July 10, 2009
Apples To Apples 2525 Webster Falls Down (11% Under 2007 Value)
As we wrote in April:
Purchased for $4,000,000 in July 2005, the 7,500-7,800 square foot 2525 Webster was completely renovated over the course of a year and then returned to the market asking $7,150,000 in August 2006.
Closing escrow in January 2007 with a recorded contract price of $6,300,000, the home is back on the market asking $6,750,000 with a few changes in-between. For example, plugged-in people might recall that the kitchen wasn’t open to the dining room in 2006.
Yesterday, the re-sale of 2525 Webster closed escrow with a reported contract price of $5,600,000, 17% under asking and 11% under its January 2007 value not accounting for the cost of renovations in-between.
∙ A Completely Renovated And Then Remodeled 2525 Webster Returns [SocketSite]
∙ Coming Soon: 2525 Webster [SocketSite 8/06]
∙ Inside 2525 Webster [SocketSite 8/06]
First Published: July 10, 2009 6:15 AM
Comments from "Plugged In" Readers
Well, that's just what happens when someone buys in the "cheap seats".
Posted by: diemos at July 10, 2009 8:00 AM
Wait, if 2007 was the peak why did this thing sell for 12% under its Aug 2006 asking price in Jan 2007? Surely the market would have been HOT HOT HOT during the peak year of 2007 right? And since this thing sold in Jan 2007 it probably would have sold for more later during the 'peak' year, so its probably actually down more then just 11% since 'peak'.
Posted by: Rillion at July 10, 2009 8:37 AM
I guess I can stand by my earlier comment that this was one of the worst buys in D7 during the market peak. I think the sellers should consider themselves lucky it sold at all.
Posted by: sleepiguy at July 10, 2009 8:54 AM
I stll can't believe someone had the balls to offer 1.1m less than the asking price on this place. Prob asked less and negotiated to 5.6m. Not a good comp.
Posted by: eddy at July 10, 2009 9:09 AM
Latest obsession here = arguing that the first sale of an apple in 2005, 2006 or 2007 was not the peak.
If anything sold in 05 or 06 its always, 07 was the peak, but if its a 07 sale its always 05, 06 or even (on at least one thread) 08.
It's actually kind of a yawnfest.
Posted by: REpornaddict at July 10, 2009 9:22 AM
Come on eddy - someone did a little math, looked for a discount, and made an offer. Price has nothing to do with it; it seems to me that too many folks confuse price with value. It's not like the seller saying "no" really hurts that much. . .
Posted by: Mr E at July 10, 2009 9:22 AM
Even in 2007 people were not getting their wish price every time. But some sellers were smart enough not to bury their heels into the ground and cashed out pretty smartly. 2007 appears as a peak for this property (of course not as an apple, therefore mucho caution there). And it sold for 11% less today than 1/07 with some work done (again, not an apple). One interesting data point nonetheless.
Posted by: San FronziScheme at July 10, 2009 9:26 AM
I've said this before, but the 06 renovation was really, really poorly done. I don't think there was a level surface in the house. There's no way it would've sold for the original 06 asking price even in "peak" market years. I never saw it this go round, but a lot of the cheap finishes from the first flip seem intact.
This is sort of OT, but I'm always curious about people who buy houses because of their size - all else be damned.
Posted by: sleepiguy at July 10, 2009 9:48 AM
@MrE, I think this is probably an good sale price; it's just very uncommon for buyers to make a lowball offer this low. The ask was $6.7 and the close is 5.6; the offer was probably $5M. I'm just saying that is not normal.
I agree with sleepiguy (again) that this home is fortunate to have sold; and I honestly wouldn't be surprised to see a similar fate for the latest buyers of this property if they choose to sell in 30 months as well. This is a very bad comp and I wouldn't exactly call this the 'cheap seats' by any stretch. It's still a mansion and it's still prime.
Posted by: eddy at July 10, 2009 9:51 AM
repornaddict - I agree 100%. Of course when something bores me I usually end up mocking it.
SFS - Of course 2007 appears as the peak for THIS property since it sold in 2007. My point was to mock the people that try to say that if an apple previously sold in 2005 or 2006 that it actually lost more money now because 2007 was the peak.
It is impossible to say how an individual property would have faired from 2005 to 2007, yet that did not stop several people from claiming the property on the other thread that only dropped 7% (but lost 100%+ of buyer equity) from 2005 to 2009 was actually down more from peak in 2007.
Posted by: Rillion at July 10, 2009 9:52 AM
People always want to say dumb negative stuff on here by twisting numbers, Rillion. Just let it roll off your back. LOL @ myself.
Posted by: anonn at July 10, 2009 9:58 AM
although I agree with you to a point, that it's hard nailing "exact peaks" for various properties, I would have a hard time believing that the absolute peak in any SF RE micromarket could have been in 2005. Things were clearly blisteringly hot in 2005 and 2006 and even into 2007. some markets seemed to continue to do well into early 2008 and maybe a few into later 2008 (although I doubt many did).
there is no question that the market cooled significantly by 2009.
If you argue that certain particular properties actually "peaked" in late late 2006 or in early 2008 I can buy that. But to argue that 2005 might have been a peak strains credibility.
I would be happy to be proven wrong, and it seems easy. Just find a few comps that sold in 2006 for LESS than 2005. I'd even be interested to see if you can find properties that sold in first half 2007 for less than their 2006 price.
overall, there is a strong argument to be made that the overall peak in the SF market was in 2007 or early 2008. You could possibly argue VERY late 2006 but I think it would be difficult.
I'd be shocked if you could argue that 2005 or the last quarter 2008 was peak
disclosure: I have never to my knowledge ever used the "it sold for this much and the true peak was probably higher so it really lost this much" argument.
Posted by: ex SF-er at July 10, 2009 10:05 AM
I think the sellers deserved to get less because they destroyed the original interior. Financial punishment will teach people to conserve and restore. If you want Atlanta, buy in SOMA.
Posted by: Conifer at July 10, 2009 10:06 AM
exSF-er - It was actually SFS that actually used the specific this house lost 7% since 2005 so it probably lost 20% since peak in 2007 on the other thread. His quote from that thread: "5 - About numbers. Hey, it's only 7% compared to 2005! More news for you: the market went up for 2 more years until the top in SF in 2007. It therefore probably lost around 20%+ since the very top of the market."
I think we are likely in agreement that the peak of the market is actually a process not a specific point, although you can crunch numbers and use different metrics to try to label a specific time point as the peak of the market. But just because you can pick a peak for the market does not mean you can then equate the market's peak with each specific property. That's what has just gotten under my skin the last couple days.
Posted by: Rillion at July 10, 2009 10:14 AM
But just because you can pick a peak for the market does not mean you can then equate the market's peak with each specific property. That's what has just gotten under my skin the last couple days
Yeah, me too. Remember that these guys know that, tho, and say it anyway because they think it's fun.
Posted by: anonn at July 10, 2009 10:17 AM
And my comment was about all the boasting that the fall was only 7%. Any number that falls within the 5-10% will trigger this hysteria, except that the timeline is 4 years and much can happen in these 4 years. I showed we could look at numbers from different standpoints to attach it to the theory you want to push, ruffling a few feathers of the roosters who were a bit hurried to chant their victory tune.
Of course it's one single property with all its specifics and I think we're coming to a similar conclusion...
Posted by: San FronziScheme at July 10, 2009 10:25 AM
Rillion, I missed your irony.
shows how hyperbolic some posts are on here thatI mistook your words for a 'real; claim this didn;t sell at peak...
Posted by: REpornaddict at July 10, 2009 10:29 AM
Yes Rillion we agree in principal.
I see the fallacy of attempting to derivate "true" losses based on "true" peaks as SFS tried to do. especially when one tries to put a quantifiable number to it. (e.g. this house would have cost 15% more in 2007)
however, there is another distortion (in theory) if we simply try to ignore this theoretical "true" peak.
For instance, if my grandmother bought a place in 1946 for $35,000 and then sells it this year for $2.5M, do we simply ignore that it may have been worth $3M last year and say the market is clearly going up?
what about me, who bought in 2003? (my house is still worth more today than when I bought it).
overall: I easily see why your irritation occurs, but also recognize that we shouldn't just ignore the intervening market between sales. Especially since so many people counted on rising equity in their plans and that does alter their behavior.
(e.g. you may have a person who bought in 2003 who is still above water, but who notes that comps in his/her nabe are falling... this person will behave differently than a person who bought in 2003 whose house is rising in value over time).
Posted by: ex SF-er at July 10, 2009 10:42 AM
I showed we could look at numbers from different standpoints to attach it to the theory you want to push, ruffling a few feathers of the roosters who were a bit hurried to chant their victory tune.
Sure you did, you conquering hero you. You've never seized upon a single property and presented it as "the market" either. Right? I believe you. And neither has Tipster for that matter. LOL.
As to your other point, you could probably very well pick most four year stretches on through the past, bubble years or not, and find 7% shifts for apples. Positive or negative, it's out of the buyer's control. Standing pat and expecting something to happen within four years is a sucker's bet.
Posted by: anonn at July 10, 2009 10:45 AM
It would be unlikely that the close would have been in less than 30 days, which means the contract would have been entered into sometime in 06 making this an 06 price point. Closings in January can also be the result of contracts pushed into the next year for tax purposes, specially on properties at this price where the down-payment or cash in general is usually the result of another liquidated asset and subject to gains.
Is 07 really relevant to this property in terms of its market value?
Posted by: viewlover at July 10, 2009 10:47 AM
Really, I don't get all the fuss with "peak" numbers. It's going to vary by property and nabe, and there's going to be plenty of idiosyncratic noise with respect to any particular house. That said, it's not sensible to talk about 2005 being the "peak" - clearly SF property markets were on the whole trending up still then, while I'd argue that by mid-2007 at the latest, it was trending down (you have to look at "all" SF, not just the "real SF").
Anyway, this is just another data point. Some guy blew up at least $1M + the cost of renovations (and I doubt it was done for Home Depot costs). Well within the range of what should have been expected, and probably a little better than what should have been expected as a base case forecast. I bet the current buyer fares worse.
Posted by: LMRiM at July 10, 2009 10:57 AM
"And neither has Tipster for that matter"
This home has far too many anomalies to be indicative of anything at all, and a 7% swing just isn't enough to change that view. I never commented on it, and I don't know why you brought me into the discussion.
For all of your "SS isn't what it used to be" posts, there sure are a lot of personal attacks coming from you, and not very much in the way of exchange of information, lately. Sheesh.
Here's all your posts on this topic:
"People always want to say dumb negative stuff on here by twisting numbers, Rillion. Just let it roll off your back. LOL @ myself."
"Yeah, me too. Remember that these guys know that, tho, and say it anyway because they think it's fun."
"Sure you did, you conquering hero you. You've never seized upon a single property and presented it as "the market" either. Right? I believe you. And neither has Tipster for that matter. LOL.
As to your other point, you could probably very well pick most four year stretches on through the past, bubble years or not, and find 7% shifts for apples. Positive or negative, it's out of the buyer's control. Standing pat and expecting something to happen within four years is a sucker's bet."
Last point is agreed, but geez, dude, things will turn around, don't let it get to you so much.
Posted by: tipster at July 10, 2009 11:06 AM
Tipster, I am on pace to have my best year ever. Thank you for your wonderful caring heart and special attention.
Posted by: anonn at July 10, 2009 11:21 AM
Sure you did, you conquering hero you.
I didn't need more proof about the rooster on the heap theory, but since you provided it, thanks! Just try to keep your feet dry, bro!
You've never seized upon a single property and presented it as "the market" either. Right?
I never said that. Just trying to make sense of the market from its details, and sense of the details from the big picture.
I believe you.
Oh, you answered for me already.
That is one Flujissime post.
Posted by: San FronziScheme at July 10, 2009 11:29 AM
> you could probably very well pick most four
> year stretches on through the past, bubble
> years or not, and find 7% shifts for apples.
> Positive or negative, it's out of the buyer's
Can anyone think of a single apple in California that sold for 7% less in 2000 than it sold for in 1996?
P.S. I'm wondering what LMRiM and other Tiburon residents feel about the new "big brother" system?
Posted by: FormerAptBroker at July 10, 2009 11:31 AM
Apartment Broker, I just thought of one. Would you like to know what it is?
Fronzi, excellent use of English. Now as to your understanding of how to convey humor ...
Posted by: anonn at July 10, 2009 11:41 AM
I don't understand the need to clearly define when the peak occurred? Whenever it was (for this place or the market in general), it's clearly behind us now. At this point, I'm more interested in tracking the nadir, not the zenith.
Posted by: Legacy Dude at July 10, 2009 11:44 AM
Fronzi, excellent use of English.
Do you proof-read your arrogant drivel sometimes? I know you're complaining all the time for the lack of an Edit function in SS, therefore I'll let it pass as yet another "fluj smart-ass-ism"
Now as to your understanding of how to convey humor...
That is lame, even by your own standards. But belittling seems to be your only m.o. these days. You used to have wits. Not brains, but wits. I guess it's all gone now, flushed away by too much persistent anger.
Posted by: San FronziScheme at July 10, 2009 12:06 PM
try this apple:
2675 Sacramento St
just closed for $1.9. Last sold Aug '04 for $1.677
comparing photos the kitchen looks exactly the same, floors in LR look exactly the same. One of the bathrooms exactly the same. Looks like maybe another bath or bath and a half were remodeled - can't quite tell.
as for "peak". '04 was hot throughout. '05 was hot early, but multiple offers all but dried up in the last half of the year, and early '06 looked like we were in for price drops as the market was dead. mid '06 got hot again, and '07 only certain nabes were hot - Noe especially. so trying to pick a peak, you also have to look at the quarter or month within a year, and overall seems like a pointless exercise
Posted by: hangemhi at July 10, 2009 12:07 PM
As to your other point, you could probably very well pick most four year stretches on through the past, bubble years or not, and find 7% shifts for apples. Positive or negative, it's out of the buyer's control. Standing pat and expecting something to happen within four years is a sucker's bet.
I agree with you because you used the phrase "most four year stretches". But that said, I also think that it would be difficult (not impossible) to find 7% negative shifts over 4 years for apples during bubble times.
For instance, I would be interested to see a relatively clean "apple" property that sold for 7% less in 2006 than in 2002.
I do agree with you that most of it is out of the buyer's control, it is in the hands of macroeconomic and sometimes microeconomic factors. (as I've said for years here on Socketsite).
Posted by: ex SF-er at July 10, 2009 12:11 PM
I'm not angry, Fronzi. It's humorous to me. You and Tipster are the chief architects of seizing on one individual property and proclaiming "Market!" LOL
Posted by: anonn at July 10, 2009 12:17 PM
I'm wondering what LMRiM and other Tiburon residents feel about the new "big brother" system?
OT - The chomicle article on Tiburon big brother was the talk of the town this morning - well, at least the talk of all the parents dropping off their kids for tennis camp :)
The article doesn't mention it, but I suspect some of the impetus is for revenue from speeding tickets. Of the six or seven police cruisers in the town, most on any given day are parked out on Tib Blvd trying to catch speeders. How hard would it be to set up a robot radar gun right in front of the camera?
But obviously the real reason is that the people who run the town are moving towards a system of trying to keep the riffraff and trash out. Not an issue today, but in a declining economy that's a sensible concern, especially if you think the decline in the Bay Area is going to be long term (which I do).
I'm always against more domestic surveillance power for governments, but I guess you've got to be practical. The people around here are not going to organize and deal with the criminals the way they should be dealt with (flame away, libs!), so I guess this is a middle ground. Best comment I saw on the SFGate - "If the ACLU is against it, I'm all for it" :)
Posted by: LMRiM at July 10, 2009 12:20 PM
to anonns point, the transaction cost on this property have been close to $1,000,000 on the three sales in the last 4 years. Not all the losses went to money heaven. I'm sure good realtors are doing well in this bear market.
Funny how peak numbers are not so important today but were critical when some tried to tear me anew one over exactly that yesterday. And some even have the nerve to complain about the demeaning comments, hypocrite!
Posted by: viewlover at July 10, 2009 12:22 PM
ok, listen gang, you are all losers who waste time arguing with each other about stuff only you care about ... why don't you all exchange numbers and have a conference call ...
Posted by: avidreguy at July 11, 2009 7:30 PM
LMRiM wrote: "Best comment I saw on the SFGate - "If the ACLU is against it, I'm all for it" :)"
LMRiM shouldn't reflexively oppose the ACLU-- they often support individual rights against the excesses of big government, sometimes representing libertarians and right wingers.
Posted by: Dan at July 11, 2009 9:18 PM
wow LMRiM - i'm rather disappointed to see your take on this OT issue
I'm rather far from a liberal. quite the opposite actually. further erosion of individual freedom(s) in the name of state sponsored 'safety' is a threat that should never be taken lightly? sensible? - please. this is the sort of nonsense that the big brother/nanny state enablers use as their flawed logic, repeatedly.
the right to bear arms exists not to provide for self defense against crime, but rather to protect the citizenry from the tyranny of an overreaching government - a threat that is reared each time TPTB find justification for yet another camera or wiretap.
Posted by: polip at July 11, 2009 11:49 PM
LMRiM shouldn't reflexively oppose the ACLU-- they often support individual rights against the excesses of big government, sometimes representing libertarians and right wingers.
LOL. Perhaps 50 or 60 years ago, when the ACLU would sometimes take up a cause antithetical to orthodox liberalism, but not now. The right wing and libertarians have organizations to defend their rights. When the ACLU (American Criminal Liberties Union) decides that the 2nd Amendment is more important than the 1st Amendment "right" of child molesters to publish their filth (NAMBLA case) maybe I'd reconsider my thinking :)
i'm rather disappointed to see your take on this OT issue.... further erosion of individual freedom(s) in the name of state sponsored 'safety' is a threat that should never be taken lightly? sensible? - please.
Yes, you're probably right - but I used the word "sensible" to describe the concern that in a declining economy there will be increasing levels of crime and "riff raff and trash" in Tiburon, not necessarily the camera implementation. I'm definitely ambivalent about cameras, and like I said I philosophicaly oppose almost all intrusions on personal liberty. It's just that the local population in the Bay Area are such government worshippers (born to be "ruled"), that you've got to work with what you've got.
Maybe I'm being too naive, but Tiburon feels "small town" enough that I think the motivation here is not quite so suspect, but I definitely agree that it's a slippery slope. I immediately wondered whether this would raise the equilibrium wage of all the illegal nannies, contractors and gardeners that come into Tiburon every day to work, but my wife joked that they'll get a "special" pass from the police.
I'm much more worried about potential centralization of people's medical records under ObamaCare, which is where they appear to be going (but thankfully the push for ObamaCare seems to be faltering). Talk about intrusiveness and potential abuse! BTW, where is the ACLU on that one? :)
Posted by: LMRiM at July 12, 2009 6:52 AM
OT - I did a little quick research on whether the ACLU has said anything about the proposed government takeover of health care (through the scheme of crowding out alternatives) and centralization of medical records, but I couldn't really find anything quickly. Perhaps someone out there could point me in the right direction?
I did, however, find plenty of criticism and statements against government access to medical records under the Patriot Act, but that of course was back when Bush was President....
Posted by: LMRiM at July 12, 2009 8:20 AM
The ACLU can't sue over Fox News conspiracy theory. Government run agencies already have access to health records of the large number of Americans who receive MediCare, MediCal/Medicaid, VA health care, etc, and there has been very little abuse of this access, compared to the widespread abuse of access to health records by the private insurance sector (in trying to retroactively cancel policies once claims come in).
Posted by: Dan at July 12, 2009 8:35 AM
So you were in favor of the Patriot Act then?
Posted by: NoeValleyJim at July 12, 2009 10:00 AM
LMRiM wrote: "When the ACLU (American Criminal Liberties Union) decides that the 2nd Amendment is more important than the 1st Amendment "right" of child molesters to publish their filth (NAMBLA case) maybe I'd reconsider my thinking :)"
One state (Massachusetts) branch of the ACLU successfully defended NAMBLA on a point that had broader legal implications. Another state branch of the ACLU (Nevada) came out in favor of an individual right to bear arms as an interpretation of 2nd Amendment. To cite one state branch but not the other distorts the facts to try to make your point.
Posted by: Dan at July 12, 2009 1:57 PM
Are you seriously discussing legal rulings with The Gun Club of Tiburon president on here? LOL
Posted by: anonn at July 12, 2009 2:42 PM
What's wrong with guns? I own two... I highly recommend them.
Posted by: Jimmy (No Longer Bitter) at July 12, 2009 3:06 PM
Well bully for you, Jimmy.
Posted by: anonn at July 12, 2009 3:16 PM
ACLU successfully defended NAMBLA on a point that had broader legal implications
Another state branch of the ACLU (Nevada) came out in favor of an individual right to bear arms as an interpretation of 2nd Amendment. To cite one state branch but not the other distorts the facts to try to make your point.
The national criminal liberties union is quite clear, and I'm pretty sure they filed an amicus brief in Heller.
"The ACLU disagrees with the Supreme Court's conclusion about the nature of the right protected by the Second Amendment."
I'm far from an expert on everything the ACLU does, but its reading of the Constitution has often seemed unmoored from anything in the document. Fortunately, the ACLU position lost in Heller, and if you're interested I'd recommend reading the opinion. A little dry, but especially in the first part of the opinion, Scalia dispenses with the silliness and inconsistencies of the liberal position as he typically does - and it is accessible even to people who don't have a very good background in the Constitution and law generally. Available here: http://www.scotusblog.com/wp/heller-opinion/
As to whether certain chapters of the ACLU support different views, etc., again I'm not an expert on the workings of the ACLU. But I came across this passage this morning in the chomicle that leads me to question whether these chapters have any importance. Check out this loser that is "on the board" of the ACLU Marin County Chapter:
"Vincent Chew, 20, is also a couch surfer. A 2007 graduate of Novato High, Chew now attends College of Marin and works nearly full time as a youth adviser at local nonprofits. He also sits on the board of the Marin chapter of the ACLU.
The problem is that he earns only $500 to $600 a month, enough to pay for food but not enough for rent."
Anyway, this was a funny OT - thanks FAB for getting us started with it!
Posted by: LMRiM at July 12, 2009 4:10 PM
"Check out this loser" [who] "works nearly full time as a youth adviser at local nonprofits".
Wow, LMRiM your petty meanspiritedness never ceases to amaze me.
I guess if he had gone to work for Wall Street and worked at a hedge fund to help screw up the financial system rather then take a low paying job working with youth he wouldn't be a loser. Stupid kid trying to help others. What a loser. He should instead spend his time online trading and throwing rhetorical stones at losers.
Posted by: Rillion at July 13, 2009 8:41 AM
I'm glad to keep you entertained, Rillion.
Perhaps you should have read the article I cited (I'm reluctant to quote long passages these days because I get flak from certain posters); here, I'll make it easy:
""I am struggling with everything," Chew said. "They call Marin 'Money County,' but it can be hard here if you don't have money."
Chew grew up in New York but, after a brush with the law, moved in with an uncle in Novato three years ago for a fresh start....
"There's a high standard of living here," he said. "But I stay because there's so much here, so many resources. There's 2,000 nonprofits here to help."" (Emphases added.)
Sounds to me like this guy is not looking to help people, but rather be helped by clueless liberals. He's come to the right place!
Whether he should have gone to Wall Street and made money is irrelevant. This guy clearly has neither the background nor aptitude.
Posted by: LMRiM at July 13, 2009 8:56 AM
Plenty of non-feel-good work in the world (outside of California) for young guys who want it. I spent a summer working in an open-pit coal mine when I was 20. Paid a LOT more than $600 a month, especially with OT. Get up at 5:15AM every day to get to work on time. It snowed in July up there on that mountain (what was left of it!). Try not to get run over by a 240-ton dump truck. That sort of thing. Just one tiny example of what young people normally do in the real world to make money for college. Some people even sign up for the military (too hardcore for me though).
Working at nonprofits and couch surfing in Marin doesn't cut it. I agree with Satchel, that guy IS a loser.
Posted by: Jimmy (No Longer Bitter) at July 13, 2009 8:57 AM
And to continue the J(NLB) theme, I was just in Novato last Friday and my son and I had a great meal at the local McDonalds, which was swamped. There were advertisements all over for McJobs. Rather than sponging off the system, if this guy wants to "help others" he should get a real job at McDonalds and start paying taxes.
They could use the help. We got a Sundae ($1.09 with tax) and handed the meat robot behind the counter a $5 bill. Apparently, he had punched in $2 for some reason on the cash register, sothe change showing due was $.91. He looked all confused, and tried to figure it out in his head. So, he says, "Well, I guess you get $4.91 back". Usually, I would just smile and say something like, "sounds right", but this time for some reason I wanted to "help others" and pointed out that it would be $3.91. (Maybe I wanted to set a good example for my 5 year old.) Another fine graduate of the public school system, no doubt.
BTW, my original point was lost a bit I guess. This guy is on the Board of the Marin ACLU.
Posted by: LMRiM at July 13, 2009 9:11 AM
>BTW, my original point was lost a bit I guess.
Perhaps if you stopped adding snide comments and extraneous insults into your posts ("meat robot", "Another fine graduate of the public school system, no doubt"), your original points would not keep getting lost.
Seems to me the point of your last post was that if that "loser" on the board of the ACLU would go get a real McJob at McDonalds you would stop insulting him for being a loser and instead start insulting him for working at McDonalds by calling him a meat robot. Was that your point?
Posted by: Rillion at July 13, 2009 9:25 AM
lol@ meat robot. LMRiM is the man.
Posted by: lolcat_94123 at July 13, 2009 2:41 PM
Not surprised our local hedge fund opm guy, LMRiM, doesn't like the ACLU, but at least somebody got him to talk about something other than money!
Of course, the irony or LMRiM is that if everybody starts doing what he's doing, those schools up there are not going to be as good as they used to be as renters fill up housing that never gets sold and molders at a 1970s taxable basis.
McDonalds? There's that healthy Marin lifestyle. And a nice drive to and from Tiburon. Satchel, why don't you stay up there, we don't need you back in San Francisco.
LMRiM worries more about a government by and for the people having his records than under regulated insurers run for the interest of management. I guess he's one of those uncomfortable with government rationing care, but is just happy to have Sutter ration care because their motives must be better than government.
Posted by: joe shmoe at July 13, 2009 8:43 PM
Well, I think LMRIM is great. I read this blog every day and he is one of the main reasons. LMRIM, don't let them put you off posting.
Posted by: want a house at July 13, 2009 9:34 PM
What's wrong with guns?
They are too loud.
Although I've known many "pro-gun" people for various philosophical reasons, the ones who actually collect and use handguns guns tend to be unhinged.
Still, there is much humor to be had. You have liberals making symbolic laws such as "gun free zones" near schools, and then the same groups oppose searches in the schools for said guns.
At the same time, is this silly notion that we will overthrow the man and achieve some farmer's utopia if only everyone started packing heat and spent their weekends shooting squirrels.
Posted by: Robert at July 13, 2009 9:58 PM
LMRiM also claims to be against government surveillance but then in the next sentence claims to be opposed to everything the ACLU is for, apparently unaware that the ACLU fought the Patriot Act and would like to see it repealed.
More likely, he is just trolling.
Posted by: NoeValleyJim at July 13, 2009 10:21 PM
I've got no issue with people who want guns or like having them. The people that genuinely think they need them for protection (and argue that point) scare the bejeezus out of me.
Posted by: Anona at July 13, 2009 10:22 PM
LMRiM wrote: "Rather than sponging off the system, if this guy wants to "help others" he should get a real job at McDonalds and start paying taxes."
Actually, he pays about the same taxes now than if he worked at McDonalds (very little, either way). McDonalds would probably only hire him at 20 hours/week, at $8/hour, or about $640 a month. He'd be earning about the same as he is now working with youth, still couch-surfing and paying about the same taxes.
Nice how the elitist hedge fund guy thinks he is so much more virtuous. Did LMRiM pay his own way through Yale? He didn't earn Yale tuition working at McDonald's, or Pepe's for that matter. Do daddy's largesse, federally backed student loans, and/or Yale scholarships not qualify as "sponging of the system"?
Posted by: Dan at July 13, 2009 11:29 PM
"sponging off the system," that is.
Posted by: Dan at July 13, 2009 11:34 PM
Don't worry, want a house. They won't put me off posting.
About "paying taxes" as pointed out by Dan, the principle is easy to see if you look at pure government workers who derive their income from a government agency. Clearly, they do not "pay" taxes. Every cent of "income" for any government agency, entity, etc. is comprised of money that has been raised through taxation (direct taxation, or a later "inflation" tax as a result of government borrowing). Therefore, although the government worker's paycheck and 1040 show that "taxes" were paid with respect to the government-derived income, obviously this is best thought of as simply giving back some of the taxes that were received as income. He is not a net tax payer - his income consists of taxes.
A nonprofit is a tiny bit tougher, as every cent of its operating revenues (out of which salaries are paid) is either a direct transfer from taxpayers through government grants (the lion's share for many) or exists as a result of a tax distortion (deductibility of donations of privately earned "income").
BTW, McDonalds would likely pay Mr. Chew more than $8/hr and would employ him for more than 20 hours pe week (although in both cases not much more initially), and it would set him up to advance in the private sphere, rather than setting him up to be a sponge. Unless, of course, he's totally a screwup, which is possible as he evidently has a juvenile criminal record in New York (noted in the article). In that case, perhaps joining the military would be sensible for him (like NVJ did, I think).
Let's not get into the question of who is "more virtuous", etc. I exploit the system like anyone would (and everyone does), but I try to be honest about it and see it for what it is. As Robert has pointed out, the system is highly interconnected, and I couldn't do what I do without the presence of these myriad government distortions. BTW, as most posters who've read my stuff would know, no "daddy's largesse" played any role in funding my education - just the opposite in fact :)
Posted by: LMRiM at July 14, 2009 6:21 AM
>Don't worry, want a house. They won't put me off posting
I don't want to put you off posting, I just wish you would stop adding insults towards poor people to your posts while at the same time saying people shouldn't insult wall streeters because they are just regular folks who are suffering right now. Got Hypocrisy?
Posted by: Rillion at July 14, 2009 8:56 AM
Speaking of McDonalds biographies, the father of a friend of mine had a crisis, ended up on welfare, and McDonalds was all he could find. He worked like crazy there, pulling weeds from the parking lot after his shift ended. He wanted to be sure that he would not be the one that was fired. He wasn't fired, and ended up working for Beneficial, rose through the ranks, and left to start his own mortgage company, making many millions via securitization, and was eventually able to send his son to Stanford.
At the time (this must have been 1999 or so), the son would tell me that his dad was incredibly stingy, and would stay up at night afraid that "this would all go away". The son would go through bouts of homelessness in between quarters, when the university housing would run out, and lived out of his car. It was better to do that than to go home. There were also a lot of affairs. And I remember the father's advice on finding a wife, which was that you can't trust anyone, so you might as well pick the best looking one. Curiously enough, the son had an ill-fated love affair with a suicidal bartender. She preferred a guy in a band. At that point, he dropped out and went to work as a VP for dad, and I lost contact with him. I'm think the company has since imploded.
if you look at pure government workers who derive their income from a government agency.Clearly, they do not "pay" taxes.
About this netting out by which government workers don't pay taxes, I think this is a poor accounting. What you are saying, is that the government's labor costs are reduced by the amount of taxes its employees pay. But, should PG&E's labor costs be lowered by the amount of its workers' utility payments? If you believe this, then you must believe that the electricity that PG&E workers consume is "free". But nothing is free. If it was free, then we could have an unlimited amount of it.
In the same way, the government services given to government employees are not free. This is why companies have inter-departmental accounting, in which one department charges another for services. For example, you add up the engineering and QA costs, and decide whether something is worthwhile, even though technically speaking, all the actors get their money from the same legal entity, and just perform services for each other.
I believe what you are trying to do, is to disaggregate government spending from private spending, and relate this to taxation. I think the following model is a better way of doing this:
There is a single pool of resources, consisting of all labor and capital (don't disaggregate government workers from private workers). The government competes with the private sector for use of the resource pool (do disaggregate government spending power from private sector spending). The government has two tools to try to lower the private sector's spending power. It can forcibly drain spending power via taxation, or it can bribe the private sector to not spend via issuing bonds (effectively paying the private sector to lock up its purchasing power). Both approaches are price deflationary, and are undertakenonly to limit price inflation. There is no reason to tax or borrow other than to reduce inflation, as the alternative is just to print.
However, both tools can fail to work, in that the private sector also has a tool, namely the creation of credit. If the private sector "believes" that a certain use of resources will turn out to be very profitable, then it can create the purchasing power out of that belief. That is, if a bank is a believer. Therefore the private sector can always give itself even more purchasing power and wrest resources out of the hand of government. So, even in very high tax environments (such as scandinavia) private sector credit bubbles can arise. In this limited sense, high taxation can be inflationary, in that it may require even more credit to wrest resources from the hands of government.
This arms race can continue, driving up prices, as long as the belief in future profits remains firm, or as long as the government is insistent on using the same resources. In the process, you get price inflation.
Also, the private sector can cause inflation in and of itself, with zero government, by means of different private actors bidding resources away from each other.
Note, that in the current environment, there is a lot of slack in the economy -- the private sector is not trying to mobilize all of the available resources -- so the government need not compete. It need not tax or borrow. It can simply print money until all the slack resources are used up, at which point, it has to compete again.
It would be wrong to not point out that, depending on what either the government or the private sector actually does with the resources, more resources can end up being produced.
So, you can build a road that generates a lot of economic activity, or a bridge to nowhere. But, it's more than just this -- by shifting wealth around, you can cause more resources to be produced, because often purchasing power gets too concentrated either in the hands of consumers, or in the hands of producers, leading to shortages or gluts, respectively. There are many other factors at play, such as psychology, income distribution, etc.
Finally, I don't think there is anything moral about paying taxes or not paying them. The government is trying to achieve a technical thing, which is to reduce the private sector's purchasing power. If you paid no taxes, but did not spend an equivalent amount, you would be doing the same thing, and would save the government the need to pay you interest. Without also rambling about ethics, I think morality is something in the heart, coming from attitudes, and doesn't exist outside of those attitudes.
Posted by: Robert at July 14, 2009 9:11 AM
I totally agree with your point about morality, Robert.
About the value of government workers' labor productivity, sure, there is some. Obviously, you need some level of police officers, administrarion of justice officials, general staffing levels of government, etc. But the value placed on many of these roles - denoted by the package of salary and benefits - is typically set politically. Now, of course, you could argue that what goes into this calculation reflects economic realities (of which market pricing would be one realization of those realities), but in many services government either has a complete monopoly (police, "justice", e.g.) and in others distorts the market so greatly through its outsized presence (transportation, medical care, etc.). These "monopoly" factors affect the valuation placed on the productivity.
Obviously, everyone contributes some measure of his productivity to others through taxation (in the private sector) or refunding a portion of previously collected taxes that are now being used to pay the government worker for his labor/productivity. I'd submit that "couch surfing" and working for nonprofits with a juvie record is less productive than working for McDonalds :)
I've got to think a little more about your overall model, but I'm always suspect of the slack resources argument. Sometimes "slackness" is the price that must be paid in order for resources to realize that they are surplus in the economy as it is evolving. Getting in the way of that by sapping up the slack and specialized productive factors leads to larger distortions down the road. I'm sure there were a lot of highly specialized buggy whip makers a hundred years ago!
Posted by: LMRiM at July 14, 2009 9:28 AM
I went to Yale as well without "Daddy's largesse," so I am certain that when you were Mr. Chew's age, you benefited tremendously from government assistance and from tax deductible donations (the donations that funded your Yale loans and scholarships). Perhaps you were living in a nice Gothic-style building rather than couch-surfing, but you were still "sponging" just as much as Mr. Chew.
Posted by: Dan at July 14, 2009 9:50 AM
Well LMRiM, the model I described -- really just a standard post-keynesian model -- attempts to capture the broad trade-offs of government funding and inflation. It has nothing to do with whether we should tax or print, or whether any sector of the economy is productive. This just captures the constraints of doing one or the other, in terms of their effect on price inflation. Printing to marshall slack resources will not cause inflation, although it may not be a good thing to do. It depends.
Without understanding the constraints, you can't make much progress on the welfare end. But most people decide a priori what will maximize welfare, and then invent constraints to suit those goals. Specifically, I was responding to the derived constraints that government borrowing is inflationary, or that less productivity by government workers means that they pay no or reduced taxes. You can avoid this type of thinking while still holding to your views about what maximizes welfare -- just fit those views into the constraints, or argue that the constraints are different.
In terms of maximizing welfare, I understand and have sympathy for the view that we need hard times to discipline the population and prevent slackers, etc, and that it is good to lay people off that are not necessary. But things get murky as you dig deeper:
Are our Goldman friends more productive than government workers? I think this action has contributed more to general welfare and productivity than the last 20 years of finance combined. I understand the mentality -- if you are at Goldman, you are smart, working hard, and making money. It certainly seems as if you are being productive. But I believe one misfit couch surfing in Marin has been more beneficial to the economy than the sum total of all actions taken by Blackrock from the time that Larry Fink bought his first rolodex (maybe he stole it:)
And this doesn't even begin to count the waste of resources, as these smart people could be employed finding cures for diseases, or inventing better networking protocols, or working as carnival barkers, in which case they would only be taking advantage of small-time fools, instead of pension funds.
And then you have the fact that the most productive/wealthiest nations tend to have the highest government burdens. This is even true of the U.S., in which the richest/best educated/most productive states tend to have bigger state and local governments, proportionally. Moreover, you are investing in Asia now -- you are basically investing in planned economies in which all important economic decisions are made politically. How can you bet on asia and maintain the libertarian views? I think you are investing in the social capital.
To me, the big unknown is social capital. How to increase it, or even measure it? It's very hard to say. I think rule of law, trust, good work ethic, education, all of these play a role. And its very difficult to improve on this. I.e. building more courthouses wont necessarily improve the rule of law, just as spending more on education may not lead to a better educated populace. So, we don't have a good understanding of the feedback effects and dynamics by which social capital is built up. Many of these effects are emergent and cultural, and there are unexpected connections which turn out to be important (e.g. religious revivals, popular novels, sputnik). The massive WW2 spending was hardly a productive use of slack resources, yet it did not lead to social decay. At the same time, hard times in Africa have not built up a lot of social capital. You really need a coherent picture that takes these things into account -- something many would love to see.
Posted by: Robert at July 14, 2009 10:20 PM
I LOVE that link about the sheep! LOL. Here's my current favorite of oddball achievements:
About your substantive points, I do of course have a general understanding of neo-Keynesian models, and I still need to think about them!
I wouldn't disagree with a lot of what you wrote, but you've set up a bit of a strawman by changing my example. I didn't argue that the couch surfer was less productive (in the larger, social capital sense that you are using, which is probably the best way to think about it) than the Goldman worker, but rather than the McDonalds worker. Goldman is akin to a government agency - what anyone does on Wall Street is impossible without the distortions that government has set up, and therefore, its wages are not good approximations of "societal productivity" (for want of a better word :)). I'd argue much if not all of the Wall Street complex has been value detracting, but it's tough to get a handle on it. Working for McDonalds, though, has utility imo.
Of course, the market can discipline the Wall Street misuses of capital (lots of very smart people using their talents in activities that are overall probably value detracting) by putting them out of business (or severely curtaililng their resources and risk appetite), which is exaclt what would have happened in 1998 or 2008. But they were too smart for that! Capturing the government has its benefits in the end for the Wall Street insiders. And this is not a partisan thing - the latest round of capture really accelerated throughout the 1990s (believe me, I was there), and if you look at the current crop of people running the show for Obama, you'll find the very same people and connections from right back in '94-00.
Building social capital (and implicitly more traditional ideas of productivity leading to better living standards, etc.) is probably pretty tricky to understand. My hunch is that it is related to impartial rule of law, individual liberty and the ability of individuals to reap the benefit of their efforts (and so protection of private property rights is going to figure in prominently). I also think that you need a shared sense of morality and culture among the population - if government has to be so large as to create and enforce these norms, then I think you are down the road to tyranny. These are of course all just musings - not any specific recommendation to any particular economy.
Posted by: LMRiM at July 15, 2009 6:52 AM
Bob Munden is truly impressive. Did I mention I love John Ford westerns?
FYI,neo-keynesians, are the keynsian side of the synthesis with classical economics, and so often self-identify as neo-classical economists, whereas post-keynesians are a collection of oddballs such as Hyman Minsky and Joan Robinson, as well as Steve Keen. Paul Krugman and Brad DeLong are neo-keynesian economists, and would not like my model. They don't hold to the credit-theory of money, believing in "money illusion" and yet they put great emphasis on trivialities such as menu costs.
Btw, the stimulus package is not keynsian, whereas a payroll tax holiday is being promoted by several post-keynsians.
I wasn't trying to set up a straw-man, but was pointing out a flaw in the idea that talent, hard work, and individual freedom lead to good outcomes. It depends on the interplay between the personal sphere and social institutions. To blame blackrock on the government ignores that more government heavy countries such as in Scandinavia or Germany were not taken captive by finance, and are more productive than the U.S., with higher living standards and stronger civil society. The countries with smaller government/GDP shares are the ones that are more likely to be taken captive. Individual freedom can lead to Mad Max scenarios just as much as it can lead to productive work and civil society. Hence, China took one look at the hard-working, talented oligarchs cutting up Russia, and decided "No way, we are keeping the dictatorship of the party". I assume you are investing in China, and not Russia.
This is an emergent phenomena, and you can't assume, as a liberal, that because liberalism is good that it must promote all other good things. Better to say that you believe in personal freedom regardless of the economic consequences. Finally, you are right in that if government attempts to promote civil society, then it is a repressive situation. This is exactly what happened in the U.S. (and indeed, globally) with the cold war and red-scare. Or England, during its industrialization. Or the burst of output that occurred during WW2 when the government controlled the economy. To varying degrees, there is always a tension between civil society and economic freedom, and you need a certain balance in order to create a space for productive works, yet limit the space for blackrock. Individual hard work and personal freedom have effects that are best described as "mixed" for national well-being.
Posted by: Robert at July 15, 2009 6:30 PM
"I assume you are investing in China, and not Russia."
Posted by: diemos at July 15, 2009 7:01 PM
Speaking of meat robots, a couple friends and I grabbed some tacos from Jack in the Box last weekend (I always make bad food choices with a little bit of booze in me ;)), and saw an actual meat robot. Several of their stores are now starting to install machines with touchscreens where you pick out your order and then pay with credit card or cash. No need for people to take your order any more! No need for anyone to speak English in the restaurant any more!
Posted by: Brutus at July 16, 2009 12:37 AM
Thanks Robert for the clarification on the Keynesian school subgroup progeny - one of these years I'll get all the nomenclature right :)
It's always tough to have these conversations because they get so free wheeling (and then some poster comes on and complains at the length of the posts). Again, though, I think we are agreeing more than disagreeing, but being very sloppy with our units of measurement.
I thought we were talking about some broad measure of "social productivity" (just an invented term by me), not strict measures of traditional statistics like "reported GDP"? On strict measures of GDP (say, the "income" side of the BEA calculation), clearly the couch surfer is less productive than the McDonalds worker because the surfer's money income is lower. But I didn't think we were talking about those sorts of measures, but rather some much broader conception in which the Goldman trader making $5M/yr might actually be value detracting.
Also, you've set up another straw man a bit by focusing on share of government activity to GDP as the single variable. (I'm sympathetic to those arguments, but in this thread I only wrote about things like rule of law, strong institutions of private property, shared culture, etc. - those factors are somewhat independent of the ratio of government to nongovernment contributions to "narrow" GDP I'm sure you'll agree.)
Clearly, just looking through current and historical examples, you can see that government share doesn't tell the whole story, whether you are looking at narrow traditional GDP stats or, especially, if you are trying to give expression to some larger "social productivity" measure. Russia for instance in the 1930s achieved tremendous GDP growth with a huge state sector while failing as a "civil society", while the US in the 19th century achieved tremendous sustained narrow and broad growth with a very small government sector. I suspect that government share of GDP in the US in late 19th century, for instance, was not that different from that in Somalia - the favorite "Mad Max" scenario - today, and yet the outcomes are very different.
Similarly, arguments by analogy to smaller countries like Sweden - or even Germany - in the postwar period really miss the mark as well. Back the clock up 60-70 years, and in the case of Germany you'd find anything but "The Civil Society"!
More seriously, Western Europe in the post war period seems to me to be a special case. Existing under the protective umbrella of the United States, and having 500 years (at least) of accumulated culture, institutions and infrastructure to "draw down" gave those countries a fair amount of room to operate. Look at the experience of postwar Eastern Europe (primarily prior to the mid-1990s) - with high ratios of government to overall GDP - for an entirely different experience as regards social productivity and even narrow GDP. Again, the single variable of government share does not explain the different outcomes, and the experiment is still ongoing. Let's see how the European system deals with the next large military and geopolitical crisis on its door - it certainly made a hash of the last major one!
I don't want to mischaracterize your arguments, most of which I really agree with and are probably largely consistent with my thinking. I know you are making the point that simply economic freedom and limited government don't always lead to "good outcomes", and I totally agree with the idea that you need an interplay between social institutions and individual freedom. That was really my point with my musings about some measure of shared sense of culture and morality being necessary to "good" outcomes.
Anyway, that's enough on this thread for me. It's been a funny detour, and really shows the biases of the posters (myself included). Imagine if young Mr. Chew had been couch surfing and working for "nonprofits" like Mormon Church and the NRA, doing "outreach" in enemy territory, as it were? I can guarantee that no poster would have gotten angry if I had called him a "loser" in that case - but I wouldn't have needed to :) I was pretty busy in my former life and didn't have the time to really notice it, but I don't think I've ever lived in a region with a greater propensity towards groupthink than the Bay Area :)
Posted by: LMRiM at July 16, 2009 6:21 AM
"I don't think I've ever lived in a region with a greater propensity towards groupthink than the Bay Area :)"
Not even Wall Street?
Posted by: Dan at July 16, 2009 8:27 AM
I suspect that government share of GDP in the US in late 19th century, for instance, was not that different from that in Somalia - the favorite "Mad Max" scenario - today, and yet the outcomes are very different
Oh, OK. I suspect you made that up. That's what I suspect.
Posted by: anonn at July 16, 2009 8:38 AM
Definitely not "Wall Street", Dan. It's a lot more varied than you might think. Probably the only thing that unites most people on Wall Street is a desire for money. Lots of different reasons for wanting that cash from what I could tell, though.
Now, I'm really done with this thread :)
Posted by: LMRiM at July 16, 2009 8:49 AM
OK, this is like the never-ending goodbye to this thread, but Dan's last comment about Wall Street got me thinking about the phrase, "Meat Robot". I must have seen that term somewhere lately before using it in this thread, but I honestly don't recall if I did or not. The phrase actually to my mind was just a variation of what a number of Wall Street traders in my circle used to call Wall Street corporate finance types back in the mid-90s: "Meat Puppets" - after the band popular in the 1980s. Especially for proprietary side traders, people who earned income from fees (without taking significant risk) were often "looked down" upon. (I'm sure the favor was returned by the pocket square brigade.)
So, I did a search on "Meat Robot" today. And take a read of one of the first blog links:
"I don’t expect much when I go into a fast food restaurant....
I always wondered what happened to the work force not qualified for customer abuse at public utility help desks. This week, I know....
We’re talking total Meat Robots. Walking flesh ill programmed for even simple tasks."
LOL, not even a single comment from an incensed reader, but I guess it was 2002 when that blog entry appeared.
Posted by: LMRiM at July 16, 2009 9:09 AM