Surprise! Mortgage Standards Being Lowered

As you no doubt know, various government agencies have moved the ball pretty far down the field with respect to loosening down-payment requirements for loans from Fannie and Freddie. The return of the 3% down mortgage seems to be pretty much assured. Arnold Kling offered this with respect to a Calculated Risk post on the availability of mortgage credit.

Is mortgage credit too tight?–Calculated Risk.

Not by the standards currently set by politicians. If you tell banks you have zero tolerance policy for making type I errors (making loans that eventually default), you have to expect many type II errors (passing up good loans). Of course, 10 years ago, the political pressure was the opposite.

The standards to which he refers are the multibillion dollar fines levied for past mortgage origination sins. Banks naturally took these actions as a not so subtle clue to tighten loan standards. We could differ on the reasons the fines were imposed but the political class has at least given lip service to the idea that a return to the old regime was unacceptable. In essence they profess to have learned their lesson well – until now.

Consider these two graphs. The first one shows the relationship between credit availability, or perhaps more appropriately relative looseness of standards, to mortgage delinquencies. You can overstate the correlation in this data, demographics, interest rates and consumer psychology likely played a big part in this disaster, but the easy availability of credit was certainly a contributing factor. . I do wish I could find an HCI which went back further as a comparison to today’s lending standards, but this is all I have or could find.

The second graph traces the performance of median home prices since 1970. Notethat the dips have been just that, blips, not catastrophic crashes save for what began to transpire in 2006. The point being that real estate cycles, particularly as they relate to single family homes are typically very long.

Graph of historical house prices


So to Kling’s observation that the politicians have pushed banks towards tight standards in an effort to avoid type I errors, I doubt that they know the difference between type I and type II errors. The fines and posturing were merely grabs for money and a means of directing blame towards the financiers (not to say that they weren’t culpable) and away from the policy errors which contributed to the debacle. Politicians and the real estate industry, including the financial sector, are well aware of the second graph. They know full wellthattoday’s laxity is unlikely to come home to roost for a long, long time, while the rewards politically and financially come with little risk, at least for the current participants. Certainly, this is just the first step back down the same tired old road and another disaster will ensue, but the risk of error right now is passingly small, the rewards large and the eventual disaster a problem for someone else.

The U.S. is addicted to the 30-year fixed-rate mortgage. It’s a financial product which is non-hedgeable and thus exists solely via the use of the government’s balance sheet. Absent abandonment of it, the extension of mortgage credit and the terms which accompany those loans is going to be subject to political whims and those whims will inevitably be slanted towards easy credit.

1.Sorry this ran over into the marging. Going to have to work with my tech guy on how to avoid this. If you want to give me free advice feel free to do so.
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The Plus Size iPhone And Apple Watch Made For Each Other?

Matt Yglesias explains the genius behind Apple’s new plus size phone and its watch:

Of course that still leaves you with the question of how to do quick one-handed tasks on the go. The ideal thing, really, would be to pair the large phone with some kind of device that’s truly optimized for quick glances. Something that’s even easier to access than an item carried in your pocket. Something strapped to your wrist maybe. In other words, while last month’s Apple super-fan sported a laptop, an iPad, and iPhone the company’s dream customer of the future will have a laptop, an enormous phone, and an Apple Watch. And the fact that the Apple Watch looks so much classier and better than the Android smartwatches on the market is going to give Apple a whole new boost of competitive advantage, even as the playing field in phones levels.

I suppose that there exist not a small number of Applesters who will deck themselves out in the manner Yglesias describes. Still it seems a stretch to suppose that this represents the market for several reasons.

  • The universe of users who are going to shell out two to three thousand dollars for Yglesias’ configuration is not large.
  • The market for smart watches is nebulous at best. Yes, Apple’s watch is stylish but it suffers from the same usability issues as the Androids and just like them has to be recharged at least daily. It will be interesting to see in a year or so how many smart watches of any sort are collecting dust in drawers.
  • The pure tablet market is not a growth market. Sales have leveled off and there isn’t any app on the horizon which would drive an uptick in sales. It would appear that consumers are content to split their usage between regular sized phones and laptops rather than throwing a tablet into the mix.
  • The introduction of the tablet laptop hybrid adds a new dimension. While admittedly not perfect they’ve come a long way and it seems reasonable to assume the hybrids will evolve to a more satisfying product. If consumers do move to this product then the regular sized phone would appear to be the default option. Actually, it’s a bit puzzling that Apple hasn’t jumped into this space though it would canabilize their tablet and plus size iPhone  6.

By all accounts the new Apple products are doing exceptionally well, notwithstanding the bending and operating system issues. The company is still a world class designer, manufacturer and retailer of exceptional products. They just have a lot more competition and it is unlikely, at least as I see it, that they have somehow created a new ecosystem for the application of smart devices.


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How Long Do You Want To Live

How long do you expect to live? How hard are you going to work to extend your life span? Have you even thought about the subject? Well Ezekiel Emanuel has and he offers his conclusions in this Atlantic article.


That’s how long I want to live: 75 years.

…But here is a simple truth that many of us seem to resist: living too long is also a loss. It renders many of us, if not disabled, then faltering and declining, a state that may not be worse than death but is nonetheless deprived. It robs us of our creativity and ability to contribute to work, society, the world. It transforms how people experience us, relate to us, and, most important, remember us. We are no longer remembered as vibrant and engaged but as feeble, ineffectual, even pathetic.

There is much more to the article than the simplistic philosophy of the preceding paragraph. Emanuel, a noted physician, offers arguments that Americans while living longer are doing so as sicker individuals.

It is true that compared with their counterparts 50 years ago, seniors today are less disabled and more mobile. But over recent decades, increases in longevity seem to have been accompanied by increases in disability—not decreases. For instance, using data from the National Health Interview Survey, Eileen Crimmins, a researcher at the University of Southern California, and a colleague assessed physical functioning in adults, analyzing whether people could walk a quarter of a mile; climb 10 stairs; stand or sit for two hours; and stand up, bend, or kneel without using special equipment. The results show that as people age, there is a progressive erosion of physical functioning. More important, Crimmins found that between 1998 and 2006, the loss of functional mobility in the elderly increased. In 1998, about 28 percent of American men 80 and older had a functional limitation; by 2006, that figure was nearly 42 percent. And for women the result was even worse: more than half of women 80 and older had a functional limitation. Crimmins’s conclusion: There was an “increase in the life expectancy with disease and a decrease in the years without disease. The same is true for functioning loss, an increase in expected years unable to function.”

I recommend the entire article. It’s definitely thought provoking, and, yes morbid and depressing as well.

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The NFL’s Real Problem

The eventual demise of the NFL isn’t going to come as the result of players abusing women, getting busted for drug possession, endangering children or any other desultory offense; it’s going to come as the result of this:

The National Football League, which for years disputed evidence that its players had a high rate of severe brain damage, has stated in federal court documents that it expects nearly a third of retired players to develop long-term cognitive problems and that the conditions are likely to emerge at “notably younger ages” than in the general population.

Just how big is the difference between NFL players and the general population. Well the NYT article paints a pretty gruesome picture.

 Their calculations showed that players younger than 50 had an 0.8 percent chance of developing Alzheimer’s or dementia, compared with less than 0.1 percent for the general population. For players ages 50 to 54, the rate was 1.4 percent, compared with less than 0.1 percent for the general population. The gap between the players and the general population grows wider with increasing age.

Keep in mind that we’re at the front end of research into the effect of concussions and other types of sports brain injuries on participants. Next to nothing is known about the cumulative effect of brain trauma beginning with early participation in sports in which it may occur. In fact, that NFL players experience such profound effects hasn’t ben shown to occur as a result solely of their participation at the professional level. It just happens to be the most convenient deep pocket to (justifiably?) reach into, and the most proximate activity with which to link cause and effect. Unknown, at this point in time, is if individuals who participate in football and other high contact sports but who do not go on to play in the pros might not be subject as well to similar increased risks.

I enjoy  watching football very much, though I tend to prefer the college game. Given the evidence, I don’t see how it survives in any form which resembles its current popularity. Concern about brain damage, whether warranted or not, among parents and potential participants, combined with a very fat liability tail aren’t conditions favorable to long-term success.

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Why Airport Screening Is A Snap

The next time you’re in line just let this little video make your wait a bit more comfortable.

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The Glass Half Empty/Full? Employment Report

So, another monthly employment report and, depending mostly upon your political persuasion, either just a blip in an otherwise upward trend or further evidence of a stagnant, deteriorating economy. Personally, I tend to look on it as just a data point in an economic statistic which requires lots of data points to establish some version of reality. Here’s the BEA headline for anyone who didn’t crawl out from under a rock many hours ago:

“Total nonfarm payroll employment increased by 142,000 in August, and the unemployment rate was little changed at 6.1 percent, the U.S. Bureau of Labor Statistics reported today.

The change in total nonfarm payroll employment for June was revised from +298,000 to +267,000, and the change for July was revised from +209,000 to +212,000. With these revisions, employment gains in June and July combined were 28,000 less than previously reported.”

Basically the number came in well below the consensus estimate of 225,000 new jobs, but the trend is still up. The WSJ survey of economists’ reactions to the news is generally along the lines of “move along, nothing to see here.” A sample:

  • Looking at the year as whole after a long string of strong monthly payroll gains, a downside blip in the report can be excused as one of those things. We know too that zero new jobs in manufacturing, containing a 4,600 job decline in motor vehicles, is payback for the seasonally adjusted creation of such jobs in July because the factories never closed. We can also look to the flat change in hours worked, including overtime, and the steady 2.1% year-over-year increase in average hourly wages as indications the drop in payroll expansion is not about slowing growth. We could, but we also the think the main point of today’s report in the context of the year as a whole is it underscores our long-held view of growth without acceleration. –Steve Blitz, ITG Investment Research

Hmm, “growth without acceleration” isn’t exactly a scintillating concept, but I suppose it’s better than the alternative.

The WSJ also has some good graphs which show improvement in the duration of long-term unemployment and involuntary part-time work but unfortunately one which shows a continuing decline in labor force participation.  They also feature this chart which is maybe the most depressing of all.

That sort of dynamic isn’t going to do the vast majority of the citizens much good beyond keeping their heads barely above the waves.

Finally, let’s put an end to the high fiving going on in some quarters concerning the length of the recovery in employment. As the WSJ points out that while the streak of 54 straight months of job creation is the longest dating back to 1939, it is also true that ranking recoveries of 12 months or longer over the past 75 years, this recovery ranks in in the bottom half of those 17 recoveries based on monthly job creation. Or put another way, this recovery still more or less sucks.

Of course, as I said in my opening comments, the reality construct is wholly dependent upon which way you happen to lean politically. At least, the facts suggest we’re muddling along in the proper direction.




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Quadriceps Tendon Travails

I’ll get around to explaining the point behind the title of this post in just a moment, though it’s linked to my rather overlong absence from this blog. So far as the absence goes, it initially was intended to be break of a month or so,  get some work done on other things and generally refresh. All pretty normal and then life, as it tends to do, took a turn I wasn’t expecting. Quite simply, at the end of March I hopped off a curb and to my amazement realized that my right leg, or more specifically my right knee had no intention of functioning in a normal fashion. In fact, it had no intention of functioning at all let alone supporting me. A trip to the ER confirmed that things weren’t at all right, in fact they revealed that somehow, someway I had ruptured my quadriceps tendon.

In short order, or at least after a wait of 6 hours or so in the ER I ended up on the acute care surgical ward and under the knife early the following morning. Afterwards,I found myself ensconced in something that looks very much like the picture below. Trust me when I tell you that the picture doesn’t come anywhere close to capturing the pain in the ass that this particular device, technically a knee immobilizer, inflicts on anyone unfortunate enough to be subjected to it.


All of which would have been fine had not the knee to which the tendon attached not been arthritic and not suffered some further deprivations as a result of the incident. Which is a long-form way of saying that I’ve now progressed to this:

DonJoy OA Everyday Osteoarthritis Knee Brace

The next step is a total knee replacement.

So that’s occupied me somewhat, though it’s hardly an excuse for not posting a bit along the way. Rather continue to sit around and brood about my predicament, I’m going to put up a few posts and subject anyone out there who might still be following this modest Web site to more pearls of wisdom, albeit very small pearls.


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