On May 25, 2:58 pm, "Elle" <honda.lion...[at]nospamcox.net> wrote:
- quote -

That's an interesting article. It always surprises me how often
economists forget that theirs is not considered an exact science, but
one of the human sciences. The models may be mathematical, but their
input is the human activity, with its predictable passions.

Thanks.

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"Augustine" <evandro[at]mailinator.com> wrote
Ell wrote
- quote -

Not in the fashion embraced after David Li published his
article, "On Default Correlation: A Copula Function," in the
Journal of Fixed Income in 2000. Run-of-the-mill amateurs on
Wall Street ran with Li's general idea, failing to recognize
its shortcomings. Hence the issuing of subprime mortgages
was only one factor that caused the bigger mess. For
discussion see
http://infoproc.blogspot.com/2005/09...rivatives.html

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On May 25, 9:53 am, "Elle" <honda.lion...[at]nospamcox.net> wrote:
- quote -

Correction: the mortgages were sub-prime ones. Repackaging and
selling mortgages has been around for decades without any damage to
the economy. The problem started when banks lent money to people who
they knew wouldn't be able to afford them in a few years and people
borrowed money for goods that they knew they couldn't afford then and
accepted the terms of a contract that would postpone the effects of
their poor decision.

What baffles me in this whole story is not so much people stupid
enough to borrow beyond their means to keep up with the Joneses, a
plague that's always been and will always be around, but that banks
actually lent them money without any solid asset.

Of course, we all got to pay what those stupid lenders and stupid
borrowers deserved...

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Elle wrote:
- quote -

My (poorly worded) point is there will always be a source of revenue for
banks to pay on their deposits. Collateralization certainly played a
role in the current crisis, but not every bank sells their mortgages.
For my current house, in it 12 years, I've only dealt with two banks,
both of which were committed to keeping the notes in house. The current
one saw me through 2 refinances done at no cost. This would not have
happened the way it did had my loan been collateralized (sold into a pool).
You may tell me my experience is rare, that X% of loans are not held.
Ok, that may be, but I think the rate has bottomed out, that fewer
loans, not more, will be sold. Way off original OP's topic, but the
in-house mortgage was part of what I felt was sound planning.

Joe

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"joetaxpayer" <joetaxpayer[at]nospam.com> wrote
- quote -

Post-o, or maybe I am misunderstanding your words? I thought
the credit crisis's origin was based in part in banks
selling their mortgages (or repackaging them), and then
their being sold again, until multiple layers existed,
ostensibly to cover the risk of owning mortgages.

Coffee's-for-closers: There is an argument that strong
economies need (1) a certain fraction of working class
folks; (2) a certain amount of debt; and so on. But I hope
you are not saying that where we are now is a good thing.
Banks can pay you interest without others going bankrupt
(devaluing neighborhoods where maybe you own homes).

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Coffee's For Closers wrote:

- quote -

It is feared that in the US, the distribution of wealth is shifting to
be more concentrated, not less. People are getting more educated, but
there will always be those who do not graduate high school, and those
who do, but do not go on to college. This thread talked more about
credit cars use than mortgages. In the 'old days' mortgages were kept at
the bank writing them and provided income to the bank and the source of
funds to pay interest on deposits. I don't see that going away anytime soon.

Joe

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In article <qf3Zj.751$JI2.662[at]newsfe13.lga> ,
honda.lioness[at]spamnocox.net says...
- quote -


- quote -


Yeah-but... If other people don't run up debts, then how is the
bank going to pay me interest on my savings account?

And, if everybody else gets a university degree, then how I am I
going to rise above the herd by getting one myself?

And, if they all work to become literate (in both text and
numbers), then how am I going to be (and look) more cool and
together than them?

And, if everybody else started exercising and eating properly
(and keeping their weight under control), then how am I going to
continue being more attractive than them?

Etc, etc...


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http://www.WebSponsorZone.Net
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HW \"Skip\" Weldon wrote:
- quote -

Are you honestly saying that you've never met a $2M+ net worth (with
your caveats) that believes some kinds of debt are just fine? Have you
actually met any of these people? If so, did you ask them their
thoughts on this?

I would love to take a survey of aquaintances on this, but it might be a
little awkward when determining which fall into your net worth category...

-Will

william dot trice at ngc dot com

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"Mark Bole" <makbo[at]pacbell.net> wrote
- quote -

I do agree it is American to tell people to take on debt.
Use your house as an Automatic Teller Machine and all, sure.
This is not something to celebrate. From the little guy to
big banking houses, debt is why our economy currently is in
a tailspin. Or do you dispute there has been a credit crisis
at all levels lately?

Seventy-three percent of this country has no bachelor's
degree. Those that do have one are still typically math and
financially illiterate. Taking on no debt is the best
prescription the majority can get for living a stress-free
life.

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HW "Skip" Weldon wrote:
- quote -

BRK-A Shows $35.57B in cash, but $36.18B in debt. There must be a reason
Buffet doesn't zero out the debt.

My outstanding mortgage is less than a year's gross pay, and the
interest burden less than 5% gross pay. By aggressively saving, I've
just past the point where total savings are about 11X the outstanding
mortgage, i.e. by paying it off, we'd have 10X annual income in the
investments. I don't subscribe to the 'good vs bad' choice of words,
maybe because Kiyosaki promotes that phrase if he didn't coin it
outright, but I do think there's responsible use, and a time to not
aggressively pay it down. Skip, would you really look over my shoulder
and suggest I need to knock off the loan to be in better shape?

To Mark's point, my wife and I are both employed in good positions,
married and had a child pretty late in life, relatively speaking.
And I think the thread has gone way off topic, have we even heard back
from the OP?

Joe

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HW "Skip" Weldon wrote:

- quote -

That is not a useful definition. If my net worth never decreases, how
can you possibly claim that I am not living with my means?

- quote -

I totally agree. Businesses and governments use debt all the time, in
fact couldn't exist without it. Besides, too many people earn their
living off of the debt industry for it to ever go away -- and I'm not
talking just about the loan broker, I'm talking about the teller at the
bank, or the software programmer who builds the web site where you view
your credit card statement. Advising people to avoid debt is just about
as un-American as telling people to drive less, or commit fewer crimes
-- the ripple effects would cause our economy would go into a tailspin!
(said only slightly tongue-in-cheek)

- quote -

That's meaningless as a statistical sample, starting with the fact that
it's a self-selecting group. Beyond that, if your clients are truly
self-made multi-millionaires (excluding entertainers, lawyers, or
doctors), lack of "personal" debt is most likely a result, not the
cause. I'll wager these people made money in one of two ways: either
through business, where I'm sure they took on debt (either directly, or
through investors and partners), or else through some combination of
living a long time in good health, passive investments at above-average
risk, no dependents, and parsimony. (I will concede that being
parsimonious includes paying little or no loan interest).

The converse is definitely not true: even using your definitions, simply
living within one's means is *not* sufficient to become successful.
There are probably at least ten thousand times the number of people in
this category as there are successful clients of yours.

(I also have a nit to pick with your definition of successful: are you
saying that if I own a $2 million home, it's not part of my net worth,
but if I sell it, bank the proceeds, and lease an apartment, now it
suddenly is? If so, that's got to be the easiest road to success I ever
heard of.)

I posted this once before a year or two ago, but it bears reading again:

"How to Become As Rich As Bill Gates"

http://philip.greenspun.com/bg/

Notice that debt, or lack thereof, had nothing to do with it. Becoming
rich has much more to do with your parents giving you a superior head
start in life, knowing that you won't be eating out of dumpsters no
matter what you do, and not being Mr. Nice Guy in your business
practices. I wonder how many of your clients owe their success to these
factors, rather than avoiding personal debt?

-Mark Bole

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"Thumper" <jaylsmith[at]comcast.net> wrote
- quote -

Seems like apples (cell phone deposit) and oranges (home
loan) to me. What are we talking about here for a down
payment for a cell phone, a few hundred bucks, tops? What
does the company use to make its decision? Maybe it does not
use FICO because this costs money.

Plenty of businesses demand a down payment/deposit
regardless of one's credit score, especially when the DP is
peanuts.

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"John A. Weeks III" <john[at]johnweeks.com> wrote
Elle wrote
- quote -

Serious question: Why do so many people think that a person
with no loans outstanding has no FICO score? I am assuming
loans here do not include that provided for 30 days or so by
credit card companies to customers who pay the balance in
full every month. A person who pays their CC balance every
month and their utilities on time and has done so for a
certain number of years should have a FICO score.

Not sure about the rest of your points. Kinda sounds like
semantics. Creditworthiness means... ? Perhaps different
things to you, the banks, me. Either way, assets are taken
into account under the three Cs guideline.

snip because I think the three Cs responds. Plus again, this
is not an exact science. Also, those with no credit score
can do as you mentioned: Seek a manual underwriter. Though I
am not sure this gives better rates today. Automated
underwriting has become so common that its expense is low
and, from my reading, it would seem its pretty reliable. If
reliability can be measured.

- quote -

FWIW, somehow it seems to me as well that there is some kind
of commercialized push to get people to take on debt (with
crappy interest rates) to boost their score. Nonsense. Given
only the two viewpoints, I favor yours (and Skip's and
several others' here). Namely, keep one's nose clean (debt
wise), pay one's bills in a timely fashion, have I guess
maybe at most two credit cards (paying off balances in full
each month)*, give it all a few years, and one should have a
fine credit score. Live within one's means.


*Too lazy to see whether at least credit cards (but no other
"loans") are still necessary to have a FICO score.

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On Tue, 20 May 2008 13:28:04 -0500, BreadWithSpam[at]fractious.net wrote:


- quote -

Bread we've had this conversation before, and I suspect we'll just
have to disagree.

For background, I've been in the personal finance area for almost 4
decades and have never met a successful person who would agree with
you. (By successful person, I mean someone with a minimum net worth
of $2 million today excluding residential real estate, inherited money
and married money.)

I'll offer you this: Since we're always quoting Warren Buffet, fire
off an email to him and ask what kinds of personal debt he carries
that he could recommend. If he disagrees with me, I'll listen to what
you have to say.

I do enjoy your other posts.


-HW "Skip" Weldon
Columbia, SC

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"Daniel T." <daniel_t[at]earthlink.net> wrote
- quote -

But when people apply this, they have to weigh it against
the myfico.com guidance that opening new credit accounts may
in some instances lower one's score. More emphasis should be
placed on the reality that a certain range of numerical
values in credit score is judged the same in the mortgage
industry. Credit scoring is advertised to be a fuzzy
science, and it's treated as such. That's life, so no big
deal, at least AFAIC. Plus do not forget that the automated
nature of credit scoring will tend to reduce discrimination
on the basis of race, gender, etc. Lastly, the other two
parameters (capacity and collateral) for judging one's
suitability for a mortgage need to be given attention equal
to that of credit score.

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BreadWithSpam[at]fractious.net wrote:
- quote -

http://preview.tinyurl.com/5fdqaj
"Please note that is is imperative to*properly*distribute outstanding
balances over several credit lines or credit cards."

http://preview.tinyurl.com/6yhpjk
"Check Your Limits and Distribute Balances
....keep your card balances at 50 percent of that limit or below.*
Anything over 70 percent of your limit damages your credit score."

http://preview.tinyurl.com/6mjj5h
"A low balance on two cards is better than a high balance on one."

Such comments are all over the place. Will their scores be
"substantially" different? We can't tell because the formula for
determining score is secret. But we have been told that balance accounts
for 30% of the score...

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BreadWithSpam[at]fractious.net wrote:
- quote -

Admittedly some kinds of debt are bad. But to say that it depends on
what you buy is as silly as saying that having debt (with a younger
folks exception) is tantamount to living outside one's means. This was
pointed out to me when I was obtaining opinions from this group on
getting a HELOC.

If I have $30k left on my mortgage and I buy a car for $30k with cash,
then I have good debt. But if I pay off the mortgage and get a loan for
$30k on the car, then it's bad debt? What's the difference (all else
being equal)?

In the same vein, if I'm "older" and I pay cash for a $100,000 house and
have no other assets, why am I suddenly living outside my means by
having a $100,000 mortgage on the same house and $100,000 in savings?

-Will

william dot trice at ngc dot com

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rick++ wrote:
- quote -

Can I pay $8 to end this thread? ;-)

-Mark Bole

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"Daniel T." <daniel_t[at]earthlink.net> writes:

- quote -

FICO is not a measure of how well you manage your wealth.
It's a measure of how well you've managed your debt *payments*.

There may be some overlap, in that those who are good at one
are likely to be good at the other. But overall, these are
separate concepts.

Lenders don't care how well you manage your wealth, nor how
fast it grows. They care about you paying them back on
schedule.

- quote -

I wouldn't speak for "most, if not all". How did Bert's remaining
investments perform over the period of his loan? What rate did he
get? If his car loan was at, say, 5% and his portfolio continued
to average, say, 10%, Bert's not only got a better FICO score than
Ernie, but he's also got more wealth. He took more risk to get
there - but that's yet another axis on which to measure all of
this, not an indictment one way or another. Of course, if he
left all his investments in something which tanked, and his
interest rate was 10%, he comes out looking pretty bad, but
that's the nature of risk.

- quote -

Does she? We know that FICO measures overall debt/credit ratio -
in the aggregate - in which case they're identical. Carrie hasn't
used 100% of any of her lines of credit, as far as we know, she's
not been late making any payments it nor violated that line's
limits. Are you certain that their credit scores will be
substantially different?


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Daniel T. wrote:
- quote -

As I posted, FICO takes data points and little more. In your Bert and
Ernie example, (Are those the Muppets or the policeman and cabbie from
"it's a Wonderful Life?" Just curious.) Fico sees the loan, but the not
the car purchased with cash.
Think about one thing - if one keeps opening new accounts, over time
it's possible to be in over their head, yet keep the ratios right in
line to fall into the good score. So your conclusion regarding fiscal
responsibility may be accurate. The scores correlate to the rate of
non-payment. For every statistic citing smoking causes early death,
there's a George Burns who smoked cigars yet lived to 100. It's not hard
wired, just a correlation.

Joe

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