and assembled with only a few total joins at the home site. True manufactured housing is portable, where modular really is not. If you're in Idaho and decide to move that house to your property in Georgia, it's doable.



Now because it is portable, as you might guess from things I've said here about the prevalence of attempted scams that lenders have had issues with people dragging them off. You'd be right. Lenders file foreclosure papers on the land, and the homeowner metaphorically backs up the pick-up truck and takes that residence somewhere else, leaving the lenders with a piece of land and no residence. Because there is no longer a residence on it, it's not worth anything like what it was when there was a residence on it. Lenders have lost multiple hundreds of thousands of dollars on individual properties around here. You get burned enough times, you start getting wise. Those real estate lenders who will lend on manufactured homes require a laundry list of conditions, and even if they are all met, they won't loan 100 percent of the value, or anything like it, and there will be an additional charge of at least one full point of cost on their regular loan quotes. Cash out loans are typically limited to sixty-five percent of value, making it hard to tap equity. Furthermore, due to accounting standards and depreciation, Fannie Mae and Freddie Mac made a rule that manufactured homes were limited to twenty year loans, which drastically limits not only the type of loans available to their owners, but also has the effect of restricting what they can afford to borrow, because the payments principal has to be paid back over a shorter period.



Now because loans are more expensive, harder to get, and amortized over a shorter period of time, this has the effect that even if someone wants to purchase a plot of land upon which the primary residence is a manufactured home, they cannot afford to pay as much for it. Let's say par rate on a thirty year fixed rate loan for a stick built house or condominium is 6.25% (that is approximately where it is right now, by the way). To keep it simple, let's hypothesize that someone can afford loan payments of $2000 per month. That gives a loan amount of just under $325,000 for the stick built house ($324,824). Now because of the minimum one point hit, the equivalent rate on the manufactured home loan, even though it still sits upon owned land, is about 6.75%, and you're limited to a 20 year loan, giving a loan principal of about $263,000. The same person who can afford a stick built loan of $325,000 can only afford $263,000 for a manufactured home. This means that the manufactured home is not going to sell for as much money, because for what most people thing of as the same price (monthly payment) they cannot afford as much manufactured home as stick built. This leaves completely aside such issues that magnify this difference as the fact that because the loan terms are more favorable, it's more cost effective to improve a stick-built home, so equivalent stick built homes have more amenities and are therefore even more attractive and more desirable. Not to mention the fact that the lender will require a twenty percent down payment on the manufactured home, where they might not require one at all on the stick built. The people who are in the market for relatively inexpensive housing are first time buyers. I can't remember when the last time I encountered a first time buyer with a significant down payment (5% or more). Very few of them have down payments. This means that even if they are inclined to purchase a manufactured home, they are going to be constrained to purchase a stick built house by lending policy. That $263,000 loan I talked about earlier in the paragraph is only available if the buyer puts a down payment of $65,750 or more in addition to closing costs. For the vast majority of buyers, this limits their choice to stick-built, or none at all. For these reasons, when people go to sell manufactured homes, one can expect the prices to be more than proportionately lower than those of comparable stick-built homes, and so investments in manufactured homes do not tend to pay off nearly so well as property earlier on this list.



There is one further step down on the list: Manufactured homes on rented land. These are not, properly speaking, real estate loans at all. There is no land involved. If there is no land involved, it's not real estate. Since there is no land involved, the loans are not real estate loans. They are listed in MLS because the people are buying and selling housing, but they are not real estate loans. It is very difficult finding lenders who will lend on them at all, and those few who will mostly do so through their automotive department. Furthermore, whereas space rent might be cheap if it's your only cost of housing, it is expensive as compared to homeowners association dues, let alone property taxes, and the loans are still all twenty years or less. Because lenders don't like to touch them, because the down payment requirements are large, and because of the additional expenses imposed by space rent, prices for manufactured housing on rented land are microscopic by comparison with everything else. Even here in southern California, $100,000 buys a really nice 4 bedroom place where by comparison the lowest priced 4 bedroom anywhere in the county right now are $337,000 (manufactured on owned land, and way out in the hinterlands of east county).



Lest anyone think that this is in any way shape or form due to inferior construction, it is not. Because these buildings are manufactured on assembly lines which are largely robotic, there are many fewer problems with things like forgetting to nail at appropriate intervals, workers getting distracted, not getting corners square, and all those sorts of problems. I'd bet that a manufactured dwelling is probably of superior construction to a site built dwelling, all other things being equal. It is purely lender policy, as influenced by the history of their experiences with these kinds of properties, which is driving these differences.



So before you think a property is a great bargain, consider what kind of property it is, because even if you have plenty of income and a huge down payment and these concerns are irrelevant to you, when you go to sell it your prospective buyers will generally not have those things, and every time you eliminate a possible buyer from being able to consider a property, you statistically make the final sale price lower, and you statistically make the sales process take much longer. Eliminate enough potential buyers, and you're going to be very unhappy indeed.



Caveat Emptor

UPDATED here

Carnival of the Vanities I apologize for not having the time to go through it for recommendations.

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Everybody is losing laptops. Why should the Commerce Department be any different? But the Commerce Department lost 1137 laptops. I think that likely qualifies for this year's personal data mining gold medal.

"All of the equipment that was lost or stolen contained protections to prevent a breach of personal information," Commerce Secretary Carlos M. Gutierrez said in a statement. "The amount of missing computers is high, but fortunately, the vulnerability for data misuse is low."

Who exactly does he think he's kidding? The people who have them have from now until doomsday to crack that. Get a good computer program and it will crack - that's provided it's even encrypted, as opposed to merely password protected.



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Ahmadinejad says quarrel is with Zionists, not Jews. Of course, refusing to accept dhimmitude makes them Zionists.



Nasrallah Says Hezbollah Won't Disarm. Thus violating the terms of the settlement with Israel. Am I hearing any calls for Israel to resume their offensive?

Former President Amin Gemayel, a sharp critic of Hezbollah, said parts of Nasrallah's speech were "dangerous."



"He is linking giving up Hezbollah's weapons to regime change in Lebanon and ... to drastic changes on the level of the Lebanese government," Gemayel said. "This is very surprising and dangerous, and leads us to ask, what kind of government does Sayyed Hassan want for what kind of Lebanon?"

What he means, of course, is if they control Lebanon, they can amalgamate into the army, and then they're not Hezbollah fighters anymore, are they?



Palestinian PM Won't Recognize Israel

Palestinian Prime Minister Ismail Haniyeh of Hamas said Friday he will not head a government that recognizes Israel, striking a potential blow to President Mahmoud Abbas' attempts to create a national unity government.

So we'll see where the Palestinian people stand in whether or not they replace him at the next elections.

"We support establishing a Palestinian state in the land of 1967 at this stage, but in return for a cease-fire, not recognition," Haniyeh said.

Hudna. Look it up.

Taqiyya. Ditto.



And people intercede on behalf of these extremists when Israel decides to believe they mean what they say, due to their actions.



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NASA it's not, but desert spaceport nears first launch. This is where the future of space travel is. Thirty years later than it should have been, thanks to NASA jealously guarding its bureaucratic turf, but it's finally happening.



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Via Fraudblogger, yet another warning on foreclosure rescue scams: 'Foreclosure rescue' scams prey on people in trouble



NEVER sign a quitclaim to anyone you don't want to stay on title forever.



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I just noticed that Eidelblog caught the SF Chronicle out in a lie: Mainstream Media 102: How to make stuff up



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Bush 'Taken Aback' by Musharraf Comment

President Bush said Friday he was "taken aback" by a purported U.S. threat to bomb Pakistan back to the Stone Age if it did not cooperate in the fight against terrorism after the Sept. 11 attacks.

and

In an interview to air Sunday on CBS-TV's "60 Minutes" program, Musharraf said that after the attacks, Richard Armitage, then deputy secretary of state, told Pakistan's intelligence director that the United States would bomb his country if it didn't help fight terrorists.



He said that Armitage had told him, "Be prepared to go back to the Stone Age."

A sign that the Washington power brokers are turning against Armitage? It's been five years since he reportedly said it.



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I do have an article for the week scheduled to go for tomorrow. I think it's a good one, on lender's policies and how they drive the market. I'll also try to throw off a few more good links around the 'sphere over the weekend.

I've been telling people that the flat spell on rents we've had locally in San Diego is going to change. Here's the first confirmation I've seen: $1,241 average reflects biggest climb in 4 years



The last few years, landlords have been buying in order to sell to a bigger fool. That has now changed. They've got to make money on their investment, and considering all of the ones that bought for too much, they are jacking rents up hoping to make enough not to lose their investment. Expect to see more of it. The article reports vacancy as being an incredibly low 1.8%. Supply and Demand. High demand, low supply. You can stay hitched to the rent escalator, or you can buy from people who have to sell right now. Yes, it'll cost more money per month, but within a few years, rent will be more than the mortgage, even without the consideration of tax breaks for buying. Your choice.



San Diego is a bleeding edge market. Most of what I predicted in Looking Beyond The Bubble: What's Next For Highly Appreciated Markets has now come to pass, on the local scale anyway. Most of the national scale stuff is still pending, but I did say

Rates have been rising of late, but there is a limit as to how far they are likely to go, if only because Bernanke and company are very shortly going to have irrefutable evidence of all of the above stuff nationwide. A nationwide economy has a lot of something analogous to inertia. Takes a while to move things in the direction you want them to go. More time, and more effort, than most folks, particularly bankers running our money supply, are likely to realize and sit still for without further pushing, which they have done a bit too much of, in my opinion, by about one full percent on the overnight funds rate

Now this was on March 31 (and one of the WSJ sites linked it on April 15th - blowing away the only Instalanche I've ever had as far as traffic is concerned).



What my point? That the next thing that starts to happen is rents rise, and when they do, more buyers move into the purchase market. We've already seen some of this. Also, some sellers have moved out of the market. A few weeks ago, I was seeing active listings total about 23,800 locally, and they're down to 22,500 now. Furthermore, the number of buyers has risen by about ten percent or so in the last couple weeks. Net result: We were at 38 or 40 sellers per buyer most of the summer. Last week it dropped to 34, and this week it's at 33. This is starting to look like it might be a trend, and when the ratio of sellers to buyers drops enough, prices are going to stabilize, the period of best deals will be over, and people are going to rush back into the market. It's got a long way to go, but where I have predicting Spring 2008 as the most likely market recovery point locally, I'm thinking now that it will more likely be some time next year, most likely early summer based upon current trendlines.



Those who are thinking that we're going to see $200,000 detached single family homes in San Diego are most likely going to be disappointed. I've said all along that the economic pricing support was there for $350,000 starter homes, providing rates stay about where I think they will, and rates going higher than I think they will (about 7 A paper 30 fixed par, where we're right at 6 now) means lenders will suffer even more in the short term in order to salvage their bottom line further out. I really don't think they will make that choice.



However long it takes, if you wait for the market to turn, you will now be at maybe 5 to 10 sellers per buyer, which is a more normal ratio, and when you don't have 30 sellers per buyer, you can't get them to work with you nearly so much. Prices will start moving back up, and if you wait for that to happen, you are hosed. It is far better to move now while prices are still moving somewhat downward. Yeah, you might "lose" a little on paper until the market turns. But you have the opportunity to negotiate a better bargain now than you will then.



Caveat Emptor

What happens if a home you signed to purchase goes into foreclosure before the closing date?

We were supposed to close on a home four months ago. On the day of closing we get a call from the seller's realtor that the sellers owe 22K and need time to figure out negotiations w/the mortgage company. We go through a series of extensions & hear a variety of excuses from the sellers realtor (sellers haven't turned in paperwork, wrong forms filled out &new ones were overnighted, etc) In June, a Lis Pendens was filed & our realtor checked it out. He talked to the sellers realtor & found out that it had been filed but has been negotiated off &was no longer in effect. On 8/9 our realtor gets a call from the sellers realtor that they have finally been in contact with the mortgage company &there is 1 more paper that needs to be completed & they are "on top of it". After not hearing anything last week, I check with the online courts to see if anything else has occurred to see that a foreclose decree was noted for 8/4. What happens now? Can we purchase the home from the bank?

Somebody has not been "on top of it". Probably at least two somebodies, and they're not exactly fulfilling full disclosure requirements, either.

Yes, an Notice of Default adds thousands of dollars to fees due. But what do you think the lender would rather have: An already negotiated sale that is consummated and they get their money, or go through that whole dismal foreclosure process, not knowing if anyone else will put an offer in?

So what is going on here is an undisclosed short sale. What this means is that the lender isn't going to get all of their money, or the transaction would have closed by now.

So what's most likely going on is that the bank is taking their own sweet time about approving it, but your realtor has allowed the selling realtor to feed you a line of BS. Indeed, they've probably actively cooperated. They're probably afraid of losing the commission, but if they keep it open "just a little longer" maybe the lender will approve it.

It's the listing agent's job to talk the lender into approving the sale. Perhaps the bank is imposing some conditions that the seller can meet, but does not want to. Perhaps the bank is demanding some money, or that the realtors reduce their commission, and they don't want to Perhaps the listing agent just clueless, but I doubt your agent has exactly covered themselves in professionalism either.

The person with the power to break the logjam is you. Talk with a lawyer, but if you put in a 48 hour notice to perform, the lender is likely to suffer a sudden attack of rationality, especially in this market. They'll likely net more money through the sale than through the foreclosure process, but if you allow them to go on ad nauseum they will keep the transaction open as long as possible. You see, once the transaction closes they can't get their money back if a better offer comes along. Therefore, they are trying to put you off for as long as possible in the hopes that such a better offer will come along. From their point of view, they have this transaction well in hand, they are just hoping to get more money from someone else, and the longer you allow this to go on, the higher the likelihood they will. If you don't force the issue, the only possible resolution is unfavorable to you. There are possible issues with the deposit, and damages they could owe you and you could owe them, which is why you need to be careful. But putting them on Notice to Perform is the thing that is going to break the logjam one way or another, and your agent should probably have done it months ago. You're stuck with them for now, but if this transaction doesn't close you should probably find a new agent. Good agents know that if they are willing to risk losing a particular deal, they will not only better represent their clients interests, but also that they will end up with more deals overall. Approached correctly, it's a way to have even the client whose entire family has their heart set on a particular property that you are acting on their behalf, not just looking for a commission, and they will send you their friends, and they will come back to you when it's time to sell, or to buy another property.

Caveat Emptor

UPDATED here

Is it unwise to use the listing realtor as your purchase realtor?

A house I'm interested in purchasing is being sold by the realtor selling my house. Although she's done a decent job selling my house, I fear she won't negotiate well on my behalf if she has to divide her loyalties between these listers and me (a potential buyer). How awkward would it be not to use my listing realtor to purchase a new home?

I would not undertake dual agency myself. If I do find a buyer for one of my listings, I'll refer them to someone else for negotiations. Everyone in the industry whom I respect agrees with this position. Too often, there is a conflict of interest between buyer and seller. Anybody who tells you otherwise is trying to rationalize money in their pocket.

It'd be fine to use her for any property she's not listing. If you want that one, however, go find another buyer's agent.

In every transaction, there is a tension between the interest of the sellers and the interest of the buyers. It is in the interest of the sellers to get the most money possible for the property. It is in the interests of the buyers to pay the lowest possible price. Except in the highly unlikely case where the most that buyer might possibly have paid is the exact same number that is the least that seller might have accepted, and that is in fact the sales price, such simultaneous duties cannot both be met. Since such happenings would be freak coincidence, and not only are they not known until afterward, any such lookback is prone to an agent indulging in what psychologists call confirmation bias.

Furthermore, there is tension between the interests of the buyer and the interests of the seller in other matters as well. Not far from here is a condo conversion project, currently being sold out. About 1993, there was a resident of that complex arrested on suspicion of serial murder. I am unaware of whether he was eventually convicted, but I do know they dug up several bodies as I was unfortunate enough to drive by when they were removing them. California law requires the disclosure within three years of anyone dying on the premises, but at three years and one day there is no requirement for disclosure that I am aware of. Nonetheless, if one of my clients wanted to buy one of those units it would be part of my duty of care to that client's interests to make certain they were informed. Would you not want to know about your building being used as an impromptu cemetary for several bodies? But acting as a seller's agent, I would be forbidden from making that disclosure. Which client's interests do I follow?

Suppose my client is having difficulty qualifying for a loan. Okay, obviously I'm not doing the loan, but I cannot force clients to do their loans with me and the only thing I can offer is carrots, never sticks. But suppose that I, as buyer's broker, find out from the loan officer on day 24 that they've been disqualified because the processor told the underwriter something they shouldn't have, and the loan is back to square one. If I am acting as listing agent as well, my duty to the seller requires me to inform my client of this difficulty. But my duty to the buyer is equally clear about in being a violation of my other client's best interests. Whose interest is paramount? Whose interest do I disregard? These interests are in direct conflict - there can be no compromise resolution. Indeed, as a listing agent I will demand information that it it may not be in my buying client's best interest as buyer's agent be disclosed, and vice versa. If they agree of their own volition, or some other agent talks them into it, then we have a willing buyer and a willing seller and full disclosure from my end and best interest of the client in furthering the transaction and so on and so forth. If I fail to ask because I am also representing the other side, I have not represented my client's best interests. If I talk either client into it when I am representing both, then I have, ipso facto, violated that client's best interest by getting them to agree to something which is not in their best interest. Did I do it because such was in their best interest, or the best interest of my other client? Even if I did act in their best interest, can I prove it? Probably not. Can I prove it in a court of law? Definitely not.

I like to make more money as well as the next person. But accepting dual agency is logically and provably a violation of my duty of care to someone in every case, no matter how the transaction turns out. No matter what you do, it's kind of like the old joke about someone playing chess with themselves. Sure you always win. But you always lose as well, and when you have a fiduciary duty to someone else, setting up a situation where you are guaranteed to lose is in itself a violation of that fiduciary duty.

So I urge you in the strongest possible terms to go find another agent to represent you. There's absolutely nothing wrong with using the same agent to represent you in multiple transactions, even simultaneous transactions. But I would never use the listing agent for a property as my buyer's agent, and I would not allow an agent I was listing a property with to act as buyer's agent. Force them to pick a side and stay on it, and since they've already got a listing contract, they have already made their choice.

This is incidentally another argument against Exclusive Buyers Agency Agreements. If they show you one of their own listings under an exclusive agency contract, they are the procuring cause and you must pay them. Nonexclusive contracts should also have explicit releases if the agent is also the listing agent.

Caveat Emptor

UPDATED here

Thailand's Military Ousts Prime Minister. This does not appear to be as bad as the headline. It's more of a Prime Minister hanging on to power with fingernails despite it being time for new elections. I'm not happy with suspending, let alone revoking, any duly passed constitution without a replacement ready, but the military is talking about getting civilian leaders within weeks. We'll see what they do before going off the deep end.



Thai leader says no elections for a year



It's understandable why, but it's still not a good sign.

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Bad news for the Democrats and those Republicans who have decided to trash the President to get re-elected: Bush approval rating rebounds in new poll



44% is historically very high rating at the midterm elections of a second term. Democrats were happy when Mr. Bill had a 38 in 1998. If it stays this high, you could very well see prospective Democratic gains drying up, and possibly even the Republicans pick up a few seats.



Surprisingly for the war:

For the first time since December 2005, a majority of people polled did not say the war in Iraq was a mistake. The respondents were evenly split at 49 percent to 49 percent, the report said.

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Bush accuses Iran of backing terror

"The greatest obstacle to this future is that your rulers have chosen to deny you liberty and to use your nation's resources to fund terrorism and fuel extremism and pursue nuclear weapons," Bush said.

Drawing a firm distinction between the Iranians and their rulers is one of the things he's got to do in order to isolate the Iranian government.



More detailed AP story here.



Also, Israel Calls Iran Its Greatest Threat



How clear-headed of them.



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Unfinished Tolkien work to be published



Best news I've had today.



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Housing Construction Down 6 Pct. in Aug.



Well, DUH! The way inventory is sitting on the market, you've got to be crazy to actually spend the money to build more.

"Housing has just fallen off a precipice," said Mark Zandi, chief economist at Moody's Economy.com, who said he believed the central bank would discuss this slowdown in the statement it releases after Wednesday's meeting.

Fed holds rates steady



Well, they may have finally woken up to the fact that they overreacted.



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Omigosh! The House did something intelligent today. What are the odds?

House Passes Bill to Make Voters Show ID

Republican sponsors of the voter identification bill said it was a commonsense way to stop fraud at the polls. People need photo IDs to board planes, buy alcohol or cash checks, said Rep. Vernon Ehlers, R-Mich., chairman of the House Administration Committee. "This is not a new concept."

but of course

But Democrats assailed the legislation, saying it could hurt minorities, the poor and the elderly - groups that tend to vote Democratic - who might have trouble producing a photo identification.



"This bill is tantamount to a 21st century poll tax," said Democratic Whip Steny Hoyer, D-Md. "It will disenfranchise large number of legal voters."

That's right, whip those forty years dead issues. Is anybody exempted? Is the cost extraordinary? No. Will there be provisions for getting them free, thus invalidating the poll tax allegation?

The bill would require everyone to present a photo ID before voting in federal elections by 2008. By 2010 voters would have to have photo IDs that certified they were citizens. In response to criticism that this would be a burden for the poor, the bill stipulates that states must provide the identification cards free of charge to those who can't afford them.

Looks like the answer is affirmative.



Of course it's still got to pass the Senate, where it could well be filibustered if the Democrats are as stupid as they usually are, and the courts, where of course there will be challenges lasting for years. Can't take simple, cheap measures to stop voter fraud. Special interests would find it harder to cheat. We might go back to something more closely resembling a republic.



Last I checked, the mandate was one person, one vote. Not "as many votes as they can register for in different precincts" And lest you think this is a bad thing, consider this possibility. Let's say a group that is basically politically your opposite gets organized, and gets addresses of registered voters. They then proceed, bright and early on election day, to vote in as many precincts as possible, claiming they are people registered in that precinct. Let's say one of them picks your name. The election officers cannot ask for ID - they must presume this person is you. If they get to the polls first, they will get to vote and you won't. Even if you get to the polls first, they probably have a back up name they can use. If this doesn't bother you, there is something wrong. If there is anything in place to stop them, I am unaware of it. I want to start requiring right thumbprints also. Won't stop someone from registering in two or more precincts, but when they get compared, that joker is going to have some 'splainin' to do, and there's not likely to be a claim of "somebody went and used my right thumb without my permission."



I want every actual vote to be counted, not diluted, canceled, or stolen by fraud. Voter Identification is one of the easiest, cheapest ways possible to do this.



How can we be a democracy or a republic if anyone with a mind to commit voter fraud has a clear path to do so?



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Chavez sees Bush as 'devil' but John Bolton sunk him with one shot, ""Too bad President Chávez doesn't extend the same freedom of speech and the press to the people of Venezuela."



I also like Don Surber's take.



Captain's Quarters has a good compare and contrast of Bush's speech and Ahmedinejad's. (I have to stop myself from typing "I'm a damned nut-job" every time I type that name)



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A little good news for Jane: The situation in Yemen is getting press coverage. Yemen moves along volatile path to democracy



Armies of Liberation has some thoughts on what the elections mean.



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Iraq the Model on Muslims accepting facts.



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Michelle Malkin on the AP sheltering terrorist stringers.



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Remember 2004, when the various lefty media were highlighting a different Bush voter turned Democrat every day, and never did any any Gore voters turned Bush voters despite the fact that there were more of them? Same tricks, different election. Via Instapundit,

GMA's Disillusioned Republican Woman Not Really So Republican

Ken Harney has some welcome news on Move afoot to end uninvited mortgage pitches



To a certain extent, these are a good thing for consumers. However, it gets way overdone.



What happens is this. Let's sat I get a client into my office, they apply for a mortgage, and I run their credit. The three credit bureaus, Experian, TransUnion, and Equifax, then turn around and sell the fact that this person has just had their credit run under a mortgage inquiry code, together with some of their more easily obtainable information.



Result? My clients are besieged with mortgage pitches. For months, every time they answer the phone it's likely to be someone else who has paid the money for a red hot mortgage lead.



Needless to say, my clients aren't happy. I have had several clients come out and accuse me of selling their information to telemarketers. Now, the fact that I encourage folks who come here to shop their mortgage around notwithstanding, it would be shooting myself in the head to sell their information to other providers. I know what I've got, I know what I quoted them, and I know I intend to deliver. The only thing that will stop me is if they do not qualify for that loan. If someone is satisfied with what I intend to deliver, far be it from me to tell them to shop around because they might be able to do better. My family and I do have to live, you know. I won't stop or prevent or hinder them from shopping their loan around (which alone sets me apart from 90 percent plus of the loan providers out there), but telling them to do so is just not part of my job description at that point in time. It's like expecting the mechanic as he starts working on your car to tell you that you might be able to get a better deal somewhere else.



Indeed, if I had the option of paying extra for that credit report so my clients aren't besieged by unsolicited offers, I would take it every time. Not only would my clients be less harassed, but the prospective providers who pay for that sort of information are not precisely known for their sterling character, if you know what I mean. I've had clients tell me stories of people determined to sell them negative amortization loans without informing them of the drawbacks. I've had clients tell me of people determined to get their business that they told them of loans that do not exist, often with conspiratorial pitches like, "This is the loan they won't tell you about! You have to ask for it!" Well then, why are you offering it? By all means, put it out there on the table and let's compare the two loans by cranking the numbers, but the vast majority of the time it turns out the reason you have to ask for that sort of loan is that it's a piece of garbage and no self-respecting loan professional would expect you to accept such awful terms.



Now let me tell you about the numbers of such pitches. Because each of the big three credit bureaus is innocent of the actions of the others, it starts in three places, each of which pitches to the prospective providers that it sells the information no more than four places. I don't know why the number four became magic, but it seems to pop up everywhere in the mortgage leads industry. So each of them sells to four, and there are three of them. That's twelve people you're going to be getting a phone call from right there, and never mind that you're on the "Do not call" list.



But what's going to happen the majority of the time is that somewhere around ten of those who initially buy the information are resellers. They pay sixty bucks a pop, and turn around and sell the information to four other folks at twenty-five bucks a pop. Some of these places are in turn resellers; indeed, some of them got this information directly, which is all that keeps the whole process from snowballing until people are besieged by what seems like every last person with a valid mortgage license for the area. So twelve, forty-eight, hundred forty four, four hundred thirty two wannabe mortgage providers swarm each person I run credit on. I try to remember to warn them, but there is nothing I can do to stop it from happening, however much I might want to.



Now do not get me wrong. It is a good idea to shop your mortgage and I have even repeatedly told people who come here that they should actually sign up with at least two prospective providers, a main and a backup, because at the end of the process the power is all in the loan provider's hands and it is often abused. Having two loans ready to go defuses most of the potential for abuse, leaving aside the issue that I guarantee my quotes in writing when the client decides they want it and gets me enough information to lock the loan.



But there is a major difference between that and setting this pack of wild ravening prospective mortgage providers on my clients, willing to promise the sun, the moon, and all of the stars and planets if my clients will simply drop me and sign up with them instead. There is a major difference between agreeing that shopping the loan is a good idea, and throwing my clients to a pack of hundreds of telemarketers who call for months - sometimes as long as two years, so that they seem to be part of the next wave the next time those folks need a real estate loan - and bulk mailers who are almost singlehandedly responsible for global deforestation and accelerated filling of our urban landfills. If it does happen, I will be pleased to see it end.



I'm also gratified to see National Association of Mortgage Brokers on the correct side of this:

But the National Association of Mortgage Brokers doesn't agree. When credit bureaus sell overnight trigger lists to third-party lead generators, the brokers argue, they fail to comply with a key provision of the Fair Credit Reporting Act: that anyone receiving consumers' personal information must be in the position to make a "firm offer of credit" or have previously received permission from the consumer to obtain credit file data. Third-party lead generators obtain no permission and are in no position to make any credit offers, firm or otherwise.

There is a world of difference between suggesting you shop your mortgage and making certain you shop hundreds of providers, whether you want to or not.



I would suggest contacting your congresscritter to register your support for this proposal.



Caveat Emptor.



P.S. In the meantime you can stop it from happening to yourself at www.optoutprescreen.com or by calling (888) 567-8688.

UPDATED here

Recently, I had two publishers ask me if I would read books for review purposes on my site. I said that I would be glad to. One of the publishers included this little book on communicating between "suits" (businessfolk) and "geeks" (technical folk).



Having a background on both sides of the fence (math, physics, and out of date computer stuff on one side, and accounting, sales and marketing on the other), I have spent a very long time frustrated by how little each of these two groups understands the other. To be frank, it is my belief that the average member of the geek side not only knows that the business side does not care about their issues, but that they do not want to understand the business side. To use the sorts of things I've heard more than once, "I've got a Masters in Computer Science from MIT, and that turkey got a shake and bake degree in marketing from the local trade school. What could he possibly have to teach me? What could he possibly know that I don't, or couldn't learn?" Well the answer is that the mind boggles. On the other side, the business side tends to look at the technical folks as a cross between black box and magic wand, into which flow money and resources, and out of which flows tools for increased productivity and products they can take to market. If they're lucky, the cost of what goes in to the black box will be less than the good stuff that comes out. They often do not realize that making technical choices in ignorance of background information or the consequences of their choices often sabotages the very projects they need to succeed the most.



This book is a good attempt to bridge that gap. Instead of merely describing it, as all too many people have done in the past, it attempts to move past that into the area of solving the communication and attitude problems between two very different sorts of worker with two very different skill sets and experiences, all of which color not only their attitude towards the company they work for and their coworkers, but all sorts of details in the rest of their lives. Just a for instance, a business person knows in their soul that there is always a reason for lower price, and although they are always looking to get what they need for the best possible price, they are open to spending more in order to get more. The typical technical person, when it comes to buying anything other than technology with their own money, is much more difficult to convince that extra money is worthwhile than any business person. It literally does not enter the average tech person's mind that the reason something is cheaper is because you're getting less of something that other people have found valuable. I used to be that way myself before I started working on the business side.



Now this book was written by one author from the technical side and one from the business side. They dodge the easy trap of laying all of the blame on this or that, and they give some very commonsense methods of bridging the gap from both sides - not laying the burden on either side exclusively. They do a pretty good job, far more effective than anyone else I have seen make the same attempt.



I would recommend this to either geeks or suits who have any need to understand where the other is coming from. In other works, basically everyone with a job.



The Geek Gap at Amazon



The Geek Gap at Barnes and Noble

Went swimming, probably for the last time this season. Asked Hilda as we were getting in, "Are there any sharks in the pool?" She said no. I asked her if she was sure, and she responded "You go first Daddy!"



So I told my wife Hilda understands test penguins. When I explained, she said, "But if you go first there's always a shark."

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On a slightly different subject, I'm starting to hope that Thing is not necessarily on the downhill slide which ends in a final visit to the vet. I've had a lot of trouble getting him to eat recently, and he's lost a lot of weight. He's almost painfully thin. After talking to the vet, I've taken to cooking up hamburgers simply to get him to eat something, because the high protein low bulk canned food the vet wants him on due to kidney issues is not stuff he enjoys (he's been fed kibble his whole life until now). But I've found some stuff that is almost as good as the vet's most preferred brand that he will eat with small amounts of hamburger mixed in. He has eaten very well his last few meals. I'm giving him more than I normally would, hoping to maybe build his weight back up a little, and he's eating pretty much all of it. Mellon really got her nose out of joint this morning over how little was left, but she doesn't exactly need any extra, being more in the way of a stuffed sausage dog than a wiener dog at present. But Thing being something in the way of wizard's familiar to me, I'm glad he's eating.



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Carnival of Personal Finance



Carnival of Investing



Carnival of Real Estate Recommended: Bloodhound (Dual Agency)



There is a Carnival of Capitalists up that I have a post in, but the host has done such a minimal job that I've decided not to link. If he wants to get his knickers in a twist and pull the link to my post, that's his prerogative.



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All of those who accuse the Catholic church of complicity in the holocaust, and all of those who defend it, now have a huge amount of very significant evidence to go over: Vatican opens 1922-1939 archives. This covers the papacy of Pius XI, where Pius XII is the real figure of scrutiny, but since the man who would become Pius XII was Ambassador to Germany and later Vatican Secretary of State, there is a lot of direct evidence to go through.

Pius XII toed a cautious line during the war to avoid reprisals against Catholics in Germany and Nazi-occupied countries. He was initially praised for speaking out as openly as he could and helping to save Jews in secret.



This view changed radically in 1963, when German playwright Rolf Hochhuth depicted him in "The Deputy" as a cynic who kept silent despite knowing about the Holocaust.

As we are discovering all over again, it is very easy to criticize after the fact, much more difficult to actually be the one responsible for decisions that could get others killed.

Historian have also called on the Vatican to fully open archives for the papacy of Pius XII (1939-1958) but there is no indication when that will happen.

I predict that it will. There are still living priests whose service dates from that time period, but when they have gone, the Vatican will open the records.



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As Mexico vote dispute winds down, Obrador gears up

But Obrador, who quipped upon hearing of his loss, "to hell with the institutions," has not backed down, saying he refuses to ever recognize the victor, Felipe Calderón, as the country's leader.



"[Obrador] is my president," says Victoria Brocca, a writer in Mexico City who jumped excitedly at Saturday's convention, which drew tens of thousands of supporters, when hands shot up in the air to show support for the creation of Obrador's "parallel government. "Obrador will name a cabinet and be "inaugurated" Nov. 20, just days before Mr. Calderón takes office Dec. 1.

Whether by violence or arrogation, this is bad. Actually, what Obrador is doing is technically called subversion, and is a form of treason. For Excellent reason, I might add.



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Worth Reading: Hugh Hewitt has a good FAQ version of the problem we face.

It shouldn't surprise anyone that there are things you should do before you make your first investment. The SEC, NASD and all of the various other financial planning organizations all explicitly list three things that should be in place in most cases prior to making your first investment in anything.



The first of these is an operating reserve. This is a fund of ready cash outside of any investment account, that you can use for emergencies. The minimum is three months of your normal expenditures, but six months is better. People lose jobs, have accidents, have health problems, things come up - you get the idea. Unless your job is rock steady, your cash flow predictable, and you can live on less than fifty percent of your take home pay, you really want to have living expenses for six months saved up, and for some self employed situations where your cash flow is uneven (like say, financial planner or real estate), twelve months is better. Having this much cash on hand gives you a certain security, and you likely won't have to cash in your investment for some minor emergency.



The second of these is a life insurance policy. This isn't from any deep-seated desire to sell you a life insurance policy. Investment professionals have only been getting insurance licenses since about 1980, and this recommendation is far older than that. Almost everyone is going to need a life insurance policy at some point in their life, and it is cheaper and more effective to purchase while you are young. and especially before health problems are likely to develop. As I've found out, sometimes things happen to you that prevent you from obtaining life insurance (as in no company will issue you a policy, or will only do so on prohibitive terms), and if you want a family eventually, it is wise to take care of this now. Furthermore, certain life insurance policies are among the very best investments you can make, and more effective the sooner you start them. This is not to say that life insurance is for everyone. I have a client who's older, has no dependents and never will, has plenty of assets to cover final expenses, and those assets are titled so that they will pass immediately and correctly to his heirs. A life insurance policy would still be of benefit if he had certain goals, but he doesn't. So we've decided it's not for him.



The third of these is estate planning. This is actually in the requirements as a will, but there are other elements such as durable power of attorney for health care, living trusts, and so on. These do cost a certain amount of money, but it's money well spent. If something happens to you without doing this planning, every state in the US has a different law as to what happens to your assets, your minor children, your pets, etcetera. These are all cookie cutter approaches, and that cookie cutter was likely enacted a long time ago, to where the societal assumptions that the legislature made at that time are no longer valid for any large proportion of the population. The majority of your assets should not be transferred by a will, anyway - wills can be and are challenged successfully every day. Trusts are far better.



If the person you work with is any kind of financial planner, they should add two additional concerns to the list. They are disability income insurance and long term care insurance. The need for both goes away as you become more affluent. Remember, that insurance companies exist to make a profit and if you can afford the risk of losing what they insure, you shouldn't buy a policy. So if you've got a couple million somewhere, and if you never made another penny you would be comfortable, there is no need for disability insurance. The same applies to Long Term Care, albeit probably requiring more affluence. Average base per diem cost in California is $180, with another $60 or so in supplemental charges. So when you can afford $240 per day (between $85,000 and $90,000 per year) for a period of several years in addition to what ever else you may need for your family to live, you are not a good candidate for long term care insurance. On the other hand, long term care facility prices keep rising, and as medical capabilities for keeping you alive get better, you can expect to spend longer in such a facility.



(For all the money and research we throw at prolonging lives, you'd think we could spend more on making it a robust life, or allocate more of what we already spend towards that end. More and more, we are statistically tending towards living longer in an increasingly frail, helpless and joyless condition. As long as people are enjoying life, more power to them. When it becomes a miserable painful existence, as I have seen too much of, I just don't see the point. When I see what so many people put themselves or their loved ones through, I'm making certain I'll always have a "check out" option under my own control, and if I don't have control to exercise, my wife and I are agreed that neither one of us wants to hang around).



financial planning investment education

A sign of hope in desperate times: First Rabbis since 1942 ordained in Germany

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Conn. mom breaks record for biggest baby. 14 pounds 13 ounces. Hilda was big at 8/15 and Ramona was nicknamed "babyzilla" for being 10 pounds at birth. But nearly 15 pounds? Oiks!



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Iran says open to "new conditions" over atom standoff.



Is there anybody left who honestly thinks that Iran is serious about adhering to any agreements it makes having to do with nuclear weapons? That they are not just negotiating to buy time while they build some?



77% Believe Iran is Likely to Have Nukes "Soon"



Pigilito has some worthwhile thoughts.



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Largest known dwarf planet named Eris

Eris' discoverer, Michael Brown of the California Institute of Technology, said the name was an obvious choice, calling it "too perfect to resist."

I could not imagine a better name for it.

Eris' moon also received a formal name: Dysnomia, the daughter of Eris known as the spirit of lawlessness.

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Lileks Screed. Now.



In the same vein, A DEADLY KINDNESS



John Leo on "They Killed My Baby!" Journalism.



Iraq the Model asks France some questions.



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I think more people should read this Asymmetrical Information post on confirmation bias, value judgements, and torturing data.



One of my favorite lines has long been, "If you torture the data enough, it will confess." A somewhat different version of "figures don't lie, but liars do figure."



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Armies of Liberation

Concluding his speech, Saleh said, "We greet all of you, people of Lahj, and affirm that we will work to distribute residential and agricultural lands among young people all over the country. By the end of 2008, there will be no jobless youths."

If that were likely to be a valid or productive response to the situation, why haven't you done it at any time in the last 27 years?



Mugabe made this promise one of his cornerstones, in order to appeal to the poverty stricken masses he'd hurt so much with his policies. He was even crazy enough to do it. Result? Famine.



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Belmont Club has a short tribute to Oriana Fallaci.



If you're the religious or spiritual sort you might stop a moment and say a blessing for her. She will be missed.



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Wizbang says essentially the same thing I said about voter ID quite some time ago.



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Iraqi Official Testifies to Links Between Saddam and Al Qaeda



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Captain's Quarters: "Since When Has Geneva Protected Our Troops?" Not since 1918. That doesn't mean it's not the right thing to do. Just that this particular argument makes no sense.

Fury Over Pope's Remarks Raises Concerns

Pakistan's legislature unanimously condemned Pope Benedict XVI. Lebanon's top Shiite cleric demanded an apology. And in Turkey, the ruling party likened the pontiff to Hitler and Mussolini and accused him of reviving the mentality of the Crusades.

All because he said he believes Islam is a violent religion? The truth must be painful. Especially when you're in denial.



Linked to Hitler and Mussolini because he accuses someone of being violent? Just so we're clear about what we're discussing here, what about repeated Vatican condemnations of George Bush and the US as being too violent?



Oh. I see. It's okay to accuse the civilized, restrained US of being too violent. But it's not PC to accuse Islam, never mind how accurate the accusation. Or is it along the same lines as Han Solo's famous quote: "That's because droids don't pull people's arms out of their sockets when they get upset"?



So don't accuse Wookies of being violent. Or Islam. They'll do considerably more than pull your arm out of it's socket.

"The declarations from the pope are more dangerous than the cartoons, because they come from the most important Christian authority in the world - the cartoons just came from an artist,"

You mean perhaps because he lends the accusation a certain amount of legitmacy, perhaps? The argument is legitimate no matter who makes it. But he makes it more weighty because of who he is. You can get mad at the messenger, or you can deal with the root issues of the message. These folks did the former. The latter is more constructive. Christianity managed it centuries ago, Judaism centuries before that. Buddhism never had much of a problem with it. Of all the major world religions, Islam is the only one in denial of this problem.

"He has a dark mentality that comes from the darkness of the Middle Ages. He is a poor thing that has not benefited from the spirit of reform in the Christian world," Kapusuz told Turkish state media. "It looks like an effort to revive the mentality of the Crusades."



"Benedict, the author of such unfortunate and insolent remarks, is going down in history for his words," Kapusuz added. "He is going down in history in the same category as leaders such as Hitler and Mussolini."

Because he tells the truth as he sees it? As millions of others see it? In accordance with a huge body of observed evidence? Exhibit A of which is the teachings of the holy books of Islam?



This, ladies and gentlemen, is psychological denial. Of the same sort you encounter in addicts of all stripes.



Pope's Birthplace in Bavaria Vandalized

Police were investigating, but so far had no suspects.

Does anyone think it likely to have been a group of marauding atheists? Jews, perhaps? Protestants? Buddhists? Hindus?



Moslems are not the only suspect that springs to mind. But they are the most likely.



Turkish Cleric Criticizes Pope Comments

Bardakoglu said he expected an apology from the pope and said it was Christianity, not Islam, that popularized conversion by the sword, according to Turkey's state-owned Anatolia news agency.



"The church and the Western public, because they saw Islam as the enemy, went on crusades. They occupied Istanbul, they killed thousands of people. Orthodox Christians and Jews were killed and tortured," he said.

And nothing ever happened in the Hindu Kush. Pay no attention to those jihadis behind the curtain. These are not the terrorists you're looking for.



Well, there might be an alternate universe where it's true. But here in this one, the one religion with the strongest history of conversion by force of arms is Islam. In fact, it's the only religion I can think of that has not specifically forsworn conversion by force, and they have been doing it since long before the counter-offensive that was the Christian Crusades, and they've been doing it ever since, even in completely unrelated areas of the world to people who had never heard of Christianity.



Not to mention that this was a thousand years ago, and Christianity has morally evolved while Islam has not. You want an excuse to be savage murderers, you need to think of a better one than that.



It is not enough to say these are actions of a small number of extremists. For so-called "moderate moslems", it is essential that they condemn the actions in no uncertain terms, and materially aid in hunting down the perpetrators and preventing such actions in the future. That's what it takes to convince me that you really mean it. Action that leaves no doubt as to where you really stand.



Why do I suddenly hear crickets chirping?



When so-called moderate moslems condemn such acts in no uncertain terms, undertake political risk to condemn, circumvent, and hunt down and punish extremists who perform these kinds of actions, then I will believe that they actually are moderates. When accomodating the opinions of an 'islamic community' is more important, I call those people sympathizers, not moderates.



Consider the history of the Ku Klux Klan here in the United States. Their power wasn't broken until they were seen as unfit for civilized people to be associating with. Until then, they were supported by a community of enablers that ranged from business organizations to women's organizations to still others that are some of the most respected organizations in the United States, even today. A bigot or denier who protected the Klan by saying "they were only having a bit of fun," or "they were protecting the white community," was a part of exactly the same problem as the actual Klansmen performing his acts of terrorism.



This same principle needs to be applied to so-called "moderate Moslems." Show me by your actions that you are not part of the problem. But most of them are making the same sort of excuses that Klan apologists made. Not to mention apologists for most of the other atrocities of history. To be fair, there are those who are acting in accordance with this. But they are relatively few. The vast majority are acting exactly like the Klan enablers did. QED.



Muslims deplore Pope speech, want apology

"The Pope of the Vatican joins in the Zionist-American alliance against Islam," said the leading Moroccan daily Attajdid, the main Islamist newspaper in the kingdom.

So, because he says Moslems need to improve, he's joining some kind of unholy alliance with the goals of the democide of the Islamic world?



Denial.



Related:

The Pope Tackles Faith and Terrorism



Original of the Pope's Speech here, via Justus for All



SWWBO uses far fewer words to say what I did.



Scrappleface reduces it for easy understanding.

"What do I do when the loan falls through"

That depends upon when it falls through and what situation you're in. If you're in a refinance situation, you generally keep making payments on your old loan until and unless you can find a refinance that is better that you qualify for. There is one exception to this: balloon loans. Balloon loans must be paid off in full on thus and such a date. These dates are known at least five years in advance, but some people insist upon leaving it to the last possible instant.

If you're unable to refinance your balloon in time, lenders whom you ask for forbearance will generally will give you at least some time in extension of the old loan, but at a higher interest rate. This is very kind of the lenders because they don't have to give you an extra minute. The agreement ran out last week and you didn't pay them; they are entitled to foreclose if they want to. Good thing that the lender usually doesn't want to.

If you're doing a purchase, and the loan falls out any time with more than two weeks to go in escrow, that's usually time to rush a purchase through, although you won't be able to shop the new loan as much, and it's unlikely to be as good. See why I tell you to apply for a back up? I've gotten purchase money loans done in two business days - loan approved, and documents in the hand of the notary.

However, loan providers will generally not admit that loans fell apart before the last minute, even if they were rejected out of hand back on day three. Actually, that's a trick they pull quite often; tell you about loan A intending to deliver loan B, and then at the last minute tell you that you don't qualify for A but you can have B. This keeps you from having time to shop around after you discover what a rotten loan they really have for you. They knew about what loan you would and would not qualify for within a week unless they are hopelessly incompetent, but their percentage lies in keeping mum until you have no choice but to accept loan B. In another amazing coincidence, loan B usually has a long prepayment penalty, and buying it off - if you can - costs two percent on the rate, and they'd have to send it all the way back to underwriting to see in you qualify, and that will take weeks, so why don't you just sign for this loan right now. They may even say, "We'll fix it later." Yes, they will volunteer to get paid again after you've spent several thousand dollars on that prepayment penalty. I had a guy come to me quite recently, trying to fix one of those after the original company failed to do so. Unfortunately, the coals he'd been raked over, and with his credit score, there was nothing I could do and he lost the property.

So it's now day thirty-one of a thirty day escrow, you've got a $10,000 deposit on the line, as your loan contingency expired back on day eighteen. Aren't you glad you applied for a back up loan? You didn't? Well, the situation isn't necessarily lost.

First, call your seller, or have your agent call their agent, and find out if they'll extend escrow. If it's a hot seller's market and they won't, you're hosed, but in a buyer's market like this, they will if they're smart. Most sellers, even in this market, will want you to pay extension fees and that is to be expected. The reason escrows are usually limited to thirty days is so they don't have to keep spending money on you if you can't qualify, and they do spend money on the transaction. This may cost you an extra $100 per day for up to ten days, but when the alternative is losing $10,000, that's very worthwhile.

Purchase money loans can be done fast if you are in fact qualified and your loan officer knows what they're doing. Forty eight hours is often very doable. Three to four days is much easier. Ten days is a long time in this sort of situation. The loan provider will charge more of a margin than you usually would, but this guy is likely putting everything else on hold in order to deal with your problem. That's reasonable. Perhaps this time you'll heed me when I tell you to apply for a backup loan?

Loan providers who admit in the first week after you've given them standard qualifying information that you're not going to qualify for the loan they initially told you about are probably honest, and likely thought you really would qualify. But the longer it goes, the less likely it is they intended to deliver the original loan. I might believe someone like that in the second week - but I wouldn't believe that story from anyone in the third week after applying, even if they were backed up by everyone from Diogenes to George Washington.

Loans fall apart all the time. Locally, the percentage of escrows that fall apart because the buyer cannot in fact qualify for the necessary financing is edging up towards forty percent. So take precautions to make certain that situation does not happen to you.

Caveat Emptor

UPDATED here

How do you transfer house ownership after someone dies and leaves you the house in a will?

The will must be probated. Once all debts of the estate are paid and the court agrees to a final disposition of assets, the executor will then create a deed giving whoever it is title to the property. It may or may not be part of the executor's job to record the deed with the county - so make certain it gets done yourself if you are the inheritor. It may cost a little ($65 locally), but it prevents huge problems down the road.

Now if there's a loan or other liens in effect, the mere fact that your predecessor died does not render them in any way invalid. Most specifically, Trust Deeds have the power to foreclose if the payments are not made in a timely manner. Sometimes the estate has the money to pay them off; more often it does not and somebody better keep making those payments during probate, which lasts a legal minimum of 9 months, or the issue will be academic before probate is resolved. Nor can estates, in general, secure financing, so refinancing the loan can be difficult. Relatively few dead people earn significant amounts of money.

On the other hand, if your property is in a Trust, then there is no probate on that part of the estate. Title to the property passes basically immediately to the successor trustee, who must comply with whatever instructions are made in the trust with regard to the property, but is otherwise free to do with it as they will within the limitations of the law. Among other issues encountered in probate but not here, this permits refinancing in whatever name happens to have the income to keep making the payments.

Caveat Emptor

UPDATED here

Carnival of Personal Finance



Carnival of Real Estate Recommended: Sellsius. Zillow is notoriously inaccurate. I wonder what would happen if a homeowner sued because their zestimate caused a prospective buyer to back out?



RINO Sightings Recommended: Don Surber



Canival of Liberty



Carnival of The Capitalists

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I see nothing has changed since I left the FAA Ky. controllers had worries before crash

Besides the letter to the senators, another Lexington control tower operator wrote to the FAA's Accountability Board on Dec. 1, 2005, complaining about a hostile work environment in the tower. That employee requested anonymity, fearing discipline against him.



"Not only do the vast majority of controllers worry about the security of their jobs, but this anxiety in the work place should be considered a legitimate safety concern for the flying public since controllers are not in a healthy state of mind while working traffic," he wrote.

The rule is that the FAA never fixes anything until there are bodies on the ground, and management will choose only the most cosmetic of repair measures then.



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Study shows Neanderthals survived longer



But any resemblance to Al Franken or Rush Limbaugh is purely coincidental.



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Looks like the elephants succeeded in defending thier incumbent centrist against the hard right: Chafee Keeps Republican Hopes Alive in RI



Mind you, the odds were with them where they were against the Donkeys in Connecticut next door. Even Elephants in blue states know they can't elect a wingnut, whereas the Donkeys may actually think they can elect a moonbat.



We'll find out November 7th.



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Lysistrata, call your office: Colombia gang wives call sex strike against crime

BOGOTA, Colombia (Reuters) - They are calling it the "crossed legs" strike.



Fretting over crime and violence, girlfriends and wives of gang members in the Colombian city of Pereira have called a ban on sex to persuade their menfolk to give up the gun.

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Here's some wisdom from Willisms on the supposed virtues of walking on eggshells. To his excellent list, let me add another: It lends credence to the theory that we're afraid of them.



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Strata=-Sphere has a nice piece on the NY Times trying to frustrate investigations. I don't think receiving classified information should be a crime, but these sort of precautions speak to something to hide, don't they?



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Q and O on a Lawrence Kaplan editorial explaining the need to finish the job in Iraq to both the Murtha and Kerry wings.



Mr. Smash exposes the Code Pink people not supporting the troops.



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I'm hoping to be on a less burned-out and more even keel by the weekend.

I get occasional questions about the difference between these three kinds of activity. Well, there are subjective parts to the answer, but here are some general guidelines:



A true flipper is looking for a quick turn on the property, usually without much work done to really improve the property. They don't typically keep the property and rent it; they're not willing to accept the work of being a landlord. They make their money off of desperate sellers and getting a very low price for a property. Typically, their profit comes from how far down they can drive a desperate seller.



A fixer is someone who is looking to make a profit by making the property more attractive. By making it more attractive, they are able to sell for more money. They typically sell when the renovations are done, although many will wait for a full year to gain better tax treatment. They do not typically rent the property out, although they may live in it while it's being renovated.



An investor has the idea of buying and holding for a certain period of time, usually leveraging rent to make the payments, sometimes breaking even, preferably with positive cash flow, usually while eventually hoping to cash in on capital appreciation, but always holding for periods that start at two years and go up from there.



Now I've heard a lot of folks who are really fixers call themselves flippers, but I've never heard a flipper call themselves a fixer. Why? Because the general perception admires flippers more, because they theoretically make money by their wits instead of by the sweat of their brows. It's more status to call yourself a flipper, although why people think it's better to tell people they make their living by shorting people who really have no choice, instead of by actually creating value by improving the properties they purchase, is beyond me. But due to the huge long swell of the seller's market that concluded recently, many people got addicted to the fact that it enabled people who didn't really know what they were doing to buy properties for too much money, and six months later sell for a profit despite not having done anything to improve the property.



Right now, the local market does not support flipping, due to the fact that no matter how good the bargain they buy the property for is, as soon as the flippers go to sell it and actually make a profit, they become one of the thirty-odd sellers for every buyer out there right now. Indeed, I know of a couple of properties out there on the market that have been through more than one sale from desperate flipper to optimistic flipper, and then the optimistic flipper gets desperate and sells to another optimist. Indeed, with most properties on the market, it's a gamble as to whether fixing will yield a profit after expenses in the usual fixer's time frame. There are quite a few out there that are suitable, and many more that are not. With the ratio of 40 buyers to every seller this last week, the odds are against it in all but a very few properties.



Investors who buy now will do very well. There are a lot of desperate sellers out there, and so long as they've got positive cash flow in a sustainable situation, all they've got to do is wait for the market to move in their favor. Until then, they are making money. Real investors never turn into desperate sellers, because they always have the option of hanging on to it. It might not be their most preferred option, but it is there.



I love working with fixers. It's a lot more work to find suitable properties right now, but that's fine. And, of course, families who buy for a personal residence in the current market will do very well in the long term. But flippers are basically wasting their time. The market isn't there to make them happy, and I can't say as that causes me any grief.



Caveat Emptor

UPDATED here

I got an ill-mannered complaint email about how an evil loan officer from another company ordered the appraisal without waiting for the inspection to be done, and it turned out there was a minor problem that the seller likely could have had repaired, but this clown chose to walk away, and as a result is griping about having to pay for the appraisal.



First, that appraiser did the work based upon your representation you wanted the property. You signed a purchase contract saying that you were intending to purchase the property, and someone acting on your behalf because of that action ordered the appraisal, which has to be done if you're going to get a loan. That appraiser did the work. They are entitled to be paid.



Second, scheduling an appraisal promptly protects you. The longer the entire process takes, the worse the loan you are going to get. If they didn't lock your rate right away, the loan officer is gambling with your money. But rate locks aren't free, and they are for definite periods of time. The longer a rate lock is, the more you will pay for it. Furthermore, if you go beyond them you're either going to pay a tenth of a point for five days, or a quarter for fifteen (both assessed in full on the first day of extension) or pay worst case rates. The person who ordered the appraisal was acting in good faith to protect your interests based upon the representation that you wanted the property. If you didn't, why did you make an offer and sign the purchase contract? Speed is important in getting a loan done, and even if in some instances people like you end up paying for an appraisal when they cancel escrow, the people who actually want the property benefit by having everything done right away. Appraisals are around $350. A tenth of a point of $400,000 is $400. A quarter of a point is $1000. Or you can pay a quarter of a point more - $1000 - for a longer rate lock in the first place, but the assumption when you sign that purchase contract is that you want the property, which means the appraisal has to get done, and you want the lowest rate, which means the shortest practical lock time. People get sued - successfully - for not ordering the appraisal right away. This person was doing exactly their job.



I have stated before that I will bet money, based upon no additional information, that a loan done in thirty days or less will be a better loan than one that takes sixty or more. Ordering all of the services: inspections, appraisal, disclosures, zone report, etcetera, right away is part of how a good loan officer - and good agents - get a transaction to close fast, on time, and to the loan quoted. For the buyers who carry through on their intention, as evidenced by that signed contract, doing this is the only correct way to do business. Delaying the appraisal until after the inspection adds to the time it takes to get the loan done. How do you think the seller feels about everything they had to pay for, now that you flaked out?



A purchase contract should not be something you enter into lightly, thinking you can get out of it easily if the slightest thing goes wrong. This is part of the reason for buyers agents. They should explain to you that this is a binding contract, and you are agreeing to purchase that property, and in many cases the seller can sue to make you buy the property. A buyer's agent will also spot a lot of problems before you make the offer. Don't think of them as building inspectors; few agents have that license (and I'm not one of them). But there is nothing that says that I can't spot potential issues and bring them up. In this particular case, it's a trivial issue that I spot and tell my clients about on a regular basis before they make an offer, and as a result, we have dealt with the issue before the contract is agreed to.



Caveat Emptor

UPDATED here

On the morning of September 11, 2001, I got a call from my wife that there were reports a plane had hit the World Trade Center. I turned the TV on immediately, and I'm not certain to this day whether it was in time to catch the second plane hit or whether it was a replay I saw of the second plane hitting the other tower. The timing, compared to the later collapse, was about right. But I knew as soon as I saw that second plane hit that we were at a crossroads. Before Al-Qaeda took responsibility, before Palestinians were celebrating in the streets, before Saddam Hussein was gloating over our collective misfortune, I knew, as did many other people. that this was the day that the American people could no longer pretend that we can hide from terrorism behind our oceans.



This wasn't a gleeful vindication. This was sadly wishing I had been wrong. We had been at war with Islamic fundamentalism since at least 1978, probably since 1947, and perhaps as far back as World War I.



Now there is a large segment of the population that believes it was staged by the government. This contradicts so many facts that it isn't worth rebutting them point by point here. Nonetheless, these people find a vast conspiracy of thousands of people easier to believe than the simple fact that nineteen people wielding box cutters took control of four aircraft, and the American public has been so sensitized to the "wait to be rescued" mentality that three of them were able to impact their targets without the passengers - who greatly outnumbered the hijackers, by the way - doing anything to save themselves. Nearly three thousand people died because people had been taught to rely upon authority figures to save them, rather than undertaking the necessary actions themselves. Only on the fourth and final aircraft did the passengers attempt what was necessary, and that because the official response would clearly have been too late. Those people were heroes, and they are rightly lauded as such. But let's turn it around and ask why the people on the other three flights weren't. The evidence was there in front of their eyes. Had any of those jets landed anywhere in North America or the surrounding islands, they would have been easily overwhelmed by the law enforcement of whatever podunk town happened to be closest. Maybe Barney Fife couldn't have done it, but that was only because Andy only permitted him one bullet, and he's fictional in any case. The planes didn't have the fuel to make any other continent. So whatever was going to happen, it had to happen without landing, and without refueling.



A weapon is energy released on target, whether that weapon is a stick or a nuclear bomb. Indeed, whether something is a weapon lies mostly in the head of the person controlling it. It should be no stretch for anyone to believe an automobile can be used as a weapon. Indeed, most of the world has seen such fictional scenarios play out hundreds of times on movie and television screens. Well, an airliner is like that car, except that it's a couple hundred times more massive and traveling four to ten times as fast. Let's choose the middle of the road seven. So two hundred times the mass traveling 7 times as fast, by the kinetic energy function, is nearly ten thousand times more energy released on target. (7 squared is 49, times 200 is 9800). So what happened to those buildings is as if nearly ten thousand cars going freeway speed hit them all at the same time. The miracle is that modern engineers can design to withstand that kind of impact at all. But in addition to the purely kinetic energy, somewhere around 200,000 pounds of that mass was flammable, highly energetic jet fuel. The miracle wasn't just that the towers stood for a while, it was that they stood for so long. Basic physical fact: Steel melts in a hot enough flame, and before it melts it progressively loses its structural strength. Nor was the way in which the floors of the towers pancaked anything more than a design specification. The damage they did coming down was quite enough as it was, but it would have been orders of magnitude worse if they had impacted some of the other tall buildings nearby. Most buildings are demolished at some point, and the architects have long since been informed that they had better design for it, because if they don't any money their design saves will be wasted dozens of times over in the demolition.



So why do the myths about 9/11 persist? People have been told all of their lives that the world is a predictable place, and that people are reasonable and rational, and negotiation will solve all problems. They don't want to believe that crazy people - people willing to sacrifice themselves because they have been taught they will be lauded in the afterlife because of it - exist any longer. Never mind that the history of the world is one long study of people who were willing, if not precisely eager, to make that sacrifice if it was demanded. Read journals of the second world war and before, and you will read the same sort of things thousands if not millions of ordinary Americans wrote about because they understood how implacable that enemy was: "doing their share" for the war effort. We had twelve million Americans out of a population half of today's in uniform, and the vast majority of them were volunteers. The Civil War actually had a higher proportion of draftees than any subsequent war until Vietnam.



But after World War II, the weapons of unlimited conflict became the weapons of genocide, and if the atomic weapons of the Cold War had ever flown, most of the earth would have been turned into a charnel house, with casualties counted by the hundreds of millions. This, of necessity, led to a different, limited approach to warfare. Remember that if your opponent has nuclear weapons, or somebody on their side does, you had to leave them a way out of everything, lest they drag the world down to destruction with them. So negotiate, chivvy, work little by little, and never try to destroy them completely, and don't forget to negotiate. Did I remember to say negotiate?



We've now spent sixty years fighting this kind of battle, and there are few people even alive now who remember anything different. We've grown so used to it that we have forgotten any other way exists, and only historians and the military have any real exposure to other methods. But this method of conflict resolution has a critical weakness: What if your opponent isn't rational? What if they do not care if the world is destroyed so long as they get their way? Suppose they are willing, even determined to die if only to bring the realization of their goals a little closer?



This far different scenario describes the enemy was face today. It is important to understand that our current enemy sees accommodation and appeasement only as signs of weakness, not of civilized restraint in order not to jeopardize the safety of everyone, even those who are not party to the dispute. It is critical to acknowledge that our current enemy is emboldened by the prospect of death rather than deterred by it, and as long as that death occurs with their fingers metaphorically around the throat of the enemies of their cause, they believe they will be rewarded far more richly in the next life than any suffering they may encounter in this one. They have been told this by their priesthood, their media, even their governments and their parents from the time when they first learned to understand language. It is a far more coherent, focused, unified message than we in the United States have ever heard. This message becomes for them like water to a fish - something they take for granted, as a matter of course. Indeed, if you try to remove them from it, they will lash out violently, which is what we in the west have been experiencing for at least the last fifty years from them. This describes both the cause and the effect: They do not wish to hear that what they believe to be divine words of god to which they have submitted themselves (Islam is submission, to the word of god as related by the holy men), are in fact incorrect or incomplete descriptions of events, natural law, or philosophy.



There are moderate Muslims, but the way the political process works in Muslim nations denies them the levers of power. Even should one of them attain a position of authority, their actions are circumscribed by religious authority to a degree that we here in the United States have never known, and indeed, never will - unless the Islamic extremists conquer us. It took over thirty years for New England Protestant ministers to convince half of the nation that slavery was evil, and needed to be stopped. A Muslim religious leader has only to issue a fatwa. This means that powers urging restraint and consideration are likely to be trumped by those urging precipitate action. The fatwa on Salmon Rushdie has been reaffirmed upon at least two different occasions, and only his secretive lifestyle has kept him alive.



So the Islamic extremist sees only opportunity and weakness in our usual mode of responding to their threat, which is negotiation. Negotiation has become so ingrained in our way of life that it is only through willing trades of this for that that any significant business gets done. Indeed, being a successful, knowledgeable negotiator is so much more rewarding in our culture than even being the best warrior in the world that there simply is no comparison. The rewards for the CEO who brings home a billion dollar deal run to tens if not hundreds of millions of dollars. The pay for a four star officer goes as high as $14,000 per month, an E-9 goes only to a maximum of $5400. That's a pittance by business standards. In forty years at those pay grades, they wouldn't make what some CEOs make for three months work.



I would love to resolve this whole Islamic extremism thing by negotiation. I make my living as a negotiator, after all. An ideal negotiation is one where both parties believe they are better off as the result of the negotiation, and would willingly sign the same deal again. And therein lies the problem. The extremists will sign any number of deals we propose to them, but they will not honor them. Unlike a business negotiator, they feel no need to honor them beyond whatever transient benefits may accrue to them through doing so. If the extremists would honor the results of such negotiation, it would be far cheaper than any military action. With what we've spend fighting Islamic extremism thus far, every single man, woman and child in the Muslim world could have at least a couple thousand dollars. We could have built them such beautiful cities, turned their lands into a paradise, and increased their economy at least tenfold. What rational person would refuse such a deal?



The problem is that they are not responding rationally to events, nor will they honor agreements they make one instant longer than they feel it is in their best interests to do so. They have a word for it: Hudna. Hudna is not peace, it really is not even a truce and it is a mistake to translate it thusly. It is a cease fire until circumstances change to favor them. A temporary halt in hostilities until they figure that events have changed in their favor, or can arrange for them to do so. Not peace, not truce, simply a lull in the fighting, hoping that their enemies will be lulled into a sense of security while they continue their maneuvering for advantage. They talk of honor, but it is a far different kind of honor than most of us in the United States and most of the rest of the world are familiar with, although the Japanese samurai would perhaps recognize a certain kinship of ideology, committed to the struggle no matter what it requires. The tale of the forty-seven Ronin (among others) has many parallels to the Islamic extremist, even if the goals and means are vastly different. Their lives were and are unimportant considerations in the face of the accomplishment of the task at hand, which is the recovery or extension of dar-al-Islam, the land of submission.



So while I understand those who would have us negotiate a peace with Islamic extremists, I have seen the vast weight of evidence as being against the idea that it would be effective. They see generosity in terms of tribute, mercy as a weakness, and truce or peace in terms of hudna, waiting for a time when the odds are more in their favor, and the opportunity to arrange for it to be so. They are quite frank about this fact when they think nobody from the west is paying attention.



However, my biggest concern at this moment is our domestic political situation; the will to continue the fight. As I have said before, the will to fight is the most important indicator of eventual victory or defeat. I understand how and why the Democratic party became the party of surrender and accommodation - they want power and it offered a way to appeal to a certain segment of the population that does not understand the war, and is morally certain that it's all some kind of big misunderstanding. It would have been wiser and more in the national interest to appeal to this group on the margins, by being perceived as being more willing to compromise and more in tune with the aims of the antiwar segment, but the Democratic party in recent years has been unable to fathom the political game of keeping the centrists while appealing more to the edge groups than the Republican opposition. Perceiving political advantage in criticizing the administration, they proceeded to take every opportunity and manufacture others. Their opposition to Secretary Rumsfeld isn't because he's doing a bad job - judging by performance of the troops and his policies under fire, he's the best Secretary of Defense we've had since at least George Marshall. It's a way to oppose the administration, politically and visibly, in no uncertain terms, solidifying their support among this segment of the voting population.



Unfortunately, this has the effect of politicizing the war, committing the Democrats to a path that is not in the best interests of the Unites States should they gain control of the government. Had they not staked their electoral future so clearly upon opposition to the administration's conduct of the war, there would be significant room to maneuver for them. But with no room in the Democratic party for even left-wing politicians such as Joe Lieberman who are willing to evaluate the war in terms of what is best for the United States, and stand firm, refusing to criticize the administration and even speaking in their defense, the Democrats will have precisely no room to maneuver on this issue. Should they win the election and attempt to continue the war as it is currently being conducted, their own supporters would cry more loudly for their ouster than they have for that of the president. Treason, after all, is a far more serious charge than principled disagreement, and apostasy and heresy are far more serious than simply being a nonbeliever.



And it is in the best interests of the United States that we win this war. It is in the best interests of everyone, including the Islamic extremists, although they would deny this to the bitter end. Islamic civilization, because it fell heir by historical accident to the largest remaining repositories of Classical civilization, enjoys a reputation for enlightenment that it does not deserve. None of the innovations were theirs; they were only able to preserve the knowledge of other civilizations. Even the mathematical concept of zero, so widely credited to them in popular culture, came from the conquest of Hindus of India, not their own discoveries.



The brand of Islamic extremism that we are fighting in this current war intends nothing less than a mental straitjacket for the world. Whatever the Koran, the Hadith, and the Suras say, that is what shall be. If sharia says women need four witnesses to prove rape and they shall be put to death as adulterers if they fail, then that is what must be done. Sharia law does say this. Since it is my understanding that if there are multiple people present at a rape, it usually means that the others held the woman down while the deed was done, this kind of puts a crimp in accusations of rape. Indeed, the incidence of rape, and other crimes against women, is much higher in the Islamic world. Merely the act of taking a lover prior to matrimony is grounds for a death sentence if the family wants it to be. Even going on a date with someone whom your family disapproves of can be grounds for so-called "honor killings". I do not understand why so-called feminists fail to demonstrate their understanding of this fact, that should the Islamic extremists prevail, the rights that they supposedly hold in such esteem will be subject to the whims of men. The freedom of scientific and philosophical inquiry would also be highly questionable. You might not be compelled to convert to Islam (so long as you are a member of one of their favored religions, pay the dhimmi tax, and accept your status as merely a tolerated outsider rather than a valued citizen), but to question Islamic thought is punishable by death - and on many occasions, is so punished. Those Islamic extremists who kidnap and murder westerners, or even their own countrymen and countrywomen, do so under cover of Islamic fatwa, a fact which the western press frequently glosses over or fails to mention. Thought crime, that horrid crime of disagreeing with official canon out of Orwell's 1984, literally is punishable by death, and often is punished by death, preceded by torture, rape if the victim is female, and all sorts of other things such as deprivation of dignity that the press and certain members of academia get all huffy about when Americans even think about doing. Understand this in your bones: The boundaries drawn by the Geneva Conventions aren't even an issue to the Islamists. It is documented that Americans and our allies have strayed over the lines drawn by those conventions - which explicitly limit most of those rights to those representing participating nations, by the way - and those so accused are immediately put on trial, and punished if found guilty. In the Islamist world, they earn the praise of their fellows, and by the teachings of religious authority to which they subscribe, a smoothed path to a higher level of paradise in the afterlife. This would in no way change if we all became dhimmi, except that the Islamists wouldn't have to pretend it was all in the name of righteous anger. They would just do it, and we would have to put up with it. The documentation from places that they do rule is perfectly clear on this point, among many others.



Now the place in the world where the Islamists have the firmest grasp on temporal power is Iran. Outwardly a republic, but no candidate is permitted to run without the approval of the supreme religious leader, who controls the military and all police forces. In this country, it would be as if your choices for President were limited to Pat Robertson or Jerry Falwell, and their current president, one of those who stormed the US Embassy during Carter's presidency after the fall of the shah, makes either of those two pimples upon the American body politic look like a rational, intelligent, compassionate human being by comparison. Israel has essentially zero intersection with Iran, and yet Ahmedinejad promised to attack Israel with nuclear weapons. When Ronald Reagan poked fun at the press image of him with a joke in his first term, the press and academia treated it far more seriously, but joking Reagan was, where Ahmedinejad was deadly serious. It would be like George W. Bush making a solemn promise to nuke Sri Lanka, and the entire thing disappeared into the memory hole of nonevents a la 1984 within days. It doesn't fit the press narrative in this country; therefore it vanished within days. When he didn't think the western press was listening, he has also made similar promises to attack American interests with nuclear weapons. Furthermore, Iranian soldiers have been captured aiding the Islamists in Iraq, and Iranian equipment has been captured aiding Hezbollah in Lebanon, as well as dead bodies of Iranian soldiers at the scene of battles with Hezbollah terrorists. All of these are acts of war, dropped down the memory hole by a press whose narrative does not admit that there could perhaps be a reason rational people might feel compelled to go to war with Iran.



Finally, I believe that the time is rapidly approaching when the Iranian regime will need nuclear weapons to control their own people, who are increasingly frustrated with Islamist control over the levers of power. Should a revolt happen, and the regime possesses nuclear weapons, they would consider it as much their duty to use them to maintain their grip on power as they would to use them against the "decadent" United States, against whose cultural ideals Islamist ideals have never prevailed, except when the latter had the threat of force, or its actual use, behind them. Without Iran and its technological base and its oil revenues, the Islamists would be dependent upon far lesser sources of funding. Even the bribery of Wahhabis by the Saudi Royal family has much lesser limits than that.



I would really rather not have to fight Iran at all, but that choice may have been taken out of our hands. The Iranian people are not our enemy. However, the Iranian regime is determined, willing (even eager) to die if only they can take western ideals down as well, they are acquiring the tools to destroy the United States and all of western civilization, and they intend upon taking advantage of what they perceive as our weakness in confronting them. Our choices, as with the rapist murderer who breaks into your home with intent to commit rape and murder, don't have the option of leaving his hands and feet untouched even though it is only his head that means you harm. Your choices are to kill him or be killed, and even if you put your bullets all into his head, the hands and feet and arms and legs will all die also. It is not what we would have wanted, but, willingly or not, those hands and feet and arms and legs were doing the bidding of the head, and should they succeed in following the directives of that head, we would be no less dead for the fact that they did not want to.

I have never liked or favored the estate tax, and yet I am very much of two minds about actually abolishing it. I'm glad of the benefits to the individuals involved, and yet it is only one of the issues involved in planning for what happens to all of us eventually, and abolishing it removes the most obvious motivation for handling the rest.



The benefit of abolishing the estate tax is obvious: people don't get taxed, so their heirs get what they earned rather than the government. This is a good thing, and I favor it for that reason.



On the other hand, there were so many mechanisms varying from outright gifting to 529 accounts to life insurance to trusts, each of which except the first can be used to retain control and benefits of assets while avoiding estate tax liability, that estate tax is and always has been essentially voluntary. You have to just not plan in order to pay estate tax, and some of the mechanisms available actually increase your available estate over what would have been its original gross value otherwise. Since we know that death is something each of us is going to have to face, there can be no reason except stupidity for not undertaking to plan for it. Estate tax was a voluntarily paid tax on stupidity.



Furthermore, there are other estate and contingency planning options that people need to take care of, and fewer people are doing so as estate tax was one of the primary levers that moved people to do it. All of this planning is just as necessary as estate tax planning, and usually taken care of at the same time.



Here are just a few of the other issues:



Will: The will probably should not be used for financial purposes, but resolves other functions such as who gets custody of minor children. Please note that a will is not necessarily binding upon the states where your will is probated, and can be challenged. Many wills are challenged, a large portion of them successfully, and even if your estate wins the battle it will be diminished in the process.



Durable Power of Attorney for Health Care: if you can't make health care decisions, this tells who you delegate that power to. If there's a court case brought, it's going to be very short and abrupt. Case closed.



Trusts, revocable and irrevocable. I'm not certain it's possible to successfully challenge a well-constructed trust where the assets that are actually transferred to it are concerned. You didn't own them. The trust does, and the trust didn't die. The instructions live on, like a corporation. The named successor trustee also usually gets the ability to manage the trust's assets if you are alive but incapable. Assets in a trust can avoid not only estate tax, but probate as well. If you want to be certain of the disposition of what you leave, particularly in a speedy manner, this is probably the way to go. Many estates are not finished with probates for years, and until they are, your heirs don't get control of the assets. Nor are we certain that estate tax is going away forever. Probate is also expensive, time consuming, and lucrative for attorneys. Seven percent of probated assets seems to be about the minimum cost, and it can easily top thirty percent. I haven't investigated, but I suspect the trial lawyers would be solidly behind banishing estate tax for this reason.



Business operations: many small to medium sized businesses have no plan to keep them going in the event the owner-operator dies or becomes disabled. Certainly nobody else working there has the knowledge, the experience, and often the necessary licenses. If the business closes because the proprietor isn't there, it's worthless. If there's a plan of succession to keep it open and operating, however, you or your family can likely sell it as a going concern with consistent profit.



Retirement plans: If you have certain types of tax deferred retirement plans, they can be expensive to convert to assets in your heirs' possession, even without estate tax. Better to draw these down and keep other accounts available.



Life Insurance: There are going to be expenses when you go. These vary from taking care of the body you leave behind to probate to keeping your business running if you have one. The people doing these things want cash. Life insurance is usually the cheapest way to pay them. Your family is also likely to need something to replace your income in many cases. Life insurance is about the only choice.



One hopes you begin to get the idea. Consult an attorney and financial professional in your area to find out how it works, but all of this needs to be taken care of, or your family will wish you had.



Caveat Emptor.



estate tax

financial planning

Clinton blasts 9/11 film, amid report of changes



Spin, spin, spin, you worthless gladhanding used car salesman. Your accomodationist, anything to avoid confrontation policy are more responsible for 9/11 than any other single cause. Your unwillingness to face any political controversy caused you to turn down Sudan when they offered the US custody of Bin Ladin, as well as other opportunities you were given to take him down but didn't have the political guts to take advantage of (unlike the successor in office now, who has had the intestinal fortitude to do much harder things and had to do more of them because Clinton didn't).



Your entire career has been spent evading the responsibility of the presidency that you campaigned to get. Go away. Far away. And don't come back.



Rightwing Nuthouse notes the crickets chirping about a real threat of censorship. The Democratic party want to demand that the government pull ABC broadcast license if they show the film? I guess it's all in who you tick off. It's okay to poke at Elephants, but Donkeys are sacrosanct? Free Speech for me but not for thee, is that your message? Not in the United States I live in.



Riehl World View on people that have changed their views now that their side is under the microscope.



Rhymes with Right has the text of a letter sent to Disney by prominent Democratic politicians. Manages to implicitly threaten ABCs broadcast license.



Investors Business Daily on the issue.



Captain's Quarters nails the Clinton colors to the mast of this particular sinking ship.



Scrappleface details the situation that must be avoided.



Newsbusters notes that ABC has caved. That particular scene never happened in the real world. But many things like it did, thanks to Bill Clinton. I wonder if we should revive the Dan Rather mantra of "fake but accurate"?



No. Those memos were neither true nor accurate.

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Reuters is reporting the Democratic spin on a Senate report. There have been many reports of Iraq/Al Qaeda cooperation, as the senate report says. But that doesn't stop the Donkeys from spinning it by claiming it says what they want it to. But at least they do acknowledge that there may be another take on the matter:

The committee's Republican chairman, Sen. Pat Roberts of Kansas, accused Democrats of presenting a misleading version of the committee's findings.



"The additional views of the Committee's Democrats are little more than a rehashing of the same unfounded allegations they've used for over three years," Roberts said in a statement.

Strata-Sphere has more.



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Hospital Screening Surgery Patients for Sleep Apnea

Obstructive sleep apnea is characterized by episodes of stopped breathing during sleep.



Normally, low levels of oxygen and high levels of carbon dioxide in the blood arouse the sleeper with apnea.



But an anesthetic, or powerful pain medicine after surgery may interfere with the protective mechanism and prevent the person from waking up, resulting in respiratory arrest

You think this might be an issue? If you suffer from sleep apnea, make sure everybody knows before you go under. Put it in writing in the admission papers, and tell the members of your surgical team. If you think you might be suffering from it, get tested. I did, and my life is much better now.



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ROFASix notes another story the press has gotten wrong.



But if you're looking for partisan advantage, the fact that lies travel around the world faster than the truth can get its boots on has its own special appeal. People will remember the newspaper headlines, and never find out the truth of what the President said.



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Iraq The Model has a post on the conflict that is worth reading.

Why doesn't real estate just sell for the asking price instead of having to go thru all the paper work...?

Wouldn't it be easier to just put a price on it and sell it for that price? We don't go thru all of that when purchasing cars or anything else. Where did this practice start?

Land is important, it is immovable, they are not making any more, and it is uniquely identifiable by location. It is used as a basis for taxation, and social status. Not too long ago, the vast majority of the population worked by farming land.

Precisely how much land goes with a parcel, and precisely what the boundaries and limitations are, is critically important. Taking just a few square feet away can mean that it cannot be used for a given purpose. Rights of easement are important to everybody served by that easement. Wars have been fought over simply the right to pass over a piece of land. Zoning disclosures are a real issue with at least twenty percent of all properties, as well as any number of other issues about the condition, permitted uses, boundaries, and appurtenances.

Because of its importance, its permanence, and its value, there has been a lot of fraud committed over land, therefore the systems of title and escrow. Add that to the fact that land is taxed by most governments, and you have the justification for public records systems.

Because of its permanent and immovable nature, banks will loan money against land on better terms than anything else. But since a fair number of people over the years have gotten money for land they don't own, or gotten more money for land than it is worth, the lenders have instituted safeguards such as the appraisal, inspection, and lenders title insurance. It still happens, by the way. Last week I looked a a property in a fantastic location, but really old and run down. By the market, I'd say it was maybe worth $600,000 - but the owners convinced someone to loan them $1.8 million dollars on it.

Every part of the process has a reason it is there. There is no need for anyone who is not a professional to learn them, but the reason those professionals exist is so that you don't have to know what they know - and that runs true for everyone from the escrow officer to the title officer to the agent, and trying to shortcut the process is a recipe for disaster. Just ask the people who got burned, and whose cases are the reasons for all that paperwork and hassle you have to go through to buy or sell a property. And people still get burned today. Most often, it's the people who try to shortcut the process to save a few dollars. "You don't need that appraisal! You're paying cash!" "You don't need that inspection! Solid as a rock!" "You don't need an agent! Trust me!"

There are good solid reasons why you don't want to cut any corners, and why you want a professional working for you every step of the way. Proper disclosure will save you from a lawsuit you wouldn't believe. Proper investigation will stop you from walking in to the problem in the first place, or at least get you some serious concessions if you have a good buyer's agent on your side. And if they fail to do their job properly, it gives you the right to go after their insurance and their broker's bond.

Caveat Emptor

UPDATED here

do mortgage company's usually seek a deficiency judgment on home foreclosures

Depends upon whether it is a recourse loan or not. A recourse loan is one where the lender can come after you for any excess amount of money you owe. Whether a loan is recourse or non-recourse varies with the state you are in, whether it was a purchase money loan or a refinance, and always, what it says in the Note.

For a non-recourse loan, that's it. If something happens and the property does not fetch enough money at sale to pay the lender off, that lender is out of luck whether they want to be or not. These are often used in reverse 1031 exchanges, where the accommodator is going to hold title to the property for a while but is usually unwilling to shoulder the risk that the lender may be able to come after them for a deficiency. Due to the fact that the lender cannot come after the borrower for the difference, these are riskier loans and therefore carry a higher rate-cost trade-off than recourse loans. This is nothing more than any rational person would expect.

The law is different everywhere, but I don't think have never seen a cash out refinance that was not a recourse loan. In short, take the money now, but if you don't pay it back, they are going to come after you in court and with a multitude of tools to get that money back.

Now just because a loan is non-recourse does not mean that the lender will necessarily approve a short payoff. In fact, it is usually harder to get those approved because the lender knows that this is the only chance they have to get their money, whereas with a recourse loan they can attach other assets to pay for their loan.

Finally, it is to be noted that just because a lender does have recourse and can attach other assets does not mean that they will. If you're down to $0.47 to your name, they'd have to be pretty silly to waste a lawyer's time doing so. However, just because you don't have it now doesn't mean that you will never have it. Statute of limitations also varies, but if you receive a financial windfall within the first few years, don't be surprised if the lender who you thought forgave the difference is standing right there, demanding their metaphorical pound of flesh.

Caveat Emptor UPDATED here

Carnival of Real Estate Recommended: Wenchypoo (the questionable utility of house bling)



Carnival of Personal Finance



Carnival of The Vanities

Whenever I go scouting in public forums, somebody is always asking, "What's the secret? How do you get rich in real estate?" The alternate to this question is "What do you know that I don't?"



These people are sure there's some magic formula for getting rich quick in real estate, but nobody is willing to share. They're a good person, they're a smart person, and in their mind, they deserve to make money as much as the next person. Why won't anyone tell them? No con artists need apply, of course.



The reason nobody except con artists will tell them is that there is no such secret. There are no mystical secrets of the universe that make you an overnight success in real estate or any other field. Like any other investment, it takes money to make money in real estate, and the more money you have and are willing to risk, the more money you can make. Leverage in real estate is a fantastic instrument, but in order to get the lender to loan you money, you have to be able to convince them you can repay it. This takes money, and it takes income. It can also be overdone, as many people have. Even if you win the bet about your property increasing in value, if you cannot make the payments you can bet on losing the whole thing.



Other people are skeptical of the value of real estate agents at all. "What do they know that I don't know?" is the question that I see asked the most, when they don't proceed directly to an assumption that the answer to this question is "Nothing," and from there the bashing begins.



Until somebody hits a real world snag, of course. "My house isn't selling. What do I do?" "A buyer offered me $X. Should I accept?" or "This happened. What do I do now?"



The issues are mostly preventable, and had even a brand new agent with the ink on their license still wet written the contract, chances are good that the potential problem would have been foreseen, and safeguards against it devised. This is, after all, what we're trained for and what we do. If I could learn a job by reading a couple books, I wouldn't need to pay you. Well, I know enough about many subjects to know that I can't learn everything I need to know by reading books, and that any pretense otherwise on my part would be foolish pretension. It might be one thing for me to pull my little girls out of the swimming pool when they get in over their head. It would be something else again to try an open ocean rescue.



And a financial lifeguard is an entirely apt analogy. It's not that you don't know how to swim, for crying out loud. It's that you got in to a situation beyond your capabilities, beyond your experience, and now that you're there, you can't get yourself out. Unfortunately for those who ignore "no lifeguard" signs in real estate, it's very difficult to go find that lifeguard while the trouble is going on. It's not like you can get a time out, and many times that fact that you are drowning may not be apparent until you breathe in water, months or years later. If there is a agent present the whole time, you can sue their insurance carrier for your losses, but most often, they will prevent the deadly misstep in the first place. Any agent with a lick of sense won't get involved when there's already an existing problem. That's where attorneys come in, and attorneys get much more expensive than the agent in a hurry.



It's not what agents know, but what they know. Anybody can read the financial press, and it's not too difficult to understand what they're saying. But knowing it and understanding it are two entirely different things. What good agents understand down deep at a level of calm certainty that nobody with an expertise less than theirs stands a cell phone's chance in an IED of talking them out of, and that is a system of approaching the transaction that debunks the hype, the nonsense, and makes certain that the numbers all work and the traps are all evaded. If you're not willing to pay the agent what it takes, spend a couple of years of your life familiarizing yourself with all of the issues, and you'll still likely fall short, because it's not just book learning, but experience, and even a new agent has a supervisor with a wealth of experience to draw upon. Nor is it just "sticks". There are an awful lot of carrots out there that are very valuable if know when and how to use them, and will cost a lot of money if you do not know when and how not to.



There aren't any huge and critical secrets. But there is a wealth of experience and understanding that people who do not deal with the real estate and mortgage markets every day are unlikely to have. Whether you're a computer programmer or any of a thousand other occupations, ask yourself if someone fresh out of college could do your job correctly on the first attempt. Because that's the bet you're making when you decide to work without an agent.

Caveat Emptor

UPDATED here

RINO Sightings Recommended: Say Anything (debunking conspiracy)



Carnival Of Debt Reduction



Carnival of the Capitalists

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Over at Right Wing Nuthouse, Rick Moran lays out the cracks in the facade of the Narrative of the Left. Nothing I haven't been writing about, but he puts it all in one place.



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Why 9/11 Conspiracy Theories Won't Go Away.



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Took the family to Boomer's for miniature golf. First time since before Hilda was born, and she's six and a half now. Did pretty well for not touching a club in about seven years, shooting a 48. One hole in one. Not precisely my best effort ever, but quite palatable. The World's Only Perfect Woman also did pretty well, and had a hole in one of her own. Little Ramona is too young to understand what's going on, but Hilda, while initially very frustrated, picked it up pretty well after a while. By the end she was shooting solid 4s, with one 2.



My first shot ever was a hole-in-one. At the old Family Fun Center course #2 in La Mesa, gone now due to the 125 freeway. I shot it, my father said, "here, let me show you what you did wrong," and we both looked away. Then a couple of seconds later my brother interrupted, saying, "It went in!" Not only that, it was one of two "hole in one wins a free game" holes on that course at the time. My dad followed up my lucky shot with his own hole in one (skill), so we all had to play another game after that. Some memories are more precious than gold.

Life Insurance is something that nearly every adult should have, and almost every adult who buys goes about purchasing it the wrong way, at the wrong time, for the wrong reasons, and buys the wrong policy.



Is that an indictment of the system or what?



Let's start with what life insurance is. Life insurance is a bet that you make with an insurance company that you will or will not live. The idea is that if you die, while nothing can replace you, your family will get money to replace your salary. If you die while the policy is in force, the insurance company loses the bet. If you live for the full time the policy is in effect, congratulations for being alive, but you lost the bet. If you die after the policy stops, not only did you die, but you spent all that money and your family got nothing. Now it is critically important to understanding life insurance to understand that nobody gets out of life alive. Unfortunately, everybody has to die sometime. As of this writing, the chances of you missing out on this one final life experience that practically everyone wants to avoid forever are zero. So you might as well make plans that include anybody you leave behind benefitting from it, because (I have it on excellent authority) dying stinks. (Yes, I'd use a stronger word except that I try to keep the language here family safe as much as possible)



There are two major types of life insurance, term and cash-value, and the latter type has several subtypes which I will explain in due course. Term can be thought of as "renting" life insurance, while cash value can be thought of as "buying" it. Like owning versus renting a home, there are arguments on both sides of this story as to which is better. I will attempt to cover the pros and cons of all of the major camps, and there are people for whom each makes sense, but like buying a home, if you choose the right policy, cash value life insurance is a losing proposition in the short term while becoming fantastically remunerative after a few years. The vast majority of all people would do better to consider cash value, particularly when you crank the actual numbers and consider the alternatives.



Another thing that needs to be crystal clear is that life insurance is the second most tax advantaged investment you can make, right after buying a home. In fact, it's better in many ways although it requires more planning. If you plan properly, and die while it is in force, the death benefit comes to your heirs tax free. Furthermore, all investments in the cash value of a life insurance policy earn money tax deferred, and any money withdrawn from the cash value of a life insurance policy gets "first in, first out" treatment - something no other investment can say. There is no legal dollar limit on this tax treatment for life insurance. There are no income limits for this tax treatment of life insurance. Literally anyone who can qualify for a policy can receive these tax benefits, and so long as you comply with federal guidelines to retain this treatment, there are no dollar limits to the amount you can invest. Even if you violate those limits, the only consequence is that the tax treatment on actual withdrawals flips to "Last in, first out," and since there is no limit on the number of policies you can have, either, there aren't many reasons to violate those guidelines.



You can also take loans against the cash value of any life insurance policies you may have, and loans are not taxable. Let's say that again. Loans are not taxable. Remember that. It's going to be important later. When put together with the other parts of the tax advantaged nature of life insurance, it's an awesomely powerful tool if used correctly.



Now I'm going to violate one of my cardinal rules for this site: no graphics. The reason is that this picture is too darned important to the essay. It's graphic of some features of a life insurance policy. The vertical axis is money - dollars - and the horizontal axis is time. And the reason I'm putting it up is to illustrate a generic life insurance policy. It doesn't look like much at first, but here it is:



Lifeillustration.xls


Now I'm going to explain it. There are three areas: red, yellow, and gray. Grey is just background - dollars above policy value. Like the altitude above an airplane, it's useless, unless you climb into it later, as some policies can, painting ever larger numbers first red, then yellow. Red, or actually, the top of the red line, is the total dollars your family (or other heirs) will receive when (not if) you shuffle off the mortal coil. Yellow is the cash value of the dollars in your policy. The difference between the two is the amount of insurance you're actually paying your hard earned money for at any given time. Get it? Got it? Good.



Now it is necessary to note and remember that the cost of the red dollars - the difference between the top of the red curve and the top of the yellow curve - get more expensive with time. Sometime in your sixties, dollars of actual life insurance start getting expensive. Mind you, they are always getting costlier from the first day you buy any policy of life insurance out there. But in your sixties, this process accelerates rapidly, and this has all kinds of implications later in the essay as well as later in life. And now that we've covered the basics, it's time to cover policy types.



Term life insurance, as I said, is like renting your life insurance. It's like the red line, without the yellow curve in there at all. For the entire time your policy is in effect,you are going to be buying the full amount of insurance dollars every time you make a payment. This means that in an unaltered term policy, your premium goes up every year; sharply so once you've hit your sixties. If you are initially purchasing at a young age, most companies will give you the option of paying more starting right now, so that for a certain period your premiums will not increase. If you buy young enough, most companies have at least a 30 year fixed term product. It's very difficult to find a company that will sell you a policy allowing this fixed period to go later than your sixty-fifth year, however. In all cases, once the fixed term is over, it converts to yearly renewable term, where you can expect the yearly bill to go higher every year. What happens when people start getting these suddenly much larger bills? They cancel. This is what the insurance companies want. Fewer than three percent of all term policies ever pay a death benefit because they are canceled. When you cancel, you're letting the insurance company off the hook on your bet, and all that wonderful money you spent on their pretty policy bought you some peace of mind for a while, but now it's gone, and you have nothing. Term is very expensive insurance, when you talk about real cost to the consumer in aggregate, and very profitable to the insurance companies. It doesn't require writing a check for nearly the number of dollars now, but it doesn't provide nearly the benefits either. Remember that stuff I told you about how tax-advantaged life insurance is? Term makes almost no use of this fact. It's kind of like buying a Ferrari body, and putting a Yugo engine into it.



Now we're going to move into cash value life insurance in all its variants. They're called cash value because they have one. Now we're putting the yellow curve back into the picture above. What these policies are calculated to do is endow at a certain age. This used to be 100 for all policies, now the companies are trending more towards 120. This is a good thing because with more people living to 100, they are getting checks when they really want life insurance. Policies endow when the yellow curve rises to meet the red line, off to the right of the rest of the picture above. If it's your policy, you get a check for the amount of the red line in exchange for your policy of life insurance. This ends the tax benefits, and can have adverse effects upon your tax liability, too. So most folks want to get their policy value as a death benefit to their heirs, not as a check while they're still alive. Confused? Follow me.



The first major variant of cash value is whole life. This is what that default picture above is all about, because that's pretty much what a policy of whole life insurance looks like. The difference in dollars between the cost of the term insurance and the cost of the policy is invested with the general account of the company. It earns about eight percent or so, and they pay you about three, which is pathetic. Nonetheless, that three percent is tax deferred, tax free, First In First Out, so it's probably close to an effective 5 percent for most folks. Like all cash value life insurance, there are provisions for tax free withdrawals and zero percent effective rate loans and all of that. Also like all cash value insurance, to an ever increasing degree over the life of the policy, this moves from paying the cost of the insurance from the check you are writing, which is after tax dollars, to money already within the policy, which is before tax dollars. Finally, like all cash value life insurance, over the life of the policy you are buying progressively smaller amounts of actual life insurance (the difference between the red curve and the yellow one), which means that your actual cost of insurance is less, particularly later on when the cost of that actual insurance goes up. Because of this, cash value policies are likely to stay in effect your whole life and not get canceled. Nonetheless, this is a putrid return and makes the insurance company even more money than term insurance. Many people would have you believe that whole life is the only variety of cash value life insurance out there. It isn't. But you would not believe the number of straw man arguments against cash value life insurance I have read in the financial press that did their best to read as if that claim were true. For someone who is supposed to make their living informing consumers about the financial industry, this is either fundamentally ignorant, or fundamentally dishonest.



Probably about fifty years ago, some bright young person working at an insurance company realized that the need for life insurance may not be constant throughout life, and so came the first major addition to the choice of "whole life or term." This was Universal Life. The concept was simple. You could decrease the amount of insurance in set units, or increase it in set units, up to a certain value, and the initial underwriting would still cover it. This was really cool at the time, because it meant that you didn't have to apply again for life insurance and go through the underwriting and health insurance exam and health insurance questions all over again, and possibly get "rated" for some new health problem that wasn't there last time, or possibly even turned down. Unfortunately, in Universal Life Insurance, you're still investing your money in the general account of the life insurance company, and they are still only paying you about four percent. Once again this has all of the neat tax advantages, but even an effective six percent return is nothing to write home about. To most folks, it's almost embarrassing. Nonetheless, Universal Life Insurance has broad applicability to small dollar value policies, mostly for older folks. The return is guaranteed, the company assumes the investment risk, and the policyholder gets peace of mind for the rest of their life, knowing that whatever expenses they had in mind are covered.



Not too long after the enterprising young person had the idea for Universal Life, another one had the idea for Variable Life. This is a truly different product, but it really didn't go anywhere until the late seventies, when inflation was rampant and things were generally going south in a hand-basket until Ronald Reagan et al brought them back under control. The concept is simple: Instead of investing in the general account of the company, you have the opportunity to invest in a certain number of sub-accounts that act a lot like mutual funds. These sub-accounts are basically comparable to the ones in variable annuities, having roughly the same advantages and disadvantages except that most people do not have qualified money in life insurance because the interplay of withdrawal requirements with funding requirements gets nasty complex.



Now in those articles that do admit the existence of variable life, they most commonly write against it because "They have this expense and that expense and the other expense," ad nauseum, with the strong implication, never proven, that they are somehow more expensive than other policies. The fact is that these are expenses associated with all life insurance. The only additional expense that the variable life insurance policy has that the term life insurance policy (or any other) does not is the expense of running the mutual fund-like sub-accounts, which actually average a bit lower than the equivalent mutual fund upon which these are usually based. Every other expense is part of every life insurance policy - indeed, most of them are part of every insurance contract of any sort. Administration, Insurance, etcetera. They buy the stuff that makes the cash value life insurance policy an interesting and potentially worthwhile investment - the death benefit, that wonderful tax treatment, among other things. But because you're dealing with something regulated by the SEC, the agent and the company have to tell you about them in variable annuities, whereas with every other insurance policy, they are a "black box" into which money goes and insurance comes out.



Variable Life Insurance, like Variable Annuities, requires not only a life insurance license, but also an NASD Series 6 or Series 7 license to sell. This means that it is generally sold through financial planners, not "pure" insurance agents. These folks are competition for the financial "do it yourself" press, and if you are working with a professional you trust, you're not nearly as likely to go back to the bookstore or magazine stand for generic drivel with no fiduciary responsibility towards you. Admittedly, some advisors abuse it - and when they are caught, they are prosecuted and the insurance they are required to carry pays. The generic advice in books, newspapers, magazines and websites never has this responsibility in the first place. They are specifically exempted by the Investment Company Act of 1940. But Variable Life Insurance has all of the advantages possessed by all cash value policies that I listed above, and it also has the advantage that you are getting market returns, which the tax advantages leverage significantly in your favor.



Finally, in the early 1970s, another bright young person had the idea of combining the features of Variable Life Insurance with Universal Life Insurance. This product, called Variable Universal Life Insurance, is about the most flexible, most versatile financial investment there is, because you can do so much with it, and it facilitates changes in plans like nothing else. You get market rates of return via the mutual fund-like sub-accounts, effectively augmented several points above market rates because of favorable tax treatment. You can withdraw your principal tax free, and take loans at zero effective interest rate against the earnings after that. Remember, loans are not taxable. You can increase or decrease the dollar amount of insurance within limits. Actually, variable universal has the unique ability that both the red and the yellow areas in the graph above usually start climbing into the gray area somewhere about twenty-five to thirty years in, getting to the point where the cash value of the policy can be multiple times original issue value. All of this amounts to things like you can start saving for your children's college as soon as you decide you'd like to have some someday. You can save for literally anything, because of all of the options you have for putting money in and taking it out. Matter of fact, you get the biggest advantage from overfunding the policy, putting more money in than you have to, although there are federal limits on how much and how fast you can overfund and retain the most important tax advantage, that of "First In First Out" tax treatment. (It is to be noted that there are "single payment" policies that intentionally throw this benefit out the window, and are still an excellent investment in a lot of circumstances.)



There is one danger to variable life, and to a lesser extent variable universal life. It is possible that through inopportune timing of market declines and/or excessive withdrawals that there will not be enough money in the policy to keep it in force. This is, to use Orwell speak, double plus ungood. Let's say you took invested some number of dollars as principal, and later withdrew them. Then you took loans of $30,000 per year every year for ten years. But then your investments went through a market decline, and you kept taking the full $30,000 per year for another ten years. If you die with the death benefit still in force, it's all just a loan against the death benefit and therefore nontaxable because the death benefit is nontaxable. But if the policy self-destructs, now you have to pay the taxes on that $600,000 of income I've just described. The IRS is utterly unimpressed by "blood from a turnip" type arguments. They can usually figure a way to get their money a way that you won't be happy with.



The oldest of these policies are only thirty-odd years old, and there were a lot of improvements made in the early years, so there's no experience, as yet, with the first generation they were really designed for as lifelong financial instruments. The first people who bought them in their twenties are only just now starting to turn sixty, approaching retirement age. Going back via market performance in the last century or so, there does not appear to be major danger of self destruction on policies given time to mature and prudently advised, but there have been people who withdrew more than the market could really support, who had major adverse experiences as a result. Especially with the variable universal policy, there are alternatives to prevent losing the policy completely, but it's still not something you want to have happen. I will point out, however, that the same danger exists for investors of any stripe, it's just that the sword here is especially terrible. This is one of the good reasons why these policy require dual licensing to sell - to insure that there's someone involved who should understand the structural limitations of the policy, and can help you avoid the lurking gotcha! by keeping your withdrawals and loans to a sustainable level.



One strategy many people, particularly in the self help financial press, advise is "buy term insurance and invest the difference." This isn't a bad strategy, especially if you plan on dying while the fixed term period is still in effect. But most people in their twenties and thirties are going to live well past their sixty-fifth birthday, and the fact is that most people who are young today are going to work well past it, as well. The reason why insurance premiums start to climb then is largely because that's when folks start dying off in larger numbers. Investing in life insurance is something best begun while you are young, with few health problems and lots of time. Whatever the strategy you begin while you're young, you're typically stuck with the decision, even if you do figure out what's wrong with it around the time you're fifty. At that age, your effective compounding is marginal in most cases, even if you're planning to delay retirement a few years. But I encourage everyone with a potential life insurance need to look at projections of not what's likely to happen for merely the next thirty years, but for the entire rest of your life. Buying variable, or better yet, variable universal, especially while you're young is a better way to end up with more usable money later on in life for most people. And that's the whole purpose of retirement planning, right?



Caveat Emptor.

While I have been reading the site for about a year, I have tended to gloss over or completely ignore the posts regarding real estate and purchasing a home. That is, until about two weeks ago when I had a conversation with my parents and decided that I want to stop being a renter and instead purchase my first home this spring. I have tried to wade through your numerous posts on Home Buying and Real Estate but am having trouble finding a nice, organized timeline of posts to read. Could you perhaps help me by providing a suggested reading list of your posts for a soon-to-be first time home buyer, in the order that
you think I should read them?

Thanks for your time. I appreciate all of the work you put into the site.

Cheers,

The organization on the site is not intended to be in any kind of order. Still, I'll go over a few of the most important ones that everyone needs to know.

Should I buy a Home? series

Preparation, Process, and Consequences

The recent companion articles on why renting is for suckers and when you should not buy:
Why Renting Is For Suckers and When You Should Not Buy Real Estate

Why There is Money in Fixer Properties

Then read my basic series on loans: The Good Faith Estimate, parts I and II, Truth in lending, and HUD 1, and why you should ignore APR (if you're in California, I've edited the first two for California's MLDS on my other site)

Good Faith Estimate Part I, Good Faith Estimate Part II, Truth In Lending, HUD 1, Why You Should Ignore APR

(California's Mortgage Loan Disclosure Statement, Part I, and Mortgage Loan Disclosure Statement Part II)

Now you're ready for the advice on shopping a loan, and dealing with agents. In no particular order

Payment, Interest Rate and Up Front Costs: Choosing a loan intelligently
Mortgage and Real Estate Red Flags
Levels of Mortgage Documentation, or, Why You Should Demand to Do More Paperwork
Questions You Should Ask Prospective Loan Providers
Available Real Estate Loan Types
Fixed rate, Balloon, ARM and Hybrid Loans
One Loan Versus Two Loans
The Best Idea About Applying for a Mortgage
Loan Rate Sheets: An example, and the games lenders play
Mortgage Loan Rate Locks
Loan Quote Guarantees

On dealing With Real Estate Agents:

Buyer's Agents: What Do They Do?
Production Metrics versus Consumer Metrics
Exclusive versus Non-Exclusive Buyer's Agent Agreement

Then then while the whole thing is in process, come back and read as much as you have time for.
I'm exploring book publication, organized in more or less the chronological order you need to know everything.

(If anyone has access to a good literary agent, I'm interested!)

UPDATED here

Carnival of the Vanities

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Businessweek: Nightmare Mortgages. Over a year after my first article on the subject, they say most of what I did.



This stuff is all math and public record. What took you clowns so long? So much for investigative journalism. Have to wait for financial bodies to hit the street so that there's human interest? How many people that you could have informed of the perils of this loan in time now have one?



And people wonder why I have contempt for journalists.



By the way, I saw no fewer than a dozen advertisments for these today while surfing blogs. Might be a good idea to look at your approved advertisers. Just sayin'.



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Mixed emotions department (with an oh-oh factor added in): I noticed a website I'd never seen before among my referrers, and went and clicked on it. Unfortunately, it was a pr0n site and I was at my office. Luckily, nobody else was around. I suppose pr0nographers are interested in real estate also, just like the rest of the world. Still, it would be nice if they'd all migrate to that .xxx top level domain they keep talking about.



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Iraq the Model on the situation in Iraq. His description doesn't sound so much like a civil war to me as that people are trying to create the conditions for a civil war, and largely succeeding. Maybe more troops are needed, maybe a more activist role by the Iraqi army. I do not know. I do know that unless someone has the political cojones to crush the ones preaching hate and separatism, it will become one.



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neo-neocon on Carter and the rise of the Mullahs. Money quote: "President Carter inherited an impossible situation -- and he and his advisers made the worst of it."



Five Minutes to Midnight

What these commentators are picking up is not an exact parallel to any one event of the 1930s hence their scattershot of historical analogies. Instead, what they are picking up is a sense of the overall direction of world events: we are clearly headed toward a much larger, bloodier conflict in the Middle East, but no one in the West wants to acknowledge it, prepare for it, or begin to fight it.

and

It is, indeed, "five minutes to midnight" not just for Israel, but for the West. The time is very short now before we will have to confront Iran. The only question is how long we let events spin out of our control, and how badly we let the enemy hit us before we begin fighting back.



We can't avoid this war, because Iran won't let us avoid it. That is the real analogy to the 1930s. Hitler came to power espousing the goal of German world domination, openly promising to conquer neighboring nations through military force and to persecute and murder Europe's Jews. He predicted that the free nations of the world would be too weak too morally weak to stand up to him, and European and American leaders spent the 1930s reinforcing that impression. So Hitler kept advancing the militarization of the Rhineland in 1936, the Spanish bombing campaign in 1937, the annexation of Austria and the invasion of Czechoslovakia in 1938, the invasion of Poland in 1939 until the West finally, belated decided there was no alternative but war.

and

It is widely acknowledged that World War II was made far more horrible by the years in which free nations appeased Hitler, allowing him to strengthen his armies before he took over Europe. That analogy lends itself to one conclusion: the sooner we attack Iran, the better.



World War I, by contrast, is largely regarded as the result of a giant, tragic mistake, a failure of diplomacy in which the great powers of Europe, seeking a network of alliances that would guarantee a "balance of power," instead trapped themselves into a senseless war.

Please, read the whole thing. The conclusion is painful, but ignoring such conclusions is, historically speaking, the best way to guarantee the escalation of that pain.



HT Cox and Forkum





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via Indepundit,

I really hope it turns out the man assaulted in this report was making it up. All of the other alternatives are worse. I'd rather have the political damage it would do to the military by association than any of the other possibilities. If there is a benign controlling intelligence to this universe, please let him have made it up?



Because if he didn't, these people are trying to drive a wedge between the military and the civilian population. I'd rather deal with another 9/11 than the possibility of that happening. I'd rather deal with a nuked city than have that happen. If you don't understand why, you need to read more history.



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Melanie Phillips on the media war against Israel. Read it and weep.



On much the same subject, I find myself in agreement with Dean's World



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Looks like Argghhh! agrees with me on profiling as basically useless, and the remedy.



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Some actual thinking on What If The Left Killed Bush?



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Please don't be too surprised if activity for the next week or is much less. I feel a case of burn-out coming on.

Air Traffic Controllers: New FAA Contract Will Lead to Longer Hours, Fatigue

WASHINGTON -- Air traffic controllers said Friday they will be forced to work even when they are tired under a contract the Federal Aviation Administration plans to impose this weekend.

and

The controllers' new contract with the FAA follows nine months of bitter negotiations that broke down in April. Controllers sought binding arbitration, but the FAA said the law gives it the right to impose its last, best offer.



A section of the contract reads, "Sick leave cannot be granted for rest or minor inconveniences," according to a briefing guide for the FAA's collective bargaining agreement with the National Association of Air Traffic Controllers.

So the controller has the choice of using vacation time, or better yet comp time (because it's otherwise paid at overtime rates) or just coming to work and working traffic when they're too tired to see straight after two straight quick turns? Does this impress any member of the flying public as the right set of incentives?

"We would never have a controller controlling traffic who was too tired to work," said FAA spokeswoman Laura Brown.

but

On Friday, the FAA's air traffic manager at Washington Center said he would discipline any controller who called in sick because he was fatigued, Rinaldi said.

The union has said the FAA is hostile to controllers and that its contract will result in a wave of retirements because it creates a disincentive for controllers to stay on the job.

and

Nearly half the current controllers are expected to retire in the next decade. Most of those workers are replacements for the controllers fired by President Ronald Reagan in 1981 for refusing to abandon a strike that he considered illegal.

Ladies and gentlemen: The strike happened in 1981. That wave of controllers who were hired in and immediately after 1981 are eligible for retirement now. If the FAA can't come up with better reasons for them to stay on the job, half of the ones who are there will leave. Imagine what that will do to already minimal staffing levels. 25 years ago, air traffic (outside of general aviation) was a much smaller number of flights per day.



Going to bring the military controllers over again? That was marginal enough back in 1981. The traffic situation is far more dense now, and the military doesn't have as many radar facilities - the FAA took a lot of them over. The military has a fair number of tower controllers, but handling F-18s is a very different skill from blending Cessnas and jumbo jets, and outside of the training facilities that bring military pilots from their first flight on, military controllers just don't see the mix of traffic that civil ones do.





Controllers: Staff shortages nationwide

Efficiencies will include cutting workers' compensation and overtime costs, reducing training time and matching the number of controllers at a facility to the amount of air traffic.

Dr. Charles Czeisler, professor of sleep medicine at Harvard Medical School, said the Lexington controller's sleep deprivation meant it was likely he suffered attention lapses and he took three times as long to react to things.



For the average person who's been on duty for 17 of the previous 24 hours and has had two hours of sleep, "the impairment is comparable to being legally drunk," Czeisler said.

Been there. Done that. Seen many, many people in the same situation, many times.



If you have to do the rotating shifts thing, rotate clockwise, so that there are at least 24 hours between shift start and shift start, not reverse clockwise so that there are 24 hours at most.



Nobody can know whether that controller being less tired would have enabled him to notice ComAir 5191 taking off on a runway that was too short in time for it to make a difference. It is not the primarily the controller's responsibility, although in practical usage if they didn't stop a lot of this sort of thing there would be an amazingly large number of bodies on the ground. All I can tell you is that in twelve years, I had something like thirty gear saves alone. People don't usually die from gear up landings, and they're gear saves are no big deal unless the supervisor sees it and wants to reward somebody they like, but this should give you an idea of how often controllers really do save pilots from the sort of error anyone can make with a moment's inattention. I really think people's lives are more important than the controller having a long weekend.



You know, I don't fly often, nor does any of my immediate family. This just doesn't touch me very much any more. Maybe those of you who do might have some kind of motivation to talk to your congresscritter about fixing the FAA? Maybe get your congresscritter to go out and ask a few controllers about what things are like? Due to the good ol' boy (and good ol' girl) network, FAA management is very badly broken. Get some money to maybe afford decent staffing levels? Maybe even reform the personnel rules so that people who shouldn't be working, aren't? Perhaps alternate staffing like nurses do: four ten hour days, or three twelve, but with more time between shifts, so that controllers still get the same sort of weekend everybody else does. Perhaps cut the workweek to 36 hours in four nine hour shifts rotating with the clock, rather than against? Okay it's less than the standard 40, but what's more important: Working your mule the same as every other mule, or not having airplane accidents? Which might be more important to you: a $2 surcharge on the cost of your ticket, or the possibility your plane will have something happen to it because the controller who might have prevented it was so tired they might as well have been drunk?



UPDATE: Changed ambiguous wording in next to last paragraph as noted.

Iran leader vows never to give up nuclear program, accuses West of misrepresenting activities



They've been enriching now for how long? How long did it take the US to enrich the atomic bomb in the first place? China and India both stunned the world with how quickly they became nuclear powers. How much shorter do you think it might be now that the technology is mature? Have you considered the possibility that they use their long held and permitted civilian enrichment equipment to boost their enrichment capability by enriching to that limit prior to further enrichment, thus stretching their weaponry enrichment capability?



Ladies and gentlemen, I think that Iran may be very close to nuclear capability. Their open defiance is only one of many symptoms. Their enrichment centrifuges. Their gas purchases and usage. And so on and so forth.



They may already have a nuclear weapon, or even more than one. They are most likely building to a certain threshold, enough so that no matter what happens, every major antagonist is going to know there's at least one for them.



So, how are we going to behave in a world where the crazy mullahs have nukes?