Fighting inflation by increasing prime rate by 3x

the exact same thing happened in the last housing bubble, a short 15 years ago or so.

in the us, we are able to secure 30 year fixed rate mortgages, at a slightly higher rate than variable. if you do go with variable, you can always convert to fixed at the current rate. and we've had plenty of warning from the federal reserve bank

 

You can choose a fixed rate here. But many people went for the (temporarily) cheaper variable rates so they could borrow as much as possible. It's very hard to switch from variable to fixed without going through a whole new approval process.

 

same here.
banks are not our friends anymore. not that they ever were, but there was a time when they didn't want you to fail, and they used an income formula that they didn't deviate from. above the banks, regulators have let us down, allowing it to happen. especially again, only 15 years later.
if you haven't seen 'the big short', it's a brilliant movie.

 

My wife is a big fan of The Big Short*. She works in an investment bank, and she says it's very accurate.

The thing is, banks are shooting themselves in the foot here, and it's the same with what I said earlier about the big corporations. Many of them are chasing large short-term profits at the expense of long-term sustainable profits. If they bankrupt all their customers now, where are they going to make money from in future?


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*GET YOUR MIND OUT OF THE GUTTER. It's short but it's not big.

 

it's because they are public companies. they all want a golden handshake, parachute or whatever

plus, the government has done a bang up job of swallowing all the debt in the past, so there's a precedent

 

Yes. Annual and quarterly targets, and bonuses based on them, really are the enemy of long-term thinking.

 

Why would banks knowingly make bad loans on home mortgages? It is an obvious bad business decision with tremendous economic repercussions: the answer is they were forced to make these loans by regulations - who made these national regulations and provide oversight of banks and the program?

Lehman Brothers and many others eventually repacked these bad loans into financial packages and began to sell them to financial institutions- that laid the groundwork for the 2008 financial disaster. Who rewarded this behavior with generous bailouts that these companies then used in many cases for disreputable purposes and provided the money for the bailout and oversight of the situation?

It is misleading and not informed to say banks caused the problems of 2008. Many might say the forced regulations for demanding bad loans be made and the subsequent ill-advised bailout of disreputable companies was the cause of the problem.

Another gentleman was disparaging all Big Corporations. It is trendy and sexy to hate Big Corporations these days and certainly the popular thing to do. We often ignore the positive impact both financially and socially Big Corporations make to society. I leave it at that as that will certainly not be a popular sentiment but certainly part of a balanced view of looking them in a complete manner.

 

If the only tool in your bag is a hammer.....

If the very definition of 'inflation' is too many bucks (or yuan, or euros) chasing too few goods, then increasing the cost of money isn't the most foolish thing to do. Foie gras'ing astronomical units of made-up currency into an already overly inflated economy kinda IS FOOLISH, but that's Ops Normal for DC.

Money was too cheap for too long, and people forgot painful lessons that SHOULD have been learned numerous times throughout history.

As far as Credit Cards are concerned, I used to be nearly as blind as certain bought and paid-for US politicians in my views of the predatory lending practices of these too-big-to-fail banks.
See: Either Proverbs 22:7 or Bill's 'Polonius advises Laertes.'
HOWEVER (comma!!!!)
Later in life I saw what happens when a couple of families who would normally not be so foolish as to use revolving credit get a cancer scare, or suffer a hull-loss home disaster.

No regulation is too restrictive nor penalty too severe for revolving creditors.

I'm still servicing the dregs of a VA home loan, taken on late in life.
No 'government debt forgiveness' for me since the government obviously doesn't value MY vote.
For those not familiar with Uncle Sam's programme, it's not the cheapest option, nor is it particularly easy to get out of.
Since that's my only real debt, I don't care much what the interest rate is, but that's MY mileage.
Others' will vary.

As far as credit cards?
I pretty much think that anyone under 25 should have any and all debt nullified within 2 years of assumption, and all revolving debt should have a similar sunset date.
Market forces will take care of the rest.

As far as ARMs for non-commercial borrowers.....
Play stupid games?
Win stupid prizes.

Real estate IS REAL estate, and there are certain debts that can ONLY be serviced by an ARM, but that pretty much excludes the starry-eyed first-time home buyers, who SHOULD BE protected by dot.gov.
One of the several problems I have with Commonwealth of Massachusetts' senior US Senator is NOT her passion for defending borrowers.
She'd probably be a good pick for lifetime head of the Consumer Financial Protection Bureau if she weren't busy servicing side hustles.
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Washington was first, and Biden is the 46th?
They seem to count by single or consecutive term 'administrations' with Grover getting two with 'Presidencies' or Administrations 22 and 24.
People with TDS are thinking that there will be a shared 45/47, but I have my doubts.

Historians get a few things wrong about P18....one of the most under-rated and least understood of the US Presidents....but hey...."experts"...right?

P18 followed P17, whose surname, most fittingly, is also slang in the US for the male reproductive organ.
P17 is not fit to polish P18's boots.

P36 shares both the surname AND the paucity of moral character of P17.
Ask a REAL historian about his Silver Star award, or how Apollo 8's skipper got sick for two small but illuminating examples.

Fun Fact:
P18 and P33 only have one middle name between them, and that one name does not begin with the letter "S."

 

For a while now, I've had an uneasy feeling that my own beloved profession (IT) may have had something to do with it.

When I was growing up, it was pretty much an article of faith that good business was acting in the interest of the customer, and a business wouldn't even seriously think about acting against the interests of the customer, because everyone assumed that would weaken the business against competitors that treated the customer better. There wasn't a whole lot of experimenting being done to find out how true that was, because a business leader wouldn't be very interested in even trying it.

I noticed a change between when I was in college, and when I was in grad school later (I didn't go straight there).

When I was in college, I did have a credit card, but it was kind of a pain to get. My dad was a co-signer. The bank didn't take him off it until some time after I graduated and I'd been handling it responsibly.

When I started grad school, in the first weeks of fall, there were credit-card issuers with colorful tables along the sidewalks, essentially flinging credit cards at fresh-faced undergrads like candy.

One thing that changed during that time is that computing technology made it easier to simulate what-if scenarios. Where a business leader might previously have thought "well, carefully selecting responsible customers and acting in their interest would be good business, and trying to profit from customers' impulsiveness at their own expense would be bad business", the leader could now say "Francis, go code up those two different models and run me the numbers both ways." And find, weirdly enough, that some business models could wring the last dollars out of customers and hang them out to dry, with a steady enough stream of new customers coming in, and turn out to be profitable.

I was never a fly on a wall in any meeting room where that happened, but it would be one way to understand the sort of radical changes in business behavior that I started noticing from the late 80s to the late 90s and beyond.

 

here's another part of the problem:
3746439-investor-home-purchases-drop-record-amount-in-the-third-quarter

 

great job cleaning this up @Tideland Prius , thank you!

 

more good news:
index.html

 

"The reduction in investor purchase activity corresponds with a decline in home sales that was fueled by high prices and soaring mortgage rates amid a series of interest rate hikes from the Federal Reserve targeting growing inflation. "

quote from article in post #32

Yes - all bets are off when an entity is hiking interest rates and printing money on a whim to find some artificial benchmark for the economy to end up at rather than having a hands-off approach where the economy could finally seek its own natural settling point.

 

Short-termism. And greed.

Banks are like every other entity run by humans: they're not necessarily run in a rational way.

 

This goes back to my previous comment about banks: big corporations are run by people.

And the objective of a big corporation is to make money for its shareholders. Management is rewarded for strong quarterly performance, often with structures that penalise long-term planning.

If we don't - heavily - regulate corporations, they will pursue maximum short-term profits at all costs. That's what they're there for.

Moreover, they're far from infallible. Most of my clients are among the 100 biggest corporations in the world. It's often alarming what their top management people don't know and don't understand about the markets they're operating in.

 

This was a rhetorical question. Many here already knew the answer - Banks in the US were forced to make bad loans on homes to hopefully allow more individuals ready access to homes and a middle-class lifestyle.
This was a national problem here in the US.

This has for the most part this corrected itself and the industry has returned to close scrutiny of applications based on abilities to pay the loan back.

Of course there are good and bad Corporations - that is the point. A biased view of business corporations is not realistic. Focusing only on bad corporations is also an unbalanced way of viewing them.

Here are examples of Corporations doing good things contributing to make society a better place:

Hyundai Hope On Wheels
A company that has a mission to stop childhood cancer

Community (toyota.com)

Having worked for Toyota the list of contribution they make to the local communities they are located in is endless

Kroger to distribute COVID-19 vaccine in Kentucky | fox61.com

A grocery chain that helped our medically underserved state with the Covid pandemic

Community (ford.com)

The list of good things companies do is endless.

The list of bad things companies do is endless

A balanced individual realizes both sides of the equation.

Corporations are groups of people - headed by Executives (people) who are responsible to Stockholders (people). They hope to serve needs and make a profit doing it They are not inanimate entities. ...And of course, Regulations and Laws are helpful to establish guidelines, that is common sense

A good exercise I do sometimes when I want to criticize others or things like corporations is to take a good long look at myself in the mirror and take stock of my positive traits and my negative traits. In my case I hope they balance each other out but it immediately helps me realize I am in no position to criticize others and helps me to view their positive traits like I hope others will do for me.

 

You should maybe have asked it as an actual question.

You don't think this might be a marketing thing?

 

A balanced individual had better see both sides of things, but still needs to actually look; it's not enough to bring a pre-existing fixed belief that sides always have equal weight.

A colleague of mine once told me over morning coffee about an interview he had seen the night before. I don't remember who was interviewing whom; doesn't really matter.

It happened to be about anthropogenic global warming, and the interviewer asked the interviewee to just say what he thought were the chances it was happening. The response was something like "well, it either is, or it isn't, so 50 percent."

Not every two-sides-to-it question breaks down that way....