Entries Tagged 'Mortgages' ↓

Word of The Day – Asset-Price-Inflation

Investopedia defines Asset-Price-Inflation this way:

Asset price inflation is an economic phenomenon denoting a rise in price of assets, as opposed to ordinary goods and services. Typical assets are financial instruments such as bonds, shares, and their derivatives, as well as real estate and other capital goods. 

Investopedia adds this caveat:

Ordinary goods and services are excluded and do not count as assets in this sense. Most standard measurements of inflation, such as the consumer price index (CPI), do not account for rising asset prices.”

I don’t know about you, but for years I’ve been feeling that our whole economy is becoming more and more like a house of cards. The financial sector has doubled since 1947 from 10% to 20% of our American Economy. 

Millions of Americans work in this sector or benefit from it, but daily many of us feel poorer than ever before. This is particularly the case in big cities across the United States. 

Living in the most expensive area in this country, I’m saddened by seeing the prices of housing rise while friend after friend leaves this area because of its absolutely surrealistic housing prices.

A long time ago I owned a condo that I sold after a decade for four times the amount I bought it for.

The problem I faced then, was that by the time I paid for renovations inside, legal and other fees, and paid off the mortgage interest and equity on my loan, buying another property was out of reach for me. This is what happens when housing asset-price-inflation sets in. Continue reading →

Fault Lines – Part Three – They’re At It Again!

Fault Lines: How Hidden Fractures Still Threaten the World Economy by Raghuram G. Rajan (Princeton University Press, 2010)

 
Authors’ Note: Recently several people have told me this series is depressing. That certainly wasn’t my intention. We are in a time of rising hopes in this country. That is great. But rising hopes don’t always come to fruition.

Raj’s chapters point out specific dangers that may impede our progress in this century.

We prepare for natural disasters, especially out here in California. So why not for man-made disasters? It’s just common sense.

Chapter Six “When Money is the Measure of All Worth”

Those of us who worry about derivatives will find this chapter useful.

We live in turbulent times, and the upcoming U.S. Presidential election is overshadowing financial changes that are going on here and abroad.

We’re in a time of high financial volatility that keeps dropping and then creeping upward. Our economy is good—for now. But we know that danger could lurk ahead in our future. Past history teaches us that.

Raj notes that Securitization goes back centuries – in the 1800s to the French monarchy sold annuities to wealthy men. Swiss bankers purchased these French government annuities and took out life insurance on “suitable girls” in Geneva.

Those annuities were then bundled and and resold at a higher price to investors. What happenened next ? The bubble burst. Sound familiar? Continue reading →

Fault Lines – Part Two – Who Should Read This Book?

Fault Lines: How Hidden Fractures Still Threaten the World Economy by Raghuram G. Rajan (Princeton University Press, 2010)

 
Who should read this book? Short answer: Anyone, who like me, wishes to see economists build a model for explaining economics on a world-wide basis.

“Raj” Raghuram is not just examining how the Financial Crisis happened in the first decade of this century. He is also helping to build a global view of economics in his books. Raj is particularly interested in the differences between what economists call “developing” and “developed” countries.

That’s because, as we will see in Part Three of this book review, the previous Financial Crisis was not just limited to the U.S.: it affected the rest of the world as well.

The dominant schools of economic thought in the U.S., Keyesian and Chicago Schools of economics are limited to being national rather than global in scope. But it is much more likely that the next Financial Crisis will be global in scope.

Here’s are short synopsis of Fault Line‘s first five Chapters Continue reading →