Announcement

Collapse
No announcement yet.

My Speech to the Finance Graduates - Robert J. Shiller

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

  • Polish_Silver
    replied
    Re: My Speech to the Finance Graduates - Robert J. Shiller

    Originally posted by littleshark View Post
    Everyone always refers to the 20% down number, who says that's optimal anyway?
    . . . .
    So I don't think Schiller talking about flexibility and innovation of mortgages in the marketplace is wrong, today's corrupt system just doesn't allow it to develop properly.

    Amen to that! I'm sure Adam Smith would endorse your analysis.

    Leave a comment:


  • littleshark
    replied
    Re: My Speech to the Finance Graduates - Robert J. Shiller

    Everyone always refers to the 20% down number, who says that's optimal anyway?

    If there was enforcable and non-corruptable regulation in place, and prudent risk management by the lenders, shouldn't it be up to the lender to determine how much to lend, the rate, and how much money down? If the govt wasnt manipulating down payments and interest rates and lenders were allowed to go out of business if the didn't manage risk prudently, the market would set the flexibility of the interest rate, down payment, etc. Anyone who was too tight in their lending would lose business and anyone too loose would risk going out of business. The market would gravitate to the optimal mortgage for each individual given their financial wherewithal, I think. So I don't think Schiller talking about flexibility and innovation of mortgages in the marketplace is wrong, today's corrupt system just doesn't allow it to develop properly.

    Leave a comment:


  • Polish_Silver
    replied
    Re: My Speech to the Finance Graduates - Robert J. Shiller

    With an alignment of interests, there's much less chance of trouble.
    --Finster.

    Very logical. However, one of EJ's real estate gurus said the 20% rule was over rated. He mentioned that some VA or FHA loans were done with much lower down payments, and had a very low default rate.
    He did mention that it was important that home prices were commensurate with incomes and rents.
    (Something they definitely were not during the bubble)
    My memory is a bit hazy, but I think the borrowers credit history was also important.

    Shiller is quite a deep guy. I think we should read on before judging him.

    Leave a comment:


  • mmr
    replied
    Re: My Speech to the Finance Graduates - Robert J. Shiller

    The Fed recently proposed a series of rules that will, in effect, try to do just that - banks will have to hold much more equity against loans exceeding 80% of the property value and second mortgages, which will make such loans more costly for borrowers.

    We'll see if the real estate lobbying groups have any success with the usual claims such as "this will prevent Americans from realizing the dream of homeownership [and realtors from earning 6% of the overinflated sale price]".

    Of course, other than loans guaranteed by government (FHA loans are available with as little as 3.5% down), there aren't too many loans being originated these days with down payments less than 20% anyway.

    Leave a comment:


  • jiimbergin
    replied
    Re: My Speech to the Finance Graduates - Robert J. Shiller

    Originally posted by Finster View Post
    A "me too" here ... I generally like Shiller, but maybe the academic environment is getting to him.

    It's possible the pendulum can swing too far ... from no-doc to mega-doc. There's often too much emphasis on buyer's private financial stats and docs, generating lots of paperwork. The main thing that kept us out of trouble before, and that will help keep us out of trouble again, is for buyers to "have skin in the game". The venerable 20% down payment. A simple thing that incents buyers to want to be sure they can afford the home, because the lender's loss could be theirs, too. With an alignment of interests, there's much less chance of trouble.
    +1

    Leave a comment:


  • Finster
    replied
    Re: My Speech to the Finance Graduates - Robert J. Shiller

    A "me too" here ... I generally like Shiller, but maybe the academic environment is getting to him.

    It's possible the pendulum can swing too far ... from no-doc to mega-doc. There's often too much emphasis on buyer's private financial stats and docs, generating lots of paperwork. The main thing that kept us out of trouble before, and that will help keep us out of trouble again, is for buyers to "have skin in the game". The venerable 20% down payment. A simple thing that incents buyers to want to be sure they can afford the home, because the lender's loss could be theirs, too. With an alignment of interests, there's much less chance of trouble.

    Leave a comment:


  • jk
    replied
    Re: My Speech to the Finance Graduates - Robert J. Shiller

    i had the same thought: to reduce systemic risk we needed LESS flexible loans. but of course now we have that; too late.

    Leave a comment:


  • jiimbergin
    replied
    Re: My Speech to the Finance Graduates - Robert J. Shiller

    Originally posted by c1ue View Post
    Ugh, isn't that what caused a big part of the bubble to start with?
    exactly right! they try to complicate something that is not. you borrow, you pay back with interest.

    Leave a comment:


  • c1ue
    replied
    Re: My Speech to the Finance Graduates - Robert J. Shiller

    Graduates going into mortgage banking are faced with a different, but equally vital, challenge: to design new, more flexible loans that will better help homeowners to weather the kind of economic turbulence that has buried millions of people today in debt."
    Ugh, isn't that what caused a big part of the bubble to start with?

    Leave a comment:


  • My Speech to the Finance Graduates - Robert J. Shiller

    "NEW HAVEN – At this time of year, at graduation ceremonies in America and elsewhere, those about to leave university often hear some final words of advice before receiving their diplomas. To those interested in pursuing careers in finance – or related careers in insurance, accounting, auditing, law, or corporate management – I submit the following address:

    Best of luck to you as you leave the academy for your chosen professions in finance. Over the course of your careers, Wall Street and its kindred institutions will need you. Your training in financial theory, economics, mathematics, and statistics will serve you well. But your lessons in history, philosophy, and literature will be just as important, because it is vital not only that you have the right tools, but also that you never lose sight of the purposes and overriding social goals of finance.

    Unless you have been studying at the bottom of the ocean, you know that the financial sector has come under severe criticism – much of it justified – for thrusting the world economy into its worst crisis since the Great Depression. And you need only check in with some of your classmates who have populated the Occupy movements around the world to sense the widespread resentment of financiers and the top 1% of income earners to whom they largely cater (and often belong).

    While some of this criticism may be over-stated or misplaced, it nonetheless underscores the need to reform financial institutions and practices. Finance has long been central to thriving market democracies, which is why its current problems need to be addressed. With your improved sense of our interconnectedness and diverse needs, you can do that. Indeed, it is the real professional challenge ahead of you, and you should embrace it as an opportunity.

    Young finance professionals need to familiarize themselves with the history of banking, and recognize that it is at its best when it serves ever-broadening spheres of society. Here, the savings-bank movement in the United Kingdom and Europe in the nineteenth century, and the microfinance movement pioneered by the Grameen Bank in Bangladesh in the twentieth century, comes to mind. Today, the best way forward is to update financial and communications technology to offer a full array of enlightened banking services to the lower middle class and the poor.

    Graduates going into mortgage banking are faced with a different, but equally vital, challenge: to design new, more flexible loans that will better help homeowners to weather the kind of economic turbulence that has buried millions of people today in debt."

    More here:
Working...
X