dckleins

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    • Fri Mar 28th 13:07 PM | Rating: 0 0
      Commented on:
      How Ivory Tower Economists Created the Housing Bubble
      I'm really glad you wrote about this topic. My wife and I have been looking to buy in the Chicago area, but we knew we were going to be moving in about 5 years time. I became obsessed with the idea of "renting vs. buying" and build an "all-in" model to compare the breakeven points between buying and renting. What my model basically showed me was that once you've factored in interest, closing costs, tax effects (property tax AND personal deduction), assessments, insurance, appreciation/depreciat... and selling commision, if you compare that to what you could earn by investing your downpayment at a nominal rate, and saving the difference between rental rates and the "all-in" buy rate, you almost always have to live in a house for longer than 15 years with a 30-year mortgage to have it make sense to buy. If you use a 15-year mortgage (does anyone?) you can cut the breakeven point to about 7 years for an average property.

      But, what's interesting is to compare this to average homeowner statistics, particularly urban. Anecdotaly, most people I know in Chicago live in a home for 3-5 years, and they all swear they made money when they moved out. That may be...

      But, once they remove all of the external costs of buying from the pure nominal appreciation (particularly by removing the closing closing costs and selling commission) their returns are dwarfed by what could have made had they just put their money in a money-market account...and would have had returns with substantially less risk than owning.
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    • Fri Mar 14th 18:09 PM | Rating: 0 0
      Commented on:
      Financial Stocks Trading Near Book Value
      Book values for financial companies are almost irrelevant. Book values have the most value the more tangible a company/industry's actual assets are...the more physical the better. I'm studying for the CFA right now, and they specifically say that book value comparable metrics shouldn't be used for financials. The biggest problem is that a bank's assets (primarily it's loan portfolio and investment portfolio) are essentially black boxes, and also that many of the assets are m-t-m so they're extremely susceptible to market perception.
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    • Mon Jan 14th 16:58 PM | Rating: 0 0
      Commented on:
      Estimating the Risk in Citigroup Stock and Bonds
      I wish it were as simple as figuring out how many sub-prime loans Citi wrote....but it's not going to reach a viable figure of upcoming writeoffs. Since the 90's, the banking industry has undergone an entire paradigm shift. Banks no longer issue loans and keep the majority on the books. In the last few years particularly, the emphasis has shifted almost entirely to securitize the loans/assets, get them out the door, and maintain lucrative servicing rights. The rational is that by securitizing assets, it lowers your cost of capital because you aren't limited by Basel requirements.

      The real issue that Citi (and other banks) have, is that they got caught holding a bag of post-securitized loans in the form of ABS, MBS, and CDOs that no one knows how to value (except for Goldman Sachs, somehow).

      Because there's no relationship between the actual sub-prime mortages Citi wrote, and the originators of the underlying mortgages in the ABS's of Citi's proprietary books, you won't be able to back into an estimate of future write offs. You'd need information about the securities in their prop book and more importantly, a database of the underlying mortgages that comprise their ABSs.
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