Incompetent Fed Oversight

It seems that those who oversee the Fed's oversight of the economy could use a little oversight of their own: http://www.youtube.com/watch?v=PXlxBeAvsB8

Supreme Court spender

A couple of weeks ago, I found a senseless statement in an old Washington Post article on Sotomayor, Obama's nominee to the Supreme Court:

Sotomayor, an avid Yankees fan, lives modestly, reporting virtually no assets despite her $179,500 yearly salary.

The statement seems to suggest that having no assets implies that you live modestly. In fact, if your income is high, having no assets is proof that you're living immodestly, spending all that you earn instead of saving it.

Today, my favorite blogger makes a similar observation concerning the same article.

National debt and pity

In a previous post, I quoted a standard figure for US national debt at about $11 trillion. Upon closer examination, I believe that this figure is grossly misleading. As shown on page 20 of the US Treasury's most recent financial statement, about $4.3 trillion of the national debt is "intragovernmental" debt, or money that the government owes itself.

The biggest example of intragovernmental debt is what the US treasury owes to the social security administration, which is part of the government. Social security (the government) earns more in social security taxes than it pays to seniors. This extra revenue is spent by the Treasury so that the government doesn't have to go further into debt. Indeed, thanks to these excess social security funds, the government is now only about $7 trillion in debt.

Saying that the government is an extra $4 trillion in debt is like me saying, "I'm thinking about buying a house for $100k. Instead of waiting until I get a loan for that purchase, I'm just going to tell all my friends that I'm already in debt $100k and hope that they have some pity on me in the meantime."

(Here, the house is a meta-for part of the social security benefits that the government expects to pay to seniors in the future. The government expects to make these payments, but has not yet taken out a loan to do it).

My Bad!

I've receive a lot of rejection notices in my day, after job applications, grad school applications, and girlfriend applications. This most recent rejection, which arrived four days after the invite, is exceptionally notable for its "lameness." At least I got a chuckle out of it. I'm thinking of inviting her to more things just to she what she comes up with:

Hi [the freakwenter],

I'm sorry not to get back to you soone,r but I just saw this email. I was out for a couple days and it must've gotten lost in my inbox, my bad!

But sadly, I'm going to have to pass on the contra dancing...I have a few too many chores to do to do anything tonight. Sorry for the lameness.

Hope you're having a happy friday!

[ditz]

Mortgage discount points: making cents of banks

Jack takes out a 100k mortgage at 5%. The bank offers to lower the interest rate by 0.25% if Jack pays $1,000 upfront, non-refundable, and not applied to the principle.

0.25% of 100k is $250, so Jack would effectively be earning about $250 per year, near the beginning, on his $1000 investment. Adjusting for inflation, and the decreasing size of the principle, and the returns Jack could have earned if he put the money elsewhere, Jack breaks even within about 6 years, and comes out way ahead by the end of the 30-year mortgage.

Why would the bank give up so much in future interest payments in return for just $1,000 today?

• Since the $1,000 that Jack pays is non-refundable and is not applied to the principle, the bank gets to pocket that money even if Jack sells the house or refinances the day after he takes out the mortgage. By accepting money upfront in return for lower interest payments, the bank is betting that Jack will sell or refinance within about 5 or 6 years, before the lost interest revenue adds up to $1,000.
  
• Banks are interested in attracting customers who will pay back the entire loan. If Jack has an extra $1,000 to offer upfront, and he understands how this will help him in the long run, then Jack evidently is interested in the long run and is capable of planning for the long run. This is exactly the kind of mortgage customer the bank is looking for, and so the bank is willing to extend a lower interest rate to Jack so that he won't go to a different bank for loan.