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Genesis Posts: 71433 Incept: 2007-06-26 
KD^2 
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http://market-ticker.org/archives/875-I-....
---------- "The monetary base in ALL modern monetary systems is the sum of unencumbered assets against which one is both WILLING AND ABLE to borrow." - Me
2009-03-17 13:27:05
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Mondocondo Posts: 3143 Incept: 2007-12-03 
Miami
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"Why is it that this fundamental fact - that matching duration of debt to expected utility of that which is purchased with it - is something that isn't instantly obvious?" Because Wall Street bankers are nothing more than commissioned salesmen, and they are exceptionally good at their jobs. With that bonus as the carrot, and the cache of being the smartest people in the room, they have become experts at selling anything to anybody anytime they want.
2009-03-17 13:39:32
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Cybird Posts: 45 Incept: 2007-12-08 MI
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Reminds me of old "Chicken n Chips Perot", back in what 92? He was adamant about not funding long term commitments with short term paper. So 17 years minimum of bad practice has been built into the credit markets.
2009-03-17 13:42:18
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Docberg Posts: 37 Incept: 2009-02-20
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This is also common in the public sector. It is frequently the case that road projects are paid for with 20 or 30 year bonds. The average road here in Illinois is designed to fail every 4 years in order to provide suitable road construction contractor kickbacks to fund the election cycle. So, we wind up having to repave the roads numerous times in the lifetime of the original bonds.
2009-03-17 13:58:54
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Jnojr Posts: 555 Incept: 2008-09-18 
San Diego, CA.
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I like the point about the 30 year mortgage! I had never thought of it that way.
2009-03-17 14:00:07
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Ribbit Posts: 888 Incept: 2007-09-10 Wales, UK
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Docberg:"This is also common in the public sector. It is frequently the case that road projects are paid for with 20 or 30 year bonds. The average road here in Illinois is designed to fail every 4 years in order to provide suitable road construction contractor kickbacks to fund the election cycle. So, we wind up having to repave the roads numerous times in the lifetime of the original bonds. " Yep, a properly constructed road should only have to have a cheap wearing course replacement, every 15 years. ---------- Politics is just a shell game. Every time you pick a new shell, it always turns up empty.
2009-03-17 14:11:40
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Equalitarian Posts: 38 Incept: 2009-01-20
SW Ohio
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Another great ticker! Why is it so difficult for the PTB to adhere to the simplest of principles? (Oh! Maybe it is because they have none!)
2009-03-17 14:14:28
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Lastchance Posts: 1132 Incept: 2008-11-19 Las Vegas
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Nice colors today. Even though it has already been quoted, this part of the Ticker should be taught in school every single day just like the alphabet and mathematics. "PS: This is why you take a 30 year mortgage too. It allows you and your spouse, just married, to live in the house and raise a handful of children from conception to maturity without refinancing risk. Why is it that this fundamental fact - that matching duration of debt to expected utility of that which is purchased with it - is something that isn't instantly obvious?" Spot on fantastic. ---------- "We don't quit. I don't quit" President Obama 1/27/10 Man, I would to have him in one of our poker games.
2009-03-17 14:21:47
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Whewt Posts: 444 Incept: 2008-03-17
..Isla Bonita
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Docberg and Ribbit. There are many factors including weather, truck traffic, and pavement chemistry that affect the service life of a road. Each road should be analyzed on an individual basis and maintained accordingly, but in actuality they are usually resurfaced on a set schedule. Here in the arid American West, many states are on a 7 year maintenance cycle, but are working on pavement monitoring systems to better predict failure so they can tailor the funding to resurface only the roads that will be next to fail. Maintenance is viatal for getting the maximum ROI on road investments. Unfortunately new construction gets all the funding attention. Probably has to do with the ribbon cuttings and photo ops that go along with new construction.  ---------- HAS THE WHOLE WORLD GONE CRAZY? AM I THE ONLY ONE AROUND HERE WHO GIVES A **** ABOUT THE RULES? MARK IT ZERO! -Walter Sobchak - The Big Lebowski
2009-03-17 14:33:48
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Cybird Posts: 45 Incept: 2007-12-08 MI
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PDF on US Road Funding Comparison put out by University of Iowa back in 06. http://www.uiowa.edu/~ipro/Papers%202006....
2009-03-17 14:48:59
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Tdray Posts: 115 Incept: 2008-12-11
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Also, don't add currency risk to the debt equation. Just ask any Icelander. Docberg - Don't forget the planned capacity shortcomings built into the Illinois Tollway (Tri-State) system. That road will never be finished. Last modified:
2009-03-17 15:14:00 by tdray
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Yourapostasy Posts: 21 Incept: 2008-10-06
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For the majority of Americans, I still don't quite understand KD's point about 30-year mortgages. For most employees, the job instability over a multi-decade span coupled with the round-trip 6% transaction costs (then add another 1-2% for moving-related expenses) for each job-related move doesn't seem to me like a good combination to argue for undertaking a 30-year note. Since the average mortgage holder moves about once every 6-7 years, wouldn't the utility timeframe be that instead of 30 years? Also, isn't the beta coefficient of most jobs quite positive in relation to the overall economy, with income stability with some of the higher-paying jobs securable only with 1-2 years of emergency funds? Even a more charitable timeframe pegged to just the macroeconomic condition would put us at around 10-15 years at the outside. This doesn't even begin to take into account the recovery time required to replenish such an emergency fund before the next economic downturn hits. Even those households who only need six months of funds to bridge between jobs that are par on wages could take quite a few years to build those funds back up between other savings demands, wouldn't they? I'm extremely fortunate in that I can make a living from anywhere Internet broadband and international flights are available. I can now pick nearly any civilized location in or near North America, and when my business expands to overseas locations, I can pretty much pick any civilized location in the world. It is only at this point in my life that I considered myself stable enough to secure a location with a 30-year mortgage (even then, my wife and I detest consumption-based debt enough that we're struggling to figure out how to afford only a 15-year or shorter note). When I was just an employee, I never considered it feasible nor prudent to complicate my job prospects with tie-ins to my local housing market. If I had taken on a mortgage, then I could not have been able to start and persevere in my business. There were some dark periods in the early years where the sales pipeline was looking mighty lean, and a low rent (versus mortgages which were much more expensive) helped save the day. So what am I missing here?
2009-03-17 15:51:26
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Genesis Posts: 71433 Incept: 2007-06-26
KD^2
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Taking a loan that amorts over a SHORTER period is fine. One that DOES NOT AMORT over the utility period is NOT FINE. ---------- "The monetary base in ALL modern monetary systems is the sum of unencumbered assets against which one is both WILLING AND ABLE to borrow." - Me
2009-03-17 15:52:28
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Deejunk Posts: 578 Incept: 2008-10-11 Now DC - Solar Power.
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GRRR!Genesis wrote..I have nothing but disgust for people who have the three letters "MBA" after their name ... these are the same sort of "geniuses" who time and time again keep claiming they have found a free lunch - only to find out that they are the lunch when what they found in fact is a lion that promptly eats them. EXCUSE ME? I fit into that box Karl. I love you too. ---------- http://www.myvideo.de/watch/2451556/The_.... - I'm seriously ready for inflation, deflation & TOTAL collapse of the US & Global economic & market systems.. I'm the sexy blonde not in this vid but my x is the lead chichen-> http://www.youtube.com/watch?v=vdFIXsrjk....
2009-03-17 16:17:54
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Spigot Posts: 109 Incept: 2009-03-02
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IMHO, the MBA's bought insurance to cover their variously exposed ass-ets and thought they were covered on the "risk" side...until the insurance schemes started to blow up. A lovely fantasy until it turned into a tragedy.
2009-03-17 16:23:47
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Deejunk Posts: 578 Incept: 2008-10-11 Now DC - Solar Power.
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Genesis wrote..This is why you take a 30 year mortgage too. It allows you and your spouse, just married, to live in the house and raise a handful of children from conception to maturity without refinancing risk. Why is it that this fundamental fact - that matching duration of debt to expected utility of that which is purchased with it - is something that isn't instantly obvious? And it also can cost much more than one imagines to "refinance" and up the insurance on a home as some local tax assessors look at mortgage amounts and insurance value to base assessments. One home I had the assessment go up 400% in three years... because of insurance. On the flip side, paying debt for 30 years can be like being a GLORIFIED RENTER... with a possible/likely equity return. Sure, deduct taxes and interest now subject to overcoming a "standard deduction" floor that almost everyone gets and the homeowners IS also out the cash for these amounts. A 30 year US dollar debt slave during the best years of ones life? And the repairs and maintenance, those build up especially in lower quality newer homes.... I'm a cash RE buyer... I take my "standard deduction" and smile 'cause it's all free. ---------- http://www.myvideo.de/watch/2451556/The_.... - I'm seriously ready for inflation, deflation & TOTAL collapse of the US & Global economic & market systems.. I'm the sexy blonde not in this vid but my x is the lead chichen-> http://www.youtube.com/watch?v=vdFIXsrjk.... Last modified:
2009-03-17 16:38:16 by deejunk
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Genesis Posts: 71433 Incept: 2007-06-26
KD^2
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Heh I own my home clear, so there 'ya have it. But I can justify a 30 year amortizing mortgage. I can't justify one that doesn't amort on no more than 30 years, level (no gimmicks or floating rates) ---------- "The monetary base in ALL modern monetary systems is the sum of unencumbered assets against which one is both WILLING AND ABLE to borrow." - Me
2009-03-17 16:38:06
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Deejunk Posts: 578 Incept: 2008-10-11 Now DC - Solar Power.
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Yourapostasy, Your lifestyle ... give me broadband internet and a way to get out of town and it's all good! With a small airport for those emergency flights into Baltimore and DC (and beyond) and Amtrak and Greyhound, I'm good too. 30 years? Bah! I paid cash and got a couple houses and a handyman book. ---------- http://www.myvideo.de/watch/2451556/The_.... - I'm seriously ready for inflation, deflation & TOTAL collapse of the US & Global economic & market systems.. I'm the sexy blonde not in this vid but my x is the lead chichen-> http://www.youtube.com/watch?v=vdFIXsrjk.... Last modified:
2009-03-17 17:00:23 by deejunk
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Newbtrader Posts: 3261 Incept: 2007-08-24
Bubbleville, VA
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Amen.. a couple years ago before I understood all the ponzi finance schemes, I was utterly befuddled WHY a company would get a short term loan when they needed the money from that loan for longer than the loan period. Come to realize it's just a twist on an ARM, or some other financial product that essentially REQUIRES a refi, or another loan. Nucking Futs to me..
---------- "So try and figure this **** out. Catholic men and jewish women, no hats. Catholic women and jewish men, hats. Somebody's got the whole thing totally ****ing backwards." -George Carlin
2009-03-17 17:51:37
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Baldy Posts: 6555 Incept: 2008-05-16
Pittsburgh
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Someone should fax this Ticker to the Bureau of Public Debt. Isn't it true the average duration of Treasury bonds is 4.8 years?
---------- FY2011 Budget - Hist'l Tables (PDF 2.0 MB) http://www.whitehouse.gov/omb/budget/fy2011/assets/hist.pdf 1996-2011 budgets: http://www.gpoaccess.gov/usbudget/browse.html
2009-03-17 18:46:21
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Mtgspy Posts: 6122 Incept: 2007-10-27
Online
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Karl got the story and idea right but the motivation wrong. The demand pushes for short term asset. Everyone wants liquidity. The supply side only obeys. ---------- It sounds antiquated, merchantilistic - until you figured out that I was hoarding for war.
2009-03-17 18:49:12
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Pika-steph Posts: 39200 Incept: 2007-09-11
^Why I keep^ fighting; so he is not fighting for nothing.
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I'm the proud owner of some KO as of early this afternoon. Had been wanting to do it for months now. Their announcement just sealed the deal for me. Didn't see the Ticker until just now.
---------- Stop the Looting; Start Prosecuting - http://www.FedUpUSA.org  "America is at that awkward stage. It's too late to work within the system, but too early to shoot the bastards."
2009-03-17 18:55:42
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Uwe Posts: 1029 Incept: 2009-01-03
Philly Burbs
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I agree that it's not a good idea for a business to borrow short-term in order to invest long-term. There's much risk in that. But isn't that precisely the business model virtually every bank is based on? If it's not a good idea for a normal business, why is it OK for banks? ;-) -Uwe- ---------- “Political tags - such as royalist, communist, democrat, populist, fascist, liberal, conservative, and so forth - are never basic criteria. The human race divides politically into those who want people to be controlled and those who have no such desire.” - Heinlein
2009-03-17 20:56:36
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Genesis Posts: 71433 Incept: 2007-06-26
KD^2
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Banks have a guaranteed source of funds. ---------- "The monetary base in ALL modern monetary systems is the sum of unencumbered assets against which one is both WILLING AND ABLE to borrow." - Me
2009-03-17 20:58:30
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Uwe Posts: 1029 Incept: 2009-01-03
Philly Burbs
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OK, but in the end that guarantee comes from us, the taxpayers, doesn't it? -Uwe- ---------- “Political tags - such as royalist, communist, democrat, populist, fascist, liberal, conservative, and so forth - are never basic criteria. The human race divides politically into those who want people to be controlled and those who have no such desire.” - Heinlein
2009-03-17 21:22:41
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