Its about time that someone actually wrote the facts on this matter. To put it simply, "Socialism doesn't work, it just creates a vicious cycle during which members of society are trained to become lazy, stupid, and worthless."
Every time someone who is uninsured gets medical care they can't pay for a third gets picked up by the government (ie, you and me, in the form of taxes), and the rest by insurance companies (ie, you and me, in the form of higher insurance premiums). The end result: People who don't want to get insurance or don't work hard enough to get it basically get a free pass and force you and me to pay for all their medical care.
Now, until my recent graduation I was working 40-50 hours a week, carrying a very heavy full-time senior classload, performing 5 to 8 hours of service for my church each week, filling a volunteer position in my HOA, and spending some time with my pregnant wife, who was also working 40 hours a week, taking some classes, and giving 5 to 8 hours of church service a week. But because we both worked our tails off and didn't go waste all our money or spend it on things we didn't absolutely need, we didn't qualify for any socialist programs that so many others our age benefit from.
So, let's see, the government is basically trying to teach us that working hard doesn't get you anything, because you get all the same stuff if you're lazy and get the government (ie, you and me) to pay for it. This is called socialism, and communism is just a form of socialism. We, as a country, have slowly been heading towards it for the last 100 years, and if we don't realize it and do something about it soon, our country will start to crumble just as surely as the Soviet Union did.
Wednesday, June 08, 2005
Tuesday, June 07, 2005
Real Estate Speculation and Interest-Only Mortgages
I firmly believe that some people will bite the big one in some areas when home prices level off or start to decline. Most people don't realize that buying properties as investments can be much more risky than investing in the stock market.
Take for example a family that stretches their income to buy a $500,000 home today with the expectation that next year it will have appreciated to $600,000. Let's assume they got an interest-only mortgage (all the rage these days) at a variable rate of 6%, which gives them a minumum payment of $2500 a month on the house. Then by year's end the interest rate has moved up to 7%, making their payment now over $2900 a month. Let's then say that the housing market has cooled off and has started slowly declining, due to oversupply and the increase in interest rates. So now they can't sell their house for more than $475,000, a $25,000 difference from what they owe, and are saddled with $2900 monthly payments which could continue to increase. They can't sell the house because they'll still owe $25,000 on it and will just have to buy another house, but with home prices sliding who wants to buy a home that will devalue? They could end up losing the property completely and then be out a lot of money and time and have to find a new place to live.
These interest-only mortgages are big-time traps. It is no better, in my opinion, than renting. None of the money you pay each month will be yours in the form of equity. The rates are usually variable and will only go up. They are very much a true gamble, like something you'd find at Vegas. The gamble is that the price of the home will increase at a greater rate than their interest rates and all their home maintenence and insurance expenses. In essense, it is like buying all the risk without buying any of the property. If you wanted to do that in a stock, it would be like you borrowing all the money to buy a stock and then hoping it moves up so you can make some kind of profit, and if it doesn't then you could lose all the money you borrowed and walk away with nothing, as well as owing someone money. Brokers can't let you do that because it is way too risky. If you want a margin account (the ability to buy securities with borrowed money) they require certain minimum amounts of actual cash in your account so that if things go south for you and they have to sell all your stock, they still have enough to pay for everything, leaving you broke. But regardless, you walk away at worst having lost all the money you started with, compared to losing money you don't even have in the real estate scenario.
Take for example a family that stretches their income to buy a $500,000 home today with the expectation that next year it will have appreciated to $600,000. Let's assume they got an interest-only mortgage (all the rage these days) at a variable rate of 6%, which gives them a minumum payment of $2500 a month on the house. Then by year's end the interest rate has moved up to 7%, making their payment now over $2900 a month. Let's then say that the housing market has cooled off and has started slowly declining, due to oversupply and the increase in interest rates. So now they can't sell their house for more than $475,000, a $25,000 difference from what they owe, and are saddled with $2900 monthly payments which could continue to increase. They can't sell the house because they'll still owe $25,000 on it and will just have to buy another house, but with home prices sliding who wants to buy a home that will devalue? They could end up losing the property completely and then be out a lot of money and time and have to find a new place to live.
These interest-only mortgages are big-time traps. It is no better, in my opinion, than renting. None of the money you pay each month will be yours in the form of equity. The rates are usually variable and will only go up. They are very much a true gamble, like something you'd find at Vegas. The gamble is that the price of the home will increase at a greater rate than their interest rates and all their home maintenence and insurance expenses. In essense, it is like buying all the risk without buying any of the property. If you wanted to do that in a stock, it would be like you borrowing all the money to buy a stock and then hoping it moves up so you can make some kind of profit, and if it doesn't then you could lose all the money you borrowed and walk away with nothing, as well as owing someone money. Brokers can't let you do that because it is way too risky. If you want a margin account (the ability to buy securities with borrowed money) they require certain minimum amounts of actual cash in your account so that if things go south for you and they have to sell all your stock, they still have enough to pay for everything, leaving you broke. But regardless, you walk away at worst having lost all the money you started with, compared to losing money you don't even have in the real estate scenario.
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