EclectEcon

Jacksonville, Florida and 2605

When Fred Young narrowly escaped being killed in the terrorist attacks on the World Trade Center, he decided to escape his old life and start a new one, as Carl Jacobs. He wasn't sure where to go to begin his new life, but he ended up in Jacksonville, Florida. As Carl was looking for a place to live, a waitress helpfully suggested, "Don't live in a trailer. They can get destroyed in hurricanes."

But Carl took a chance and rented a trailer.

He is no longer living in the trailer, but with the current warnings about Hurricane Dorian, he's glad he settled on Jacksonville and not West Palm Beach:

Carl was a bit more concerned about flooding since his trailer was only about 30 feet above sea level and torrential downpours might cause a problem. He dealt with the problem by tethering the trailer to concrete piles and to trees, so it wouldn't float away, And when the rains came, he moved most of his belongings up onto counters, tables, and dressers just in case.

Expected rainfall from Dorian next week:

Again, Carl was grateful that he had chosen Jacksonville and not West Palm Beach.

To buy a copy of 2605, click here

 

One Reason for the Housing Bubble in Trono

The news media have been full of stories and hand-wringing about the high prices of homes in Vancouvre and Trono. From Lawrence Solomon [via Dr J]:

The Greater Toronto Area is heading into a catastrophic housing bubble, some experts warn, pointing to a raft of scary statistics, such as the sale of detached homes averaging $1.2 million in February, a 32.5-per-cent increase over a year earlier. In a panicked response to this possible crisis — the 2007 U.S. housing bubble is still fresh in people’s minds and some still shudder over Toronto’s 1989 housing bubble — politicians, planners and pundits are recommending everything from tighter lending rules, to a tax on purchases by foreigners, to subsidies for more affordable housing.

 But one reason people are paying outrageous prices for houses in Trono is that apartments are taxed three times the rate of houses:

Unbeknownst to most tenants, their property-tax rate is three times that of homeowners since apartments are taxed at triple the rate of private homes. City councillors have good reason to turn the screws on tenants. For one thing, tenants don’t pay property taxes directly — these are buried in their rent, leading tenants to blame their landlords, rather than their councillors, for high rents. For another, homeowners are likelier to vote than tenants, largely because many tenants are immigrants who lack citizenship.

If the city taxed homeowners and tenants equally — or even better, if the city moderated the property tax through user fees that had homeowners and tenants paying a fairer share of the costs they impose on the city — home ownership would look much less the bargain to the tenant feeling pressure to buy a home. If city property taxes on businesses also reflected actual costs — rather than being raised to confiscatory levels to cross-subsidize the homeowner — home ownership would look like no bargain at all.

Renters are often under the illusion that it's the landlords who pay the taxes, not the tenants. But of course the rent must cover all the costs involved. Renters pay these high taxes, albeit via a pass-through operated by landlords. The high rents, caused in part by the discriminatory high taxes, induce more people to look into buying homes, thus driving up the prices of homes.

Quite honestly, I have no idea how young people with families live in big cities. I look for more companies to move to smaller cities to attract workers with shorter commutes and lower housing costs.

LRT, UWO, and London

I cannot imagine that having a light rail transit system run from downtown London to Masonville through UWO would pass any reasonable cost-benefit assessment. And yet it looks as if the plan has a good chance of happening.

Tell you what: I'll get on board the proposal if they run the rail line up The Parkway.

The Parkway is a residential area of snooty trouble-makers right near the university. I had some serious run-ins with these clowns nearly 25 years ago and would be happy to see them all worked up. See this. In addition, at some point in the past two decades, the residents of The Parkway have managed to block off a trail along the Thames River, an amazingly social-welfare-reducing move on their part.

In econ-speak, I quite clearly have an interdependent utility function such that anything that makes the folks living on The Parkway worse off makes me better off.

High-Rises and Riverside Parkland

Middlesex County and the City Council of London, Ontario, have decided to proceed with rezoning plans that would involve tearing down the five-story Middlesex County Health building that is located at 50 King Street, just south of the heritage castle-like Middlesex County Courthouse building in the heart of London, and build a 28-story high-rise at that location. Here is an artist's rendition of their proposal.

That land is really valuable for this type of use. The units in the building would overlook the Fork of the Thames and have ready access to the parks along the Thames River and to all the downtown amenities -- theatres, Budweiser Centre, the market, and many nice restaurants.

And yet some people (not including me) have filed an objection with the Ontario Municipal Board [OMB] to the proposed zoning change that would allow this redevelopment of this plot of land (see this):

There were concerns voiced at the time that the original concept — a monolithic design — would block the view of the river for residents of the two Renaissance Towers. [EE: one and half of these are shown to the right in the above drawing]

Other concerns were that the tower, a design unseen in London, would overshadow the historic Middlesex County building, formerly the county’s courthouse. [not shown in the above drawing but immediately to the left of the proposed high-rise.]

But those are not the only objections (and let me add that I know of no one in the Renaissance Towers who raised the objection at the latest public hearing that the proposed tower would block their views. I don't know why the Freeps keeps mentioning this.).

The original plan was rejected by the former city council by a vote of 14-0. The new plan isn't all that different, no matter how the planners tried to dress it up, and yet the new council voted 14-0 to approve it. The consultation with neighbours was perfunctory at best, and there was no heritage assessment (as is ordinarily required) of the proposal.

As I wrote last year, the proposed high-rise would not only "overshadow the historic Middlesex County building", it would cast shadows over it much of the day. [see this earlier posting]. To address this issue, the latest proposal calls for the building to be a bit west of the original plan. But it will still cast shadows over the historic Middlesex Courthouse at least as much of the day. The city's planning committee and the full council brushed this fact aside.

Further, the proposed 8-story portion of the building (east of the tower) will also cast shadows over the green space between the building and the courthouse. The walkways and parkland between the current building and the historic courthouse are nice. With the proposed buildings, they will be smaller, and they will be in shadow much of the time; also, they will more likely than not become dark, dangerous places for people (see the walkways around the current courthouse and Bell Building).

Another point that has not been addressed adequately is that the proposed building will remove about 70 parking places and replace them with about 150 parking places.  80 or so additional parking places for who knows how many people working in the offices and/or living in the residential units? Surely there will be hundreds of residents, not to mention employees in the offices planned for the lower levels of the building. That is insane, and the reduced number of publicly available parking spades will greatly tax the available parking available in the downtown. Furthermore, this decreased number of publicly available parking spaces will substantially reduce access to  the Fork of the Thames, in direct contradiction of the City Council's recently approved desire to increase access to and public use of the parkland there.

Yet another problem with this proposal is that it will greatly increase traffic on the narrow streets around the building, especially during rush hours in the mornings and evenings. As it is, the streets are often backed up a block or more in this area during rush hours. Extra office space and extra residential space, all with people expecting to gain entrance and egress to the building from a small side street, will spell zillions of Advil moments. It will also create even more problems for people trying to gain access to the parks along the river (again, so much to the city's "Back to the River" campaign). And it will play havoc with the various parking lots in the area that are designated for guest of the residents of the already existing residential buildings.

Finally, and this really frosts my cookies (and exemplifies the heavy-handed, unthinking processes of our city planning office and city council), a recently approved development only two and a half blocks away which would have done much more to help repopulate and rejuvenate the downtown has been canceled because some offices in the city (I'm not sure which) decided the developers of that plan would have to sacrifice loads of valuable space (but they weren't sure how much and wouldn't commit to how much!!) to form a hub for the city buses. This proposal would have provided considerably more residential and parking space and would be adjacent to a huge dying/dead mall that would provide tremendous retail space to serve the development. It is an ideal location for a massive development. ... and maybe one of it's residential towers could incorporate the fascinating and beautiful twist of the proposed building in the above photo.

If the City of London is serious about "Back to the River", here's what it should do:

• Trade land elsewhere in the city to the County of Middlesex and let the county work with developers to put that neato-looking twisted building up somewhere else. Maybe even in south London along the South Branch of the Thames.
• Put in truckloads (ok, carloads) of parking under that space where the current Middlesex County health building is at 50 King street.
• Make sure the area where the building now is gets converted to additional parkland above the underground parking, facilitating and encouraging pedestrian and auto traffic access (with the additional parking) to the Fork of the Thames.
• Put in more trails, footpaths, and (where necessary) boardwalks along the north side of the Thames west of the Fork of the Thames.

Disclaimer: Let me add that where I live, I would be affected by the congestion during the construction of the tower/buildings shown in the picture. I would also likely be affected by the traffic and parking issues that I have raised. But it will have absolutely no impact on my view.

Related articles

Duplicitous Consulting and Planning? In Local Gubmnt? say it ain't so, Joe

A Classic Example of Political Hubris... and more?

Politicians Hate You

"We Ain't Moving"

New evidence suggests that people who live above the third floor of high-rise buildings have a lower chance of surviving a heart attack. From Science Daily,

The further a patient with cardiac arrest is from the ground floor, the lower the survival rate. Of 8216 people who had cardiac arrests in private residences and were treated by 911-initiated first responders, 3.8% survived to be discharged from hospital. Of the 5998 (73%) people living below the 3rd floor who had cardiac arrests, 252 (4.2%) survived the arrest, but only 48 (2.6%) of the 1844 people living above the 3rd floor survived. When analysed floor by floor, the researchers found a survival rate of only 0.9% in those living above the 16th floor (2 of 216) and no survivors (0 of 30) in those living above the 25th floor.

..."The 911 response time, from emergency activation to arrival of first responders on scene, will remain relatively constant, so long as traffic patterns do not change; however, the time from arrival on scene to initial patient contact may increase as more of the population comes to live at or above the third floor," write the authors. [Emphasis added]

 We live above the third floor in our building, but as Ms. Eclectic says, "We ain't movin'".

Mortgage Indebtedness and Risk in Canada

The C.D. Howe Institute has just released a study showing that some demographic groups have taken on considerably more risk than others in the mortgage/housing market. I'm not surprised by the result, but I am confused by their policy recommendation. From their summary:

[T]he authors find that roughly 1-in-5 of mortgage indebted households have less than $5,000 in financial assets to draw upon in response to a loss of income or to higher debt service costs. 1-in-10 mortgage-indebted households have less than $1,500 in financial assets to address any shock. This represents an inadequate financial buffer, as average mortgage payments are more than $1,000 a month, before taxes and operating costs.
 
The federal government may want to consider further policy actions to lean against the shift towards significantly higher mortgage burdens. However, such policy measures should not be unduly heavy handed and should be targeted to address the distributional nature of the risks.

Here's a different take from me:

The federal gubmnt should tell mortgage lenders that if they grant high-risk mortgages to risky borrowers, they have willingly accepted the risks and must accept the consequences. The problem isn't with the borrowers (and their demographic divergences); it's with the lenders.

I realize the lenders themselves have a diminished incentive to assess the risks properly if they can fob the risks off onto the federal gubmnt through mortgage insurance programmes. If that is what the policy recommendation is addressing, it's about time. It is indeed time for the federal gubmnt to "lean against the wind" and tighten up the requirements for high-risk mortgages.

Let me add that as our incomes rise, we tend to spend more and more on luxuries (and McMansions undoubtedly fall into this category). It's not surprising, given rising incomes, that standards for mortgages and home-buying have changed. Fifty years ago people were advised not to buy a house if the monthly mortgage payments were more than double their monthly income. But now ratios of 4:1 and even 5:1 are common:

The portion of mortgage indebted households with a primary mortgage debt-to-disposable income ratio in excess of 500 percent has climbed from 3 percent in 1999 to 11 percent in 2012.

If private companies were insuring mortgages like those described in the above quotes, one would hope their stockholders would be all over them with objections, complaints, and proxy battles to get rid of the directors.

Does Anyone Still Support Rent Controls? Really?

The evidence that rent controls are harmful is overwhelming. They:

• lead to deteriorating quality of rental units
• cause black markets to develop, with landlords requiring side payments
• create increased opportunities for discrimination (especially against  immigrants, single parents, and students)
• reduce the supply of rental units, making affordable housing even more difficult to find.

Imagine my shock when I read this piece at the Washington Post blog. The piece begins harmlessly enough, explaining how the "pencil" highrises (tall, narrow buildings) that are popping up all over Manhattan and Washington, DC, are emerging as a solution to increased demand for housing in major urban centres. But suddenly it concluded,

The pencil tower isn't a pretty solution to the problem of exorbitant housing costs, or an elegant one -- rent controls or a more redistributive tax code would help urban residents more directly -- but it is a straightforward way of addressing the housing shortage that is causing financial hardship for so many Americans.

Huh? Rent controls? Really?

The evidence is overwhelming that rent controls, over the long haul, lead to reduced supply of housing, in part because developers hesitate to build rentals units if they think rent controls will be slapped on them. Also, in the face of rent control, many landlords convert their units to condos.

Rent controls might be good for those who pass through the filters and screens and get a nice unit at a low rent. But they also make many people who are disadvantaged worse off by leading to a reduction in the supply of affordable housing.

The Towers of Spite

A little over 20 years ago, we moved away from an area near the university. The area had become mostly a student ghetto, but the students were far less of a problem than the snotty local homeowners up the street who were doing all they could to fight the transition of the homes from single-family residences to student housing. Here is an editorial I wrote then.

I live near the university, practically surrounded by students. Every year there are some annoying minor incidents — one or two loud parties and illegally parked cars.

While these incidents are a bother, they are nothing compared with the aggravation caused by the neo-nazis of the local community association. These folks, in their panic to rid the neighbourhood of students, use tactics much more harmful than a few loud parties and illegally parked cars.

Not long ago, members of this group held a neighbourhood walk-through with the local alderperson. They indicated all the houses they thought had been converted illegally into student housing and decried the cars parked in front of some of the houses.

Because we had recently done some remodelling, and because we park in front of our house, these concerned citizens fingered our residence as one which likely had been carved into student housing. But did these neighbourly folks ask us directly about what was happening? Nope.

Instead, two different persons visited us to talk about their organization and its activities. The second was a pushy man who barged into our foyer, trying to look around our house. It seems this group keeps tabs on neighbourhood housing by soliciting for charitable organizations and petition signatures.

A few days later we received two letters from city hall. The first told of an anonymous complaint that we had illegally added an apartment to our home and asked to arrange for an inspection. We replied that we would be happy to speak with the complainant(s), that indeed we would like to meet with them, but that an official inspection was out of the question. The administrator was quite apologetic, indicating that she could not reveal the name(s) of the complainant(s) but that she thought they were over-zealous. To date our enlarged bedroom has not been inspected.

The second letter alleged that we were parking illegally in front of our house. At considerable inconvenience however, I convinced city hall that I was parking legally.

Throughout these events, none of the crypto-fascists confronted us directly with their concern about our home. Instead, they hid anonymously behind city statutes to harass us.

To these so-called neighbours in this so-called community, I ask, "Where were you when neighbours were ill? Where was the spirit of concern then?"

To them I say, "If this is your idea of community, I prefer students as neighbours."

In fact, at one point I called the president of the neighbourhood association and suggested that if they didn't leave us alone, we would move, and the next buyer would likely fill in the pool, put parking in the backyard, and cut up the open-concept home into 9 or 10 bedrooms. Her response, "Oh, we've heard empty threats like that before." To which I said, "That's not a threat; it's a prediction."

This is roughly what the neighbourhood looked like back then. Our house was the bungalow on the right of the four houses, and there was/is a pretty ugly apartment building for students to the right of it.

Sure as shootin' we put our house on the market. The buyer was a student whose family came in, filled in the pool, put parking in the backyard, and cut up the house into 9 bedrooms to be rented to other students.

I think we moved at the right time. A few years later, a developer bought the other three bungalow properties next to our house. He tried to put what looked to be better-than-reasonable-quality student housing on the lots. The homeowners association fought him tooth and nail, and the city ended up putting zillions of restrictions on what he could and could not do.

He ended up building what have come to be known as "The Towers of Spite". He calls them "The Towers of Frustration". They are brightly coloured tall, narrow structures with very few windows (no windows on at least two sides of the buildings). They are, well, "interesting" to say the least.

You can see them in this news story about them that was aired on local television a few nights ago (if that link doesn't work, try this one). Look for the old yellow brick house in the background to the right of the towers. That was our house. We loved it, but I can assure you we'd have been pretty upset having those tall structures next door (there had been single-floor bungalows on those lots when we were there). And we would NOT have been nearly so upset had some of the developer's original plans been allowed to go through.

 Now the developer is running for mayor. He has put huge signs (perfectly legal since they are election signs) down the full three stories of the towers showing what could have been there if the loving neighbourhood association and city hall hadn't tried to thwart his actions.

Photo from The London Free Press below doesn't show the house that was ours.

I still have such bad memories about the homeowners' association that I'm tempted to support this guy's run for mayor.

There's more here (with this photo):

Addendum: From the earlier Free Press story,

He [Kaplansky] said he stands by his offer that if the city were to approve his plan for duplexes and triples as shown as recently as 2005, he would donate the material from the towers to Habitat for Humanity if they would clear the site and let him try again.

Update: There is a very nice piece about Arnon Kaplansky by Mary Lou Ambrogio in The London Yodeler.

London and Northern UK House Prices

Apparently house prices in London, UK, are rising quite dramatically.  See this and this.

At the same time, though, house prices in the north of England are not rising and have still not risen back to where they were in 2007.  See the contrast between London vs the north in this graphic from The Economist:

As I wrote to a friend about this,

My prediction: look for some head offices and other shops to relocate to the north and out of London. Also look for more telecommuting from the north [our friend who lived on the Wirral did a lot of telecommuting, even back then]. And look for more mid-level and upper-level managers to resist relocations to London unless they are offered enormous relocation packages, which will then spur managers to look for the above solutions.

All together now, "People respond to incentives."

Bubble Theory

One of the reasons speculative bubbles might exist transitorily is known as the bigger fool theory: I'm willing to pay more for something so long as I believe I can sell it to someone else soon for even more. I strongly suspect there was an element of this theory at work in the real estate bubble of 2002-6 and likely again in some parts of the UK today.

This theory is captured very well in this two-panel Hagar cartoon [via MA]:

The cartoon is applicable to any type of speculative bubble: tulips, real estate, mortgage-backed securities with liar loans, etc.

One thing for sure that has contributed to sky-rocketing housing prices and other recent bubbles related to real estate and housing finance is gubmnt programmes. They were major contributors in the naughts and they are again: People worry about affordable housing so they implement programmes designed to increase the demand for housing, driving prices even higher. Duh.

From the previous link,

Concerns have been mounting about property prices overheating in the South East amid ... the launch of Government mortgage support schemes such as Help to Buy, which have unleashed a flood of first-time buyers into the market.

I really wonder if voters and legislators understand this simple proposition. Worse, I wonder if they even care.

Consumer Surplus? or Just an "Endowment Effect"?

Today we received a note at our condo door from someone asking if we would be interested in selling our unit. Upon quick reflection, I realized they would have to offer us a LOT more than the going market price for units like ours before we would even consider moving. We quite like the place.

This example seems like a classic example of "consumer surplus" in economics. But read this definition from Wikipaedia carefully:

Consumer surplus is the difference between the maximum price a consumer is willing to pay and the actual price he does pay. If a consumer would be willing to pay more than the current asking price, then they are getting more benefit from the purchased product than they spent to buy it. An example of a good with generally high consumer surplus is drinking water. People would pay very high prices for drinking water, as they need it to survive. The difference in the price that they would pay, if they had to, and the amount that they pay now is their consumer surplus.

We did indeed receive consumer surplus when we bought our condo unit. We paid less for it than the maximum we'd have been willing to pay.

The case of valuing our condo more than the market price is not quite the same, though, is it. Consumer surplus refers to the difference between what we would have been willing to pay and what we did pay for our unit. It does not refer to the difference between what we would be willing to sell it for and the market price.

In other words, what we were willing to pay for the unit before we owned the unit was much less than what it would take to get us to move now that we are here. Maybe it's inertia; maybe it's irrationality; maybe it's transaction costs (lawyers, movers, redecorators, etc.). For sure, it is in part dread at the thought of moving again.

But it is in part the endowment effect:

In behavioral economics, the endowment effect (also known as divestiture aversion) is the hypothesis that people ascribe more value to things merely because they own them.^[1]This is illustrated by the observation that people will tend to pay more to retain something they own than to obtain something owned by someone else—even when there is no cause for attachment, or even if the item was only obtained minutes ago.

Offer us maybe $150K over the market price, and we might give the offer serious consideration. That's enough to overcome even one heck of an endowment effect!

Humidifiers

We have long known that running forced-air furnaces in the winter lowers the humidity in the house. They promote health and they keep old furniture from cracking and falling apart.

In the past we have had pad/drum-type humidifiers attached to the furnace, and, quite frankly, they are a royal pain. The minerals in the water are deposited on the pad and the mechanism, requiring hours of cleaning now and then.

The last house we lived in we decided instead to use a cool-mist humidifier. We put it in the upstairs hallway, and the quiet noise (!) didn't bother us much. When we moved to our current home in a high-rise condo, we gave that humidifier away.

But now, two years later, we have realized the the air in our unit is pretty dry in the winter, and so, once again, we have been looking for a way to humidify the air.

We expected we would not want a warm mist humidifier because those humidifiers heat the water and leave deposits on the heating element. We've had them, and they work, but they don't seem very efficient.

So we were considering a cool mist humidifier and the newer, ultrasonic humidifiers.

The cool mist humidifiers have the drawback of being noisy, and the ultrasonic humidifiers apparently leave a fine dust all over the place. A difficult choice.

Our first attempt was a Honeywell cool-mist humidifier, advertised as being 30% quieter than othe cool-mist humidifiers. Ugh. We put it in the hallway, and it drove us crazy with the noise. One tankful of water, and it went back to the store.

Our second attempt was a Bionaire ultrasonic humidifier. We had anticipated the problem of its possibly leaving dust everywhere, so we filled it with filtered water (we have a Culligan filter on our kitchen tap, and it works very well). No problem with the dust, but the humidifier is too small to help much in our entire unit.

So I went to buy another one, but for some reason decided to buy a Honeywell instead. They have a larger-capacity ultrasonic humidifier, but it doesn't have a warning light to let you know when it is out of water, and we had already noticed that we liked that light on the Bionaire; it clearly isn't necessary, but it is handy.

Instead I bought a smaller Honeywell, with the red light that turns on when the unit is out of water. Unfortunately the window showing the water level is made of very dark plastic, so dark we could not see the water level!

So back it went to the store, and I just bought a second Bionaire. So far they seem to be working well, and it seems that our decision to use filtered water has licked the dust problem. Quite possibly using filtered water would also make the warm mist humidifiers more attractive as an option, too.

In the end, though, refilling these suckers once or twice a day, just to keep the humidity up between 35% and 40%, is probably going to become a royal pain. I expect that at some point we will have to look into seeing if we can get a small water line run to the furnace so we can install a drip-pad type humidifier.

                        ultrasonic humidifiers           

40 Things Every Self-Respecting Person <90 Should Own

I was prompted to write this post after having read this one and not agreeing with everything on its list. I doubt if I would agree with it for people in their 30s, and I certainly have a different list for those of us who are "under 90".

My list below is written to parallel that one to some extent, which is why I included these items and not others. I'll be happy to make changes or additions. 

1. A dark suit. People our age have many sombre events to attend, and a dark suit is often appropriate for them. It doesn't have to be black, necessarily. Just respectful and subdued. I don't have a black suit. This one will do for most situations.

 

And at our age, certainly not tailored!

 

2. Some nice dress shoes to go with that suit. Walking shoes, runners, etc. just don't cut it for those occasions.

 

My dress shoes are all quite old, but I try to get them repaired when possible. 

 

3. However, comfortable hiking/running/walking shoes are a must. 

 

4. Conservative investments. At least some of your investments should be conservative. When you are young, you can put only equities into your savings/retirement portfolio but as you approach senior status, the vagaries of the market can be devastating, so have some conservative investments, and maybe even a lot. My own retirement fund has only 30% equities in it.

 

5. Reasonable tools. I disposed of many of my tools when we moved into an apartment condo, but I still have an electric drill, a sabre saw, hammers, pliers, screwdrivers, and a socket set. 

 

 Update: Ms. Eclectic says she doesn't need all those tools. Maybe some pliers, a hammer, a screwdriver set, and a tape measure would be sufficient.

 

6. A convenient wallet. Credit cards, debit cards, loyalty cards, i.d. cards, medical cards, etc. We have enough cards to carry around that I use one of these. It seems as good as and much less expensive than the similar Bellroy, which is advertised all over the place.

And as we age, we come recognize that there is absolutely nothing wrong with having a velcro closure on the wallet.

 

7. Depends. Fortunately I don't need them yet, but they are infinitely superior to the alternative.

                                           

There is sometimes a lot of snickering from younger people about this topic, but consider this fact: in 2012, Japan sold more diapers for adults than for  children.

 

8. A watch with big numbers. Once again, pretentions of elegance must give way to practicality. I prefer a digital watch with a bright night light (Indiglo) for night viewing plus the greenish daytime background for easier time-telling in the bright sunlight.

These are some of the watches I have. The pocket watches belonged to my grandfather and, as you can see, I never bothered to get one of them repaired. The Rolex is a replica (i.e. knock-off), but at least it is self-winding, not battery-powered. The digital Armitron has the right-sized face but sticks up a bit too high on my wrist. My preference is the Timex digital Expedition with a velcro strap.

 

Let me add that Ms. Eclectic also wears a digital watch with large numerals. I realize that many people just use their cellphones to keep track of the time nowadays, but it is much easier for most of us under 90s to use a watch.

 

9. A proper mattress.  We are not going to sleep in our recliners ALL the time. Over the years, I have found that memory foam works best for me. But if it is too firm, I don't sleep so well. Initially we tried to get by with a memory foam topper, but now we use a king-sized Tempur-pedic.

(but not quite this fancy!)  

 

10. Flashlights. As we age and our eyes don't work so well, having a good flashlight is important. I have one on my smartphone, of course, but we also have several others, including a couple of the rechargeable kind that turn on when the power goes off -- invaluable.

 

 

11. Duct tape.

Right now we have black, grey, blue, red, pink, and brown. It comes in handy for so many different things.

 

12. Four-wheeler luggage (also called "spinners"). It is SO much easier to get around at airports or bus stations with four-wheelers than with two-wheelers.

 

13. A really good recliner.  We know we are going to live in our recliner, so let's be comfortable while we're at it. In my case, the recliner is also my office. 

Don't go for the bargain model because it will become lumpy and uncomfortable after only a year or two.

The one I have now is a La-z-Boy. I don't much like it, so I'm speaking from experience here. This one is noisy and not all that comfortable. I've had better ones. And as I age, I think maybe I should consider a power-lift recliner! ;-)

 

14. Nose and ear hair trimmer. Why are those the only two places where more hair grows as we age. Trimmers are inexpensive and they can help.

 

 

15. Electric openers. Especially jar openers and wine openers (corkscrews). Arthritis takes a toll, and these electric gadgets are immeasurably helpful. I have written about them before (see this), and I still think they are spectacularly useful and spectacularly fun. Also be sure to keep channel-lock pliers handy for opening champagne bottles.

 

16. A list of ICE [In-Case-of-Emergency phone numbers]. We have little lists on our fridge front, in our wallets, and on our smartphones.

 

17. A cellphone (and learn how to use it!). Make sure you have it with you at all times. Know how to call a few friends or members of your family; also know how to call emergency numbers! This is a lifeline in case you fall, are stranded, have car trouble, etc. It doesn't have to be a smartphone, but Ms Eclectic and I both love having smartphones.

I use a Samsung Note2 (on the right, above) most of the time, but I have a small pink pay-as-you-go cellphone with a different carrier (Telus) that I carry for emergency use whenever I expect I won't be on the Rogers System, e.g. when I'm in Saskatchewan.

 

18. A high-quality knife set. Dull knives are frustrating and likely to lead to injury, so get a good set and keep the knives sharp. We have several different knives from different sets, but they are all quite good, and I keep them sharp.

Notice two things of importance:

• We put the knives in the rack with the sharp edge facing up. That saves the sharpness on the blades. Many current knife sets have horizontal (instead of vertical) knife slots; that works, too.
• All our knives have steel right through the entire handle. That is generally considered preferable to knives that don't extend all the way through the handles.

 

19. A passport. You pretty much need a passport to fly anywhere or cross any guarded border these days, and you cannot get one quickly in an emergency, so get one and keep it up to date, just as a precaution.

 

Update: I listed a passport because even if you do not think you will be traveling internationally, you might change your mind. Having a passport and not having to rush around to try to get one is a good form of insurance. Marjorie has added that if you think you might travel a lot to the US, then getting a Nexus card makes sense, too.

 

20. A sewing kit of some sort. It doesn't have to be fancy, but a few pins and needles (and a needle threader or some self-threading needles might be a good addition) along with a few spools of thread always come in handy. At the very least, save a couple of the basic kits provided in some hotel rooms.

 

We actually have more than just the hotel kits for sewing -- more spools of thread and some decent scissors, etc. We also have a fancy sewing machine, but it is so fancy it overwhelms me. I'm not even sure any sewing machine is vital for under-90s. The last time I used one was several years ago to sew buttonholes in the corners of our serviettes (aka napkins). [see this and this]

 

21. An umbrella. Ms Eclectic and I don't agree on this. She doesn't carry or use an umbrella, but I enjoy having one. Actually we have 3 or 4: one in the car, one in each of my different shoulder bags, and one in the closet. I prefer the double-layered ones that seem more wind resistent (like the maroon one in this photo), and the push-to-open; push-to-close button is really nice.

 

We also like having hoods on our spring/fall/winter jackets.

 

22. A good hat to protect you from the sun. I don't know why, but it seems older people are more sensitive to the sun; I have been for years because of my baldness. I wear a Tilley much of the time, but I also carry a hat that folds up pretty small (see photo); Ms Eclectic is still experimenting.

 

 

23. A good, solid, easy-to-use stepstool. Changing lightbulbs will surely become an uncommon experience as we shift to using more LED bulbs, but every once in awhile we need to reach something that is up higher than we can reach (especially as we shrink in height and lose our ability to stand up so straight). And a chair sometimes is too hard to get up on, or not high enough or stable enough. This one has been in the family for quite awhile and is very useful (even for putting red reflector noses on deer-warning signs). If I were buying one now, I might consider a three-stepper.

 

 

24. Stain removers. I used to be grossed out by people who spilled food on their shirts during meals. Nowadays, I consider it a victory if I don't. Tide sticks are a necessity, as are spray spot removers for the shirts. Maybe I should buy more stain-repellent shirts and pants to deal with this?

 

25. An automatic card shuffler. People in older cohorts like to play cards (apparently more than the younger generations, but I'm not so sure about this). Arthritis attacks the knuckles makes it hard to shuffle. We gave our automatic card shuffler away because we don't need one yet, but when we do: Automatic card-shufflers to the rescue!

 

26. Lint rollers for both pet hair AND dandruff! Be sure to check that dark suit in item #1 before leaving home.

 

 

27. A good optometrist and optician. I like transition lenses (that go dark in the sun) so I don't have to worry about sunglasses. But I detest progressive lenses (no-line bi- or tri-focals) because the field of vision is too narrow with them. Whatever your tastes, make sure you have a good optometrist and a good optician to work with.

That having been said, I would likely order my glasses from Zenni Optical if they would produce tri-focals. The prices there are amazingly low.

 

 

28. Lots of remotes. We have at least 14. It makes life so much easier.

From the livingroom and dining room:

And from the bedrooms:

29. A subscription to a good cable/music system. We don't bother with CDs and downloaded music anymore. We just find a music channel on tv that suits our mood and listen to that. In fact, I gave away all but a few of our CDs (shown below) last year.

 

 

30. Good walking sticks. Whenever you go walking, if you use a cane, you look and feel old and decrepit; but use a walking stick, and you look fit and cool.

 

My cane is on the left; I have used it off and on over the past few years. You can imagine that when it is in my luggage, it arouses suspicion at airports!

One of my walking sticks is on the right. I take it with me whenever there is a slight chance I might be able to do some hiking (joints permitting).

Marjorie has added a suggestion that a cane with a collapsible seat might be a good idea for some of us at times.

 

31. A Tassimo or a Keurig. A potful of coffee is too much, and while I don't mind reheated leftover coffee, even I don't like leftover coffee that's more than two days old, so making a full pot just isn't worthwhile. Also with a Tassimo or Keurig, you can choose something different everyday.

 

And as you can see, we make sure we have LOTS of choice each time we use the machine. The only time it is a bother is if you are trying to make coffee for a large group of people.

 

32. Good socks. There is no point having good shoes if you don't have good socks. I recently gave about 30 pairs of socks to Mission Services, but I still have maybe 50 pairs.

 

 

33. Good underwear. Dontcha hate when it rides up? And make sure it fits properly. I buy mine at J.C. Penney in the US. I'm going to stock up the next time I'm there because I'm not sure how long that store will be around. 

[You didn't really think I would put a photo of my underwear here, did you?]

 

34. A really good set of non-stick skillets. We have three different sizes, and the non-stick coating is like magic. We love them.

 

We don't store them this way; we put plastic between them to protect the finish. These are Heritage Artisan pans that we bought at Canadian Tire. They are on sale maybe once every three or four months and are very inexpensive then. And they are miraculous.

 

35. Spring for some nice sheets and bedding. My only regret is that nobody these days seems to make high thread-count sheets with bold geometric designs.

 

36. Good booze. Sure, you can buy standard, acceptable stuff for lower prices (and we do), but keep some good stuff around, too, whether it is vodka, gin, rum, bourbon, or scotch. I always try to have some Lagavulin, Caol Ila, or other good scotch around.

 

 

37. Practical dishes. Ms Eclectic and I have probably gone throught 4 or 5 different types of sets of dishes, but it turns out that the ones we like best are some white dishes we bought for maybe $9 per box of 4 place settings from Canadian Tire. They're not perfectly formed, as you can see, but they are just fine for us. And we actually like the minor imperfections.

 

The ramekins are from Dollarama, and suit us very well.

We also have some unique ceramic dishes -- the brown ones in the photo. I've broken a few bowls, though, and the "artist" doesn't use that glaze anymore, and so we've moved away from using them much.

Speaking of broken dishes, Corelle is the saviour of those of us who bang things around or drop them inadvertently. We have a bunch of Corelle serving bowls.

 

38. A decent car. The next-to-last car we bought was in a bit of an emergency situation. It was a great car (our son is still using it and having no problems with it), but it didn't really satisfy me. So we shopped a bit longer for the one we drive now, and it quite suits me.

 

39. A decent e-reader (or tablet with e-reader apps). Give away your hard-copy books. They take up way too much space and weigh a tonne if you're trying to pack a bunch of them along when you travel. With e-readers you can load up a bunch of books; furthermore, with e-readers nobody can see the cover and judge your taste in reading material.

 

40. Finally, get a computer and learn how to use it. Do email with your family and friends, and consider joining Facebook so you can keep in touch with friends and family from all over. Some people may think I spend too much time on the computer, especially on Facebook and email, but the contacts I have made, have retained, and have renewed have greatly enriched my life.

 

Addenda:

• MA suggests i.d. tags for grandchildren (not entirely in jest. See this).
• Phil says "headphones, especially for those of us with kids around the house." We rarely have kids around the house, and when we do I want to be with them and not shut them out with headphones. But I still love the suggestion. I would guess that several times a day I receive email with sound or music. I hate to disturb Ms Eclectic by playing those files through my speakers, so I use headphones to listen to them. My favourites, especially when I travel, are noise-cancelling headphones, but I have several others, too.

• JH suggests pants with elastic waistbands. He attached these photos.

        "At Home:"

and "About Town":

 

. . . . . . . . . . . . . . .

Canada's Social Safety Net: Subsidizing Immobility

Workers in The Maritimes of Canada are upset because of some changes that will be taking place in Canada's "Employment Insurance" [EI] programme. Traditionally workers in The Maritimes have had to work less to qualify and/or have received a longer pay-out. Understandably, unemployment rates in The Maritimes have consistently been higher than elsewhere in Canada.

Why understandably? because [all together now] "People Respond to Incentives."

As has been explained by those protesting the EI revisions, 

"It's not people who don't want to work year round, it's simply the jobs are not there,"

One effect of the EI programmes in The Maritimes has been to raise the height of the social safety net there. After all, Canadians are known for being kind, caring, and sharing.

A more serious effect for long-term growth and economic efficiency is that people are induced to stay in The Maritimes rather than move elsewhere, to places where jobs are more plentiful. 

But it isn't so much the workers of The Maritimes who benefit from this policy. Rather, it is the land and real estate owners there who benefit. If more people would try to leave The Maritimes and move, say, to Saskatchewan to look for work (or in response to finding work), real estate values in The Maritimes would fall. 

Isn't it interesting that protesting workers are trying to defend the vested interests of people who have a stake in the real estate in The Maritimes.

A Bear's Head?

This is a very humorous story about a woman who went shopping for a lamp and came home with a bear's head [ht Marla]. It is well-written and enjoyable. One brief excerpt:

I said, “Before we go any further, I just want to point out that this bear is literally 75% off.  I mean, unless you have the body of the headless bear in the back, in which case I might be interested in purchasing it too” and then he wandered off in a bit of a daze.  Victor shook his head and rolled his eyes toward the ceiling, but in his defense it’s possible it was because he was looking at the pony chandelier because that shit was fucking dazzling.  Then the salesman came back saying, “We would be so…so thrilled to let you have it for $75″ and I shouted “SOLD!” and then I was a little offended on Beartrums behalf because why were they so happy to get rid of him?  Clearly I was saving him from people who did not appreciate him and probably didn’t even realize his name was Beartrum.  This was a damn rescue.

I sort of understand this. One of the houses we bought had a bearskin rug in it. I wanted to specify that the rug be included with the house but Ms Eclectic wouldn't agree.

What a Condo!

You won't believe the condo we live in. From the local news during the past month or so.

Jim Donnelly is the condo board president. From the London Free Press, Sept 3, 2013:

The Aboutown group of companies (which began as a taxi service in 1947), owner James T. Donnelly and several numbered Ontario companies are being sued for $1.6 million in outstanding loans as of March 1, 2013, by the Business Development Bank of Canada, according to a statement of claim filed in court in London.

Aboutown Transportation Inc. also owed Revenue Canada $627,531 as of January, according to a document obtained by The Free Press.

Vaughan Minor is the condo board vice-president. From the London Free Press, July 29, 2013:

A former London politician and his business partner are being sued by more than 800 Alberta investors for $22 million in lost funds and a further $5 million in punitive damages.

Vaughan Minor and Donald Hurst, principals in a landbanking firm known as Edgeworth Group, are identified in a statement of claim as the “faces” of an investment program that raised a total of $55 million that has been lost.

Are Narc-Dogs Coming to The University of Regina?

Last Friday (two days ago) when I returned to my apartment in student residence, I found this note attached to my door:

What??? A "contracted company" will come through my apartment with a DOG to look for health and safety issues???  Since when do they need dogs for this? Colour me deeply suspicious.

And when did "preventative" supplant "preventive" as a word?

I have given fair warning. I scribbled the following on the notice:

Update: several friends have suggested these dogs might be brought in to search for bedbugs in the beds, furniture, carpets, etc.  From Wikipaedia,

Bed bug detection dogs are specially trained by handlers to identify the scent of bed bugs.

With the increased focus on green pest management and integrated pest management, bed bug detection dogs are gaining popularity in North America. Dogs are a safer alternative to pesticide use as a management strategy. If operators can find out exactly where bed bugs are located, they can minimize the area that needs to be sprayed. Dogs smell in parts per trillion, something a human cannot do, and detect bed bugs through all life cycle phases from eggs to nymphs to adults.

Bed bug detection dogs are quickly becoming mainstream. In 2011 The National Pest Management Association^[13] released their Bed Bug Best Management Practices ^[14] which outline the minimum recommendations regarding not only treatment, but the certification and use of bed bug detection canines. The NPMA Best Management Practices emphasize the importance of having a bed bug detection dog team certified by a third party organization with no affiliation to the trainer or company that sold the canine.

Bed bug detection dogs are a viable and scientifically-proven alternative to traditional methods of pest detection. A 2008 report by the University of Kentucky Department of Entomology endorsed bed bug detection dogs by stating that the “reliability of the dogs has been impressive provided they are properly trained.”^[15] Scientists at the university reviewed studies on the dogs and concluded that although expensive for operators, canine detection dogs were promising.

Bed bug detection is complicated by the fact that the insects can hide almost anywhere. Bed bug detection dogs solve this problem because they are small and agile, finding bugs in places humans cannot such as wall voids, crevices and furniture gaps.

With the increase in global travel and shared living accommodations, bed bugs have become more prevalent. The U.S. Environmental Protection Agency held a bed bug summit^[16] in April 2009 to address the ongoing problem of bed bugs and how to eradicate them. 

 

One Impact of Increasing the Size of Gubmnt

More people with good (and better) incomes want to live in the nation's capital, increasing the demand for housing and driving up house prices. When the size of gubmnt increases, not only are there more civil servants, but there are more political appointees and especially more well-paid lobbyists whose job it is to influence gubmnt. From WaPo:

While much of the nation is still struggling to emerge from a historic housing-market meltdown, the District is reliving its boom days. High rents, low interest rates, low inventory, and a flood of new residents in their 20s and 30s are making parts of the city feel like it’s 2005 again.

The increased size of gubmnt is make at least some people better off... namely the people who owned property before the gubmnt-induced property boom/bubble. If I lived in DC now, I'd sell and either move out of DC or rent.

Bearing Costs of Living in Risky AreasPeople Respond to Incentives

The Washington Post had a lengthy piece today on measures various people are proposing to prevent such massive flooding as happened in Galveston with Hurricane Ike or as happened along the East Coast with Hurricane Sandy. (link here). 

You know what I liked about the article?

It talked about what cities, states, and regions are contemplating. The article does not include any quotes (that I saw) saying the protective measures are so costly that the Federal gubmnt will have to help out.

There is no reason to ask/require people in Kansas to help pay for these barriers or other measures (just as there is no reason to ask/require New Yorkers to pay to help with tornado relief in Kansas). 

If people want to live in nice, low-lying areas near the shore [yes, Galveston is very nice most of the time!] they should be willing to pay the high taxes required to cover the costs of protection; failing that, they should be willing to pay the exorbitantly high insurance premiums (assuming they could even buy flood insurance) to cover their losses. 

But when others bear the costs of such mega-project protection schemes, the major economic effect is to subsidize the people who own land (and buildings) in the at-risk areas. The result is to induce more people to live in those areas.

After all, "people respond to incentives."

Asymmetric Interest Rate Risk: If Interest Rates Were Rising, Would Obama Be Pushing Mortgage Refinancing Legislation?

The NYTimes has reported that once again President Obama is urging the US Congress to pass legislation that would make it possible for homeowners to refinance their mortgages at the currently very low mortgage interest rates. 

“I am sending Congress a plan that will give every responsible homeowner in America a chance to save about $3,000 a year on their mortgage by refinancing at historically low rates,” he told an audience in Falls Church, Va. “No more red tape. No more runaround from the banks.”

These types of plans bother me for several reasons:

• When banks grant mortgages, they do so in a highly competitive market. People can, and do, shop around to get good deals. Not all homebuyers shop around or negotiate hard, but many do.... enough so that the rates strongly tend to be driven by the forces of supply and demand in the market for lendable funds.
• Given that mortgage interest rates are competitively determined when someone takes out a loan, I see no reason why those who choose to sign up for a long-term mortgage should expect to be able to refinance at lower rates if mortgage rates drop. They could have opted for shorter-term loans.
• If homebuyers get to refinance their mortgages if interest rates decline, should financial institutions be allowed to require refinancing of the loans at higher mortgage rates if interest rates rise?
• One aspect of mortgage financing is that both the homebuyer and the mortgage company are speculating about future interest rates, whether they like it or not. If a homebuyer thinks interest rates are going to fall, s/he can take out a short-term mortgage and refinance the loan a few years later. People who have done that over the past two or three years have done very well as a result. At the same time, if a homebuyer thinks interest rates are going to rise, s/he will have an incentive to lock in lower long-term mortgage interest rates (an option not available for most (any?) homebuyers in Canada). 
• Lending institutions are also speculating about future interest rates. They lend long-term and borrow short-term. If they lend money long-term at low interest rates and then interest rates rise, these institutions have to pay higher rates to attract deposits (i.e. to borrow short-term). This divergence between long rates and short rates contributed mightily to the savings and loan crisis of the 1980s. To cover this risk, the institutions charge higher rates for longer-term loans. If interest rates rise, they are partially covered. If interest rates fall, they make big profits.
• Many lending institutions in Canada offer variable-rate mortgages. When interest rates fall, borrowers end up with lower monthly payments. But if/when interest rates rise, borrowers who took out mortgages under these terms will end up with higher monthly payments. 

Suppose the US Congress actually passes a law requiring lenders to allow people to refinance their loans if/when interest rates fall (but, given the bias against big financial institutions, does not allow the banks to require refinancing if interest rates rise!). The effect will be to reduce the number of mortgage loans made (i.e. reduce the supply of lendable funds) and drive up interest rates, especially for the long-term loans that involve the greatest interest rate risk. 

The result will be that US and other financial institutions will gravitate away from issuing long-term loans, granting only mortgages that are renewable with short-term maturities, e.g. two-year or five-year terms. Homebuyers will no longer have the opportunity to lock in low rates for long terms.

Quite frankly, given the unsettled political environment in the US and given the potential threats of further interventions in the mortgage markets by the President and some members of Congress, I don't understand why any financial institutions issue long-term mortgages. A plausible explanation for their doing so must be that they can foist off the interest-rate risk onto other gubmnt agencies. And apparently that is what is being proposed:

For those with privately held loans, the president will ask Congress to allow the Federal Housing Administration to refinance their mortgages in a program to be financed by a fee charged to large banks based on their size and the riskiness of their portfolios. The estimated cost of the program would be $5 billion to $10 billion, depending on the number of participants. Only houses whose values fall within F.H.A. guidelines, from about $270,000 to $730,000 depending on location, would qualify.

So the gubmnt will allow smaller financial institutions to have issued long-term mortgages to borrowers, and then allow borrowers to refinance these loans at their advantage. This is a money-losing proposition for the lenders. And so the gubmnt will tax the large banks to subsidize the lending institutions who in turn now have an incentive to subsidize asymmetric interest rate speculation by borrowers: if interest rates go up, the borrowers win by having their mortgages locked in at low rates; and if mortgage rates decline, the borrowers win by being able to renegotiate at the expense of big banks. 

Sheesh. What a way to increase distortions in the economy.

People Respond to Incentives: Divorce and Real Estate Speculation in China

Whenever people are rewarded for being single, there is an incentive for at least some of them to remain single or even fake divorces. The latest evidence comes from China, where couples fake a divorce so that each of them can legally buy more homes, in hopes of cashing in on China's real estate bubble that is being fueled, in part, by the growing wealth in China [h/t Jack].

[G]overnment initiatives to curb a housing bubble are behind the trend. China has raised the down payment for second mortgages, and about 40 Chinese cities have begun to limit apartment purchases to two per family, or one for non-locals. The government has also asked commercial banks to stop offering loans to third-home buyers.

To get around the restrictions, Chinese couples are flocking to so-called fake-certificate companies, which sell phony divorce papers for 300 yuan, or about $45. Getting “divorced” allows couples to register properties under separate names.

Of course the total transaction costs are higher than just $45 [US]. There are also the emotional costs of even faking a divorce. These can arise from the fakery of it all and/or from the uncertainty it might create about the longevity of the marriage. And I'm sure there are others, too.

But the point is: when incentives are provided, people respond to those incentives. An equally important point is that human ingenuity finds creative ways around gubmnt regulations, something we must keep in mind when trying to interfere with market forces.

 

Decision Rules for Valuing Things

As we prepare to move from our present house to an apartment condo, we must downsize, purge, get rid of stuff. Parting with many of the things is actually a joy (no more yard work! no more snow removal!) but parting with other things has required me to think carefully about my decisions.

These seem to be the rough rules that have evolved in my mind as I have been going through the process:

• Is there any chance I will use or want to have access to this item ever again in my lifetime? e.g. old files, books, tools, equipment, etc.  If the answer is no, then the object is a strong candidate for disposal, subject to the next question.
• If I think the probability is low that I will ever want the object, is there much of a chance that my children and grandchildren might find it of any interest or value when they go through my stuff after I die? If so, I have tried to pass it on now rather than wait for them to have to go through everything then.

If the answers to both questions are no, then it goes. Here are some examples:

• Tools? almost all are gone. I'm keeping a few basic hand tools and my latest power drill. If I ever need any of my other power tools, I'll borrow them back from my son or daughter (and actually try to use their places to do any work!).
•  Hardware? I have tonnes of cabinets with little drawers of screws, fasteners, door knob sets, hinges, etc. Gone. If I need them, I'll borrow them or buy new ones. 
• Books? Ms. Eclectic and I mostly read e-books these days. Nearly all the books are gone, including copies of those I have written. More difficult decisions involved old books (and other old items) that have been in the family for generations. I finally realized my children and grandchildren won't want to be saddled with them, so I have found good homes for them.
• Old files. What a thrill to be forced to go through all my old files and clear them out. And it was so much easier once we realized that nearly all the files we use are on our computers.
• Old slides? We have 2800 slides (five boxes worth!). I took 'em to a photo shop and am paying through the nose to have them put on DVDs for us and our children. The memories will be fun, but setting up an old slide projector to look at them wouldn't be worth the effort. Gone.
• Alcohol? We're doing our best to get rid of as much as possible so we won't have to move it. 8-)

We still have a long way to go over the next several weeks, and parting with memories is always a bit painful. But for the most part, this cleansing is both physically and emotionally cathartic. 

Having had to sort through and make decisions about so many things from my mom's house after she died 16 years ago helped me develop these decision rules. There were so many things in her house (she had lived in the same house for nearly 50 years) that I didn't even look at but just threw out or donated to local charities. But I also kept a bunch of family memorabilia and enjoyed looking through it as I packed it up. I'm hoping I've kept mostly similar types of things for our progeny.

Digression: several years ago I apologized to my older son, David Ricardo Palmer, for having so many boxes of stuff that he'd have to go through after we die. His response, "My only hope, Dad, is that you go in a house fire." I think our downsizing will have been a satisfactory alternative.

Once Again It's Mostly the Creditors and the Irresponsible Who Are Bailed Out.

Altogether too often, gubmnt programmes designed to help the poor and downtrodden end up benefiting  the lending institutions who have extended credit to people teetering on the brink of bankruptcy. Bailing out a farmer who is about to lose his farm may enable the farmer to stay on the farm, barely staying above water financially. But if that farm went into receivership, the bank holding the mortgage and other loans to the farmer would lose tonnes of bucks. The creditors have been the major beneficiaries of such well-intentioned programmes.

John Lott points to yet another example of such misguided bail-outs. But this one is such a blatant subsidy to the financial institutions, I'm surprised there hasn't been a major outcry about it:

The Federal Housing Administration (FHA) will offer financial institutions holding mortgages worth more than the value of the houses, so-called "underwater" mortgages, a guarantee on 90 percent of the mortgage value if the institution will write-off 10 percent of the mortgage. These risky mortgages have been bought up by Wall Street investment banks at may be 30, 40 or 50 cents on the dollar. The government now says that if the holder takes 10 percent off the mortgage, the government will guarantee 90 percent of the mortgage. So they may have bought a $400,000 mortgage for $200,000. If the mortgage holder agrees to write-off $40,000, the government will guarantee the mortgage for $360,000.

What was once a mortgage worth $200,000 to the investment bank is now worth $360,000 that they can turn around and sell for that tomorrow. And now, let's do the math. You, the taxpayer, have just given these Wall Street investment firms $160,000!...

Some of the money will to those who made unwise decisions in the past, but much more of the money will go to investment bankers who bought the mortgages that they hold at a discount. In any case, government policies caused housing to be over built in the past, and Washington should concentrate on making investment in general more profitable by letting people keep more of the money that they make, not in helping [t]hat industry by taking money from other places in the economy.

Lott also points out that these programmes not only benefit the creditors, but also redistribute taxpayer wealth to the profligate and to those who tend to be better off:

Many people receiving this money are the very ones who the government forced banks to lend money to that lead to all the financial problems. Poor minorities who couldn't afford to put down money on their homes, who took out a mortgage equal to 100 percent of the value of their home, are the ones most likely to have their homes underwater.

To make matters even worse, the many responsible homeowners are being excluded from these windfalls.

Suppose that you couldn't afford your home and you didn't want to default, so you did the responsible thing and rented out the home and moved into a smaller apartment. Guess what. You aren't eligible for this write-off.

Programmes that reward profligacy tend to encourage even more profligacy. After all, people respond to incentives.

County-to-County Migration in the United States: ...a fun interactive map

BenS sent me this link, which appeared recently on the Forbes website. It is fascinating.

For each county in the US it shows where people in that county migrated from and where they migrated to (within the US) during 2008 using IRS data. 

2008, eh? I wonder what it would look like for 2010 as people continue to adjust to the bursting of the housing bubble. But even in 2008, look at the out-migration from Los Angeles county in California or Wayne county (Detroit) Michigan and contrast those with the heavy in-migration to Maricopa County in Arizona or to Harris County in Texas. And particularly intriguing is the migration from the northeast to Miami-Dade County and  the simultaneous out migration from Miami-Dade County to the west coast.

Have fun! I had to force myself to stop playing with it. 

Canadian Housing Market: It Ain't Broke But Let's Fix It Anyway

Aside from the spill-over effects from the US economy, Canada has not suffered nearly so much from the current recession and did not experience either the huge housing bubble or the big housing bust seen in the US. James MacGee has pointed out that Canada escaped the seriousness of the US financial crisis largely because of its more conservative mortgage insurance and regulations of financial institutions.

The Canadian market lacks a counterpart to Freddie Mac and Fannie Mae, both of which played a significant role in the growth of securitization in the U.S. In addition, bank capital regulation in Canada treats off-balance sheet vehicles more strictly than the U.S., and the stricter treatment reduces the incentive for Canadian banks to move mortgage loans to off-balance sheet vehicles.

Finally, as noted above, the fact that the government-mandated mortgage insurance for high LTV loans issued by Canadian banks effectively made it impossible for banks to offer certain subprime products. This likely slowed the growth of the subprime market in Canada, as nonbank intermediaries had to organically grow origination networks. [also, see this video of MacGee commenting on the rising house prices in some Canadian markets (h/t Glendon)]

With these differences, I have to wonder whether the Canadian housing market really needs more regulation or control to head off future housing bubbles and busts. And yet Canada's finance minister, Jim Flaherty seems to think Canadians need even more protection from themselves. From the Globe and Mail,

Policy makers are concerned homeowners will take on more debt than they'll be able to afford when interest rates rise again, possibly leading to a painful correction later.

The Bank of Canada has vowed to keep lending rates low into the middle of next year, limiting its options for taking the pressure off a hot market.

But since the federal government dictates rules around down payments and amortization periods, it can effectively dampen the housing market without increasing borrowing costs for businesses.

I.e., the gubmnt would increase credit rationing rather than adjust lending rates. But the premise here is that gubmnt officials can

1. recognize a bubble 
2. do something about a bubble
3. that won't be worse than the effects of the bubble
4. and do so in a timely fashion

The thought that politicians think they can fix something that isn't broken by tinkering with it is downright scary.

Watch for More Housing Bubbles in the Future: Shiller

Noted economist (who warned about the housing bubble) Robert Shiller has pointed out that there is a lot of land in the world, and that with growing trade, there is no reason for housing prices to skyrocket in the future in any country as they did in so many places at the beginning of this century..... But he thinks they will anyway. The official summary:

Land isn't that scarce and people just don't seem to understand how little housing should and will appreciate long term. These irrational expectations are likely to bite us again and again with more housing bubbles, according to Robert Shiller.

 His concluding paragraph

The sobering truth is that the current world economic crisis was substantially caused by the collapse of speculative bubbles in real estate (and stock) markets—bubbles that were made possible by widespread misunderstandings of the factors influencing prices. These misunderstandings have not been corrected, which means that the same kinds of speculative dislocations could recur.

So much for rational expectations, I guess. But that has been a Shiller position for years.

  .     .   

Gubmnt Control of the US Mortgage Market

As scary as it was that so many people made so many egregious investment errors in the housing and mortgage markets from 2001-2008, this is at least as scary. From the Washington Post,

[T]he government's newly dominant role -- nearly 90 percent of all new home loans are funded or guaranteed by taxpayers -- has far-reaching consequences for prospective home buyers and taxpayers. ...

After the government seized Fannie and Freddie, it offered them an unlimited line of credit and pledged to inject up to $400 billion to keep them solvent.

But this is not the only form that government involvement in housing finance takes.

The Federal Reserve is purchasing hundreds of billions of dollars of mortgages with the aim of ultimately owning $1.25 trillion worth. This buying spree has flooded the mortgage market with money, forcing down interest rates and assuring lenders they have somewhere to sell their loans. The Treasury Department has a similar, though smaller, program.

The Federal Housing Administration, meantime, is dramatically increasing the amount of home loans it insures. Its share of new mortgages jumped from 1.8 percent in 2006 to 18 percent so far this year, according to Inside Mortgage Finance. It expects to insure about $400 billion this year. Several other agencies, such as the Department of Veterans Affairs, also provide mortgage guarantees.

All told, the government now stands behind 86 percent of all new home loans, up from about 30 percent just four years ago, according to Inside Mortgage Finance.

It looks as if financial markets will be distorted for quite some time to come.

Why Did Easy Money Have Such a Big Impact on Housing but so little elsewhere?

Here is another question about housing and the financial crisis that has been bothering me for a couple of years.

Many people seem to blame the Fed for starting things with its easy money policies during the first half of the decade. John Taylor presents the case for this view quite compellingly in this article in Critical Review.

But if money was so easy/loose/cheap, whatever term you want to use, why didn't the CPI take off more than it did. I gather US prices rose by a bit more than the targeted 2% during that period, but not much. And yet the rate of inflation in the housing market was astronomical at the very same time.

I know that monetary policy tends to have its initial impact on housing markets often, but the differences between housing and the rest of the economy were very distortionary and look to me as if there must have been much more going on that would have had such a one-sector impact on housing.

Here is my guess (but I am open to suggestions). As I mentioned in my posting yesterday, the shadow banking system seems to have played a major role in pumping up the demand for mortgages (and hence increase the supply of lendable funds specifically to the housing market). And the way the derivatives evolved, it didn't matter what type of mortgages people provided so long as they could sell them to investment banks who could in turn fob them off onto shadow banks for repackaging as collateralized debt obligations. 

With the rapid growth in the demand by lenders for mortgages (increasing the supply of lendable funds for home buyers), outstripping the supply of conventional mortgages, credit standards were lowered ... and lowered some more. It was this set of circumstances that really drove up prices in the housing market. Easy money from the Fed could not have caused the bubble by itself. It was the flood of liquidity from the shadow banks that really drove up housing prices.

But of course it couldn't continue. People who bought a house using a subprime mortgage ran into problems when their adjustable or teaser rates were adjusted upward. Also, not everyone could be induced to keep trading up or into buying second or third homes for speculative purposes. And once the demand for housing slowed a bit, the players in the shadow banking system who were massively leveraged couldn't find people to lend them money in the short-term or overnight money markets.

From Wikipaedia,

In the case of investment banks, this reliance on short-term financing required them to return frequently to investors in the capital markets to refinance their operations. When the housing market began to deteriorate and the ability to obtain funds from investors through investments such as mortgage-backed securities declined, these investment banks were unable to fund themselves. Investor refusal or inability to provide funds via the short-term markets was a primary cause of the failure of Bear Stearns and Lehman Brothers during 2008.

When the shadow banks couldn't borrow short-term, and when the underlying mortgages they were holding began to default, and when they couldn't make payments on their CDOs, then they had to turn to the insurers of the the CDOs --- the monoline insurance firms and the investment-bank parents who had provided them with guarantees of liquidity.

If it weren't for the actions of these highly leveraged shadow banks, I have to wonder whether we'd have had such a big housing bubble even with easy money from the Fed; and without the highly leveraged credit from the shadow banks, I have to wonder whether a downturn in the housing market would have caused such serious financial problems for the economy.

The Housing Bubble and the Financial Crisis:Does Russ Roberts Have it Backwards?

In a posting last week, Russ Roberts (one of my favourite bloggers, btw) wrote that he is working on a lengthy essay that might become a book about the recent housing bubble and financial crisis. In that posting, he posed two questions, the first of which was:

Why did prices rise so dramatically between 1995 and 2003? [EE: I'm guessing he is referring to housing prices here.]

Without this price rise, the subprime market never takes off in 2004-2006. There would have been no NINJA loans, no loans for 103% of the value of the house, no second houses with zero down, no 80/20 loans and so on.

Recently I have been reading Fool's Gold by Gillian Tett. One of the themes implied by this book is that the subprime market would not have developed, and the housing bubble would not have occurred (or certainly not been nearly so extreme), if the shadow banking system had not evolved as a way for banks to circumvent the capital requirements that were in place for commercial banks. In one form, they bought tonnes of mortgages and resold the mortgages to off-shore special purpose or special investment vehicles.

These institutions, in turn, paid for these mortgages by borrowing short (while lending long). And when the bubble burst, they lost billions because they were over-leveraged and under-capitalized. Without these vehicles, the supply of lendable funds for mortgages would not have been nearly so great, the subprime mortgage market would not have taken off (and might even not have evolved), and the housing bubble would have been far less likely to have occurred.

 In other words, it is possible, even likely, that the causation is backwards from the way Russ Roberts expressed it. Or it might be a simultaneous relationship.

 I'll try to do a full review of the book in a later posting.

Do We Really Want to Stimulate More Spending?

Forget whether the stimulus will work (colour me skeptical, though). It seems to me we got into the current recession because (for several reasons) people had been grotesquely over-spending for the past five years or so. People borrowed too much and saved too little and had negligible cushions against downturns. People were generally over-leveraged and faced sizable losses in their wealth when the economy made a slight downturn, and these wealth losses led to more of a downturn.

For a vivid graphic example of the dissaving, look at how the number of people who had mortgages <b>four times</b> their annual incomes changed between 2000 and 2007. All I can say is, "Wow!" It sure looks as if lots of people were caught up in the bubble mentality and were not doing their due diligence. That link was provided by Casey Mulligan, who remains in a distinct minority among economists, arguing that the recession is not and will not be very deep.

But the solution is likely NOT to reinflate the housing bubble. The solution is likely NOT to encourage people to continue their zero saving or even dissaving.

Rather, the better solution, especially for the longer-run, is to encourage more saving, more investment, and hence more growth.

Quite frankly, I'm a little annoyed that the US is trying to find ways to bail out those who overspent in the past; such policies will do little more than encourage such profligacy in the future. I hope that disease doesn't spread to Canada.