Ask an Economist (Post #1005 and counting)

[JerichoHill]

Sure you can learn a decent amount on your own, by learning how to think like an economist would (understanding opportunity costs, marginal analysis) but I would say that most folks who take just a few classes in economics wind up getting the simplified version which is good for understanding basics, but is horribly misleading when its applied to specifics.

For instances, a basic economics course would teach how taxes distort the market. If you don't go any further, you'll think all taxes are bad. But the further one goes into understanding economics, the more you'll see how this matters or that matters, or what/where the distortion is, and voila, you'd get a completely different conclusion.

I think one can learn it well without college, and that learning will depend on reading / studying the right books.

 

[Godwynn]

2% of your holdings, not what the index is at.

I got that figure from somewhere.

I wouldn't lie to you guys on purpose!

 

[JerichoHill]

250 / .02 = 12500, about what the dow close was at the time of your post

 

[Godwynn]

Is gold measured in regular ounces or troy ounces? I was digging through my grandmother's old chest a month or two ago looking for family pictures and I found an envelope full of de-jeweled rings and scraps of gold. All in all it probably weighs about a pound and a half.

Where would I go to sell this stuff?

Some of it is pretty tarnished.

 

[Stolen Rutters]

Is gold measured in regular ounces or troy ounces? I was digging through my grandmother's old chest a month or two ago looking for family pictures and I found an envelope full of de-jeweled rings and scraps of gold. All in all it probably weighs about a pound and a half.

Where would I go to sell this stuff?

Some of it is pretty tarnished.

stickler point: Gold does not tarnish. It just gets dirty. Try mild dish detergent... (and never use a harsh abrasive on gold...).

(~from link above) It's measured in troy ounces (31.1 grams). There are about 14.5 troy ounces per pound (the pound we know).

 

[Godwynn]

stickler point: Gold does not tarnish. It just gets dirty. Try mild dish detergent... (and never use a harsh abrasive on gold...).

It's measured in troy ounces (31.1 grams). There are about 14.5 troy ounces per pound (the pound we know).

Do you know where I have to go to sell this stuff? I do not want to do that mail-in or internet thing.

 

[JerichoHill]

Your avenues are either those sleazy commercials or pawn-shops. Why do you want to sell off your grandmother's possessions?

 

[classical_hero]

Sell them on Ebay.

 

[Godwynn]

Your avenues are either those sleazy commercials or pawn-shops. Why do you want to sell off your grandmother's possessions?

They're not important, its scrap gold and she stored it that way. Her real jewels, family heirlooms, and prized possessions are in a nice box, this stuff I found in a bag.

I wouldn't sell of my grandfathers cuff links or anything like that.

 

[Homie]

You randomly found a pound and a half of gold? Lucky you, that never happens to me. How much is that worth anyway?

 

[Godwynn]

You randomly found a pound and a half of gold? Lucky you, that never happens to me. How much is that worth anyway?

It all depends on how many karats they are. Anywhere from $5-$14,500.

Probably more on the lower end than the higher.

 

[Godwynn]

What is your opinion of the Euro and the Eurozone? Do you think it is a good idea for those nations to have a single currency? Do the benefits outweigh the costs?

 

[The Yankee]

It didn't do Italy any favors....but it does seem to have cut down on transactions costs fairly well. And considering the geographical size of the Eurozone and the trade, it's a good thing, in my view.

 

[LucyDuke]

What exactly is a subprime mortgage? What makes it subprime? How is it different from a regular mortgage?

 

[Stolen Rutters]

What exactly is a subprime mortgage? What makes it subprime? How is it different from a regular mortgage?

Yeah, what is it exactly? What I know about it is that it's usually really terrible loans targeted to low income blacks, so something to that effect (of course, if you trust some of the links that pop up in the search). The wiki focuses more on not meeting guidelines of Freddie Mac and Fannie Mae, but it lacks citations (big red flag against the accuracy or truthness of a wiki entry). This one is not very clear. My internet reading isn't coming up with one answer.

 

[JerichoHill]

Subprime essentially means "borrowers with alot of question marks about their credit or black marks already on their credit report."

 

[LucyDuke]

Subprime essentially means "borrowers with alot of question marks about their credit or black marks already on their credit report."

So is there anything different about the mortgage itself, or is the guy getting it the only difference?

 

[Agent Cooper]

I've wondered how the bank losses on the subprime crisis are determined.

We hear that bank X lost Y billion $ and bank U lost V billion $ etc... Exactly how are the losses calculated?

 

[ravensfire]

So is there anything different about the mortgage itself, or is the guy getting it the only difference?

From the perspective of the borrower, being considered "sub-prime" means that any mortgage offers will have a combination of higher interest rates, higher required downpayments, lower load amount, higher up-front costs and/or harsher penalty terms. Quite a few of the initial loans that you heard about in the news in the news were adjustable rate loans. The mortgage would be at a low (and then afforable) rate of 5% (for example). This would be set for a period of time, then adjust to a higher rate.

For a sub-prime borrower that's improving their credit, this can be attractive. They plan on their value of their house going up or staying steady, plus work on improving their credit. When the rate would adjust up, they would then refinance and with their better credit score, get a better mortgage.

Obvious problems there - the house must at least remain steady in value and they have to improve their credit rating. Remember, when you refinance, you pay off the old loan, and take a new one. If your house isn't worth as much, it's going to be hard to get a new mortgage that will cover the first one. And if you haven't improved your credit, you might not be able to get a new mortgage at all! The end result is that the original interest rate spikes beyond the borrowers ability to pay and Bad Things (tm) happen.

From a bank's perspective, sub-prime borrowers represent a higher return investment with higher risk. They too got trapped in the thinking that house values were going up and thus reduce their risk. After all, if the borrower defaults, the house is worth more than the loan, so they're covered! And then the market and economy tanked.

So now you've got people with homes that don't cover their mortgage, paying higher interest rates (often significantly higher) and possibly making less (or nothing) due to the economy.

There's quite a bit more, but that should help!

-- Ravensfire

 

[ravensfire]

I've wondered how the bank losses on the subprime crisis are determined.

We hear that bank X lost Y billion $ and bank U lost V billion $ etc... Exactly how are the losses calculated?

Let's say the bank has 10 loans, all sub-prime, all at $100,000. They've loaned out $1,000,000. Now a year ago, they could look at the appraised value of the homes, and see that the value was equal to or greater than the loan. They expect that a certain number of sub-prime loans will default, but with a high appraised value, they won't lose much (if at all) if they foreclose. And with the higher rates, they're raking in the bucks!

Then things went bad. Now you've got homes that aren't worth as much as the loans. Many people that fall into the sub-prime category are affected more by a faltering economy than someone with strong credit. When the banks re-evaluate their risk, they increase the expected percentage of defaults, meaning they'll have to foreclose on more houses. With a falling house market, they aren't going to able to get much at a foreclosure sale, if they can sell it at all!

So the bank has to write-off part of those loans, meaning they consider the loan worthless. Loans, to a bank, are assets, so when they write them off, they have fewer assets. The bank got the money from somewhere, so now they don't have as much to pay off their loan.

-- Ravensfire