The Big Short

Finally on Netflix as I've been wanting to see it. Very intellectual, wife got bored with it quickly. All-star cast, I felt like Steve Carrel's portrayal of Mike Baum and his associates (especially Vinny) were probably the most convincing. Pitt, Gosling and Bale were a bit much, but still great.

Even with the lighthearted explanations of some of the more complex systems, I still didn't quite understand what they were saying. Morgot Robbie was distracting (especially after seeing her in Wolf of Wall Street), and her accent was really hard to understand.

The style of the movie was humorous enough to keep my attention, and the serious implications of what happened were enough to scare me a bit.

I think like many, after the crash we wanted to point the finger at the guys who got rich, but the movie showed that not everyone who got rich was a bad guy, and some of them tried their best to clarify within the system that "wait, are you sure that what is happening isn't illegal? Because if it isn't, we're going to make a ton of money off it." The characters of the movie, ethical or not, could have been crushed at laughed at had the system taken notice of its fragility early on, instead they got filthy rich because the system kept shoring up a house of cards with ice cubes.

Since we're in the home market, I've been thinking a lot about home prices and values, and this movie made me even more skeptical that a home is worth buying anymore, and that many of economic systems are far too dependent on growth.

buying a house still makes sense if a couple things are true:

1. Your mortgage + all related costs are truly less than renting (they mostly should be, as otherwise landlords wouldn't be making any money on the service they provide)
2. You don't think of the house as a guaranteed-to-appreciate asset

Everyone needs a place to live, and there is more than one way to purchase a place to live. So say you buy a house for 100k. X years later is it 'worth' 50k. Are you out 50k? kinda (only if you sell), but you still have a place to live and has still been cheaper than renting for X years.

I enjoyed the film myself. Then again, I'm the nerd listening to Planet Money and Freakonomics podcasts on the way to work.

If you were confused by the movie, go read the book. Michael Lewis does a great job of breaking down the concepts and giving you an even clearer inside view as to how this all went down without even the largest banks having any idea what in the hell was going on.

Just one spicy aside - Adam McKay directed this. He also made Anchorman: The Legend of Ron Burgundy (2004), Talladega Nights: The Ballad of Ricky Bobby (2006), Step Brothers (2008), The Other Guys (2010), and Anchorman 2: The Legend Continues (2013). The guy is a comedy director at heart which explains a lot with this film.

Here's a good link for you.

This American Life podcast did a show called The Giant Pool Of Money. It's about the debt crisis. If you liked the movie The Big Short, you'll be interested in this podcast.

Buy a house you can afford to pay for with a normal loan and don't buy when prices are at the top of a giant bubble. Prices seem fairly appropriate right now.

MrJoshua wrote: Buy a house you can afford to pay for with a normal loan and don't buy when prices are at the top of a giant bubble. Prices seem fairly appropriate right now.

I suspect they're going to start increasing again. I think that 2012 was where the prices were supposed to be. It has risen too fast since then. I'm not sure everyone learned their lessons.

Robbie wrote: buying a house still makes sense if a couple things are true: 1. Your mortgage + all related costs are truly less than renting (they mostly should be, as otherwise landlords wouldn't be making any money on the service they provide) 2. You don't think of the house as a guaranteed-to-appreciate asset Everyone needs a place to live, and there is more than one way to purchase a place to live. So say you buy a house for 100k. X years later is it 'worth' 50k. Are you out 50k? kinda (only if you sell), but you still have a place to live and has still been cheaper than renting for X years.

AKA, it pays, literally, to do the math.

It's funny- the whole time rates went down and moreso to the LOOONNNNGGGG term adjustable ones- we shortened our loans. Went from 25 years on a re-fi'd 30 (for various reasons) to a 15 year fixed, which will end up being paid off early relative to the original loan I started. While it costs more out of pocket each year, the eventual savings is in the hundreds of thousands.

Plus, it helps A LOT to realize that the home is not an investment. It's your house. It's not there to make money, it's there for you to have a safe and reasonable place to live when not at work. Realizing that really took a lot of stress of the future.

mtn wrote:

MrJoshua wrote: Buy a house you can afford to pay for with a normal loan and don't buy when prices are at the top of a giant bubble. Prices seem fairly appropriate right now.

I suspect they're going to start increasing again. I think that 2012 was where the prices were supposed to be. It has risen too fast since then. I'm not sure everyone learned their lessons.

Maybe this time the investor groups will be the ones hurt the most instead of the smarter home owners.

alfadriver wrote: AKA, it pays, literally, to do the math.

Funny how that works...

Agree though on the fact that the primary residence should probably not be considered an investment. The land underneath, maybe, I can see an argument there.

I thought is was a surprising entertaining movie considering the subject matter. My wife made it all the way through it, although we did pause it for some explanation at times.

Robbie wrote:

alfadriver wrote: AKA, it pays, literally, to do the math.

Funny how that works... Agree though on the fact that the primary residence should probably not be considered an investment. The land underneath, maybe, I can see an argument there.

I'll disagree that the primary residence should not be considered an investment, but I think that we might also disagree on what an investment is. In my calculations, I treated the house as a depreciating investment. Meaning, it would have at least SOME value at the end of the day, vs. my rent which has 0.

All I know is that I bought a house years ago, well before the bubble burst, and I was approved for a mortgage that was well above what I could afford. I said "that is 2.5x more than I can afford per month" and they kinda shrugged at me. I went elsewhere and bought what I could afford and had no issues when everything crashed. I know there were a lot of hucksters out there, but a lot of people ignored basic math and logic as well.

mtn wrote:

Robbie wrote:

alfadriver wrote: AKA, it pays, literally, to do the math.

Funny how that works... Agree though on the fact that the primary residence should probably not be considered an investment. The land underneath, maybe, I can see an argument there.

I'll disagree that the primary residence should not be considered an investment, but I think that we might also disagree on what an investment is. In my calculations, I treated the house as a depreciating investment. Meaning, it would have at least SOME value at the end of the day, vs. my rent which has 0.

I'll totally agree with you if you replace 'investment' with 'asset'. Yes, I believe a house is a depreciating asset, which can sometimes appreciate if you are lucky. On the other hand, I try very hard to refrain from "investing" in depreciating assets.

Same idea, different words.

pinchvalve wrote: All I know is that I bought a house years ago, well before the bubble burst, and I was approved for a mortgage that was well above what I could afford. I said "that is 2.5x more than I can afford per month" and they kinda shrugged at me. I went elsewhere and bought what I could afford and had no issues when everything crashed. I know there were a lot of hucksters out there, but a lot of people ignored basic math and logic as well.

You can take your sanity and logic right out that door over there.

This is america, and we are talking about housing. How will we ever truly feel that we live in the richest country in the world unless we constantly prove it to the 20 other people who happen to live within our maximum walking distance of about 50 paces?

pinchvalve wrote: All I know is that I bought a house years ago, well before the bubble burst, and I was approved for a mortgage that was well above what I could afford. I said "that is 2.5x more than I can afford per month" and they kinda shrugged at me. I went elsewhere and bought what I could afford and had no issues when everything crashed. I know there were a lot of hucksters out there, but a lot of people ignored basic math and logic as well.

Still going on today. We were approved for what works out to a solid $500 more than we can afford a month, and that was AFTER I decreased retirement savings to only 10%, which is half a reasonable amount of retirement savings. And we don't have great credit either. I was ready to scrap the housing search when I pulled our credit scores, but figured I'd apply just to see what the rates would be. It is insane.

*Note: I know exactly why our credit is low, and it does not scare me and probably would not scare any reasonable lender. But we did not tell them the stories behind our low credit. They just had the reports. (Reasons: Violations of the FDCPA that we have not been able to get removed. Complaints are filed with the CFPB, but nothing is going to happen in a reasonable timeframe.)

In reply to pinchvalve:

I don't know how much better that's gotten since the market crashed. I was pretty stunned at how much the bank was willing to lend me when I first went through the whole mortgage pre-approval process a few months ago.

Robbie wrote:

mtn wrote:

Robbie wrote:

alfadriver wrote: AKA, it pays, literally, to do the math.

Funny how that works... Agree though on the fact that the primary residence should probably not be considered an investment. The land underneath, maybe, I can see an argument there.

I'll disagree that the primary residence should not be considered an investment, but I think that we might also disagree on what an investment is. In my calculations, I treated the house as a depreciating investment. Meaning, it would have at least SOME value at the end of the day, vs. my rent which has 0.

I'll totally agree with you if you replace 'investment' with 'asset'. Yes, I believe a house is a depreciating asset, which can sometimes appreciate if you are lucky. On the other hand, I try very hard to refrain from "investing" in depreciating assets. Same idea, different words.

(Because I'm in an argumentative mood today, and my boss and I have been agreeing on everything today which makes us both think something is wrong)

Definition of investment: To invest is to allocate money (or sometimes another resource, such as time) in the expectation of some benefit in the future. The benefit of buying the house is that eventually your housing payment goes to zero (ignoring upkeep and taxes) and you get an asset. Whether or not that asset appreciates is non-consequential.

Similar to how I invest in good shoes. No, they will never be worth more than they are now (actually not always true), but they'll save me money in the long run. Therefore they are an investment.

The over-generous loan practices are definitely still happening. I currently hold mortgages on two homes, one for rental income and one residence. I qualified to pay for both with no rental income. I know I can't sustain that, but apparently the bank doesn't care.

Houses in my neighborhood go for above asking and sell within 24 hours.

Nope, no bubble to see here. Move along.

mtn wrote:

Robbie wrote:

mtn wrote:

Robbie wrote:

alfadriver wrote: AKA, it pays, literally, to do the math.

Funny how that works... Agree though on the fact that the primary residence should probably not be considered an investment. The land underneath, maybe, I can see an argument there.

I'll disagree that the primary residence should not be considered an investment, but I think that we might also disagree on what an investment is. In my calculations, I treated the house as a depreciating investment. Meaning, it would have at least SOME value at the end of the day, vs. my rent which has 0.

I'll totally agree with you if you replace 'investment' with 'asset'. Yes, I believe a house is a depreciating asset, which can sometimes appreciate if you are lucky. On the other hand, I try very hard to refrain from "investing" in depreciating assets. Same idea, different words.

(Because I'm in an argumentative mood today, and my boss and I have been agreeing on everything today which makes us both think something is wrong) Definition of investment: To invest is to allocate money (or sometimes another resource, such as time) in the expectation of some benefit in the future. The benefit of buying the house is that eventually your housing payment goes to zero (ignoring upkeep and taxes) and you get an asset. Whether or not that asset appreciates is non-consequential. Similar to how I invest in good shoes. No, they will never be worth more than they are now (actually not always true), but they'll save me money in the long run. Therefore they are an investment.

Ok, so it's an investment so that you have a place to live- nothing wrong with that.

But to pretend that it's some kind of investment that you will certainly gain value on assumes a lot. First the idea of gaining value- it may, but in comparison to what money one has to put into it to keep it makes that math kind of close. Second- the point of an investment for cash is that you sell it (and stay that way). Most people trade one home for another- again, barely keeping up with the math. I bet many home owners die as that- so you never realize the asset gain.

Anyway- much of the problem with the whole market is the total lack of math done by the investor. When you factor in closing cost, insurance, etc- all in addition to the mortgage payment- most of that can't add up to the "increase" even with a really good ARM when it comes to the balloon payment.

Do the math, and you will find better places to put your cash assets.

I think the tough thing is for many young professionals we're told that the best way to move up the salary ladder is to switch jobs, and yet we're told not to buy unless we're stable for 5+ years. We want to stay mobile as to pursue the best opportunities, but are we losing money by not owning? Long term, are we better to search out the best paying job with 5 year terms and rent, or stay content with our salaries and buy?

My wife and I are both doing really well compared to our previous salaries. Combined income previously was an unhappy 76 with $1000/month rent, average house sold for 150k, now its a happy 112k with $1405/month and a considerably smaller living arrangement, average house sells for 325k. There is nothing cheaper to rent in our town. If we wanted to rent a single family home we'd be looking at $1600+. By the end of the year we should have enough in savings to buy a 300k house with 20% down and get a mortgage under $1100/month, but we're not sure if we'd live in it for 5 years.

We could save $300-$500/month by buying, or we could try to maintain our current salaries someplace with cheaper rent (and cheaper housing) and a more permanent living situation.

I also wonder if there is any advantage to buying, seeking higher pay, and when the time comes rent the old property. We have family members who own multiple properties in multiple states and rent quite a few of them because of this situation. They got offered better jobs and couldn't sell the old property for what they had in them. It's worked out for them.

Sometimes I think about just buying a property in Puerto Rico with cash, working for a few more years, saving up some money and living off the interest down there combined with a tourism job. It's the next California, I swear.

Great movie. Most people never learned a thing.

NOHOME wrote: Great movie. Most people never learned a thing.

The banks learned a lot. They learned the government will bail them out when they screw up, as long as they screw up big.

I have little to add to the financial talk here, but I was surprised how good the movie turned out. I'm a big Michael Lewis fan, and I thought the book was really good. If you liked The Big Short, check out Flash boys - about High-Frequency Trading. I was shocked by the information in that book.

Edit - I totally believe we're in a big housing bubble. Houses in my neighborhood have shot up above pre-crash prices seemingly overnight, and people are in bidding wars within 24 hours of list for even the smallest properties.

In reply to bastomatic:

I agree, although I think the degree of a bubble is very regional. One thing I've noticed in the last year or so is an increasing number of apparently abandoned houses in my neighborhood. It's not as bad as during the crash, and it seems like a little more effort is being made to maintain the properties, but they are there, so I'm guessing foreclosures are on the rise around me.