Over the last two years, I've sent Feedback to the Federal Reserve a dozen times. Whether or not they do anything with what I submit is beyond me. I've certainly never been contacted about anything I've sent them (though, based on recent developments I currently have a friend who's employed by the Federal Reserve at their main office in Washington D.C. In any case, I wish to publish the "Feedback" letters that I've sent and I elect this post to do it. I hope you enjoy reading my thoughts on American monetary policy spanning over 700 days.
Thu, Feb 14, 2008 at 1:12 PM
Ben Bernanke & the Office of the Federal Reserve,
I think we could agree that for the last 4 decades economic inflation has been lower than 4% and real estate inflation has been closer to 10%. A college educated individual who started at $12-15k a year in 1960 can expect to raise college educated children who can earn $50-60k in 2010. Meanwhile, housing costs that were $40-50k in 1960 (with 15% interest rates) are $300-400k in 2007 in larger markets (with 4-6% rates).
It has become my opinion that the economic growth in the real estate market is due to the historical decrease in the interest rate of loans, and that continued economic growth in the real estate market is completely unsustainable (because the interest rate cannot drop much lower than it already has). It seems to me that real estate growth NEEDS TO normalize to the rate of inflation of the rest of the economy.
Furthermore, average mortgages in my area are selling for $350-400k. A rough model for estimating mortgage costs is $600 per $100k financed to pay it back in 30 years. Thus, $300k is a reasonable value for a mortgage (with some down payment, but mainly to keep the numbers even) and costs $1,800 a month. Historic wisdom is to spend half of your after tax income on your mortgage, so this leads to a requirement on homeowners to take home $3,600 a month. This is $5,400 per month before taxes or $64k a year.
How would the federal reserve respond to the notion that the real estate market is unsustainable? That it is at critical mass? Obviously interest rates cannot possibly be lowered too far below 3%, and if the market grows at the rate of 10% each year for the next 30 years it will be impossible for any new buyers to enter the market in 2040. Would the Fed consider policies to limit the growth of the real estate market to be tracked against inflation?
And a real "stimulus" package that I would like to suggest: Mandate that banks offer amnesty on a certain percentage of the principle of outstanding mortgages, and then recalculate monthly payments. This would succeed in offsetting some of the craziness that invaded the market during the end of the Greenspan era and would give homeowners who are struggling to make payments much more relief than a $1000 check from George W. ever will.
Having said all that, this is the calculated opinion of an educated individual in the engineering industry. I earned a Master's Degree in 2007 and have educational loans in excess of $50k. I think young people who don't have parents who could put them through college are in a particularly vexing position in the world economically, and I hope that your policies make some attempt to level the playing field for them (especially considering the rumor that Social Security needs to be reformed or benefits will not be able to continue beyond my retirement age in 2040).
Thank you for you time,
Robert Van Dyk
(contact info redacted)
Tue, Mar 4, 2008 at 1:39 PM
Dear Board Members of the Federal Reserve,
I would like to start by saying that I think you are doing a mighty fine job handling what is probably the most challenging economic dilemmas in over a quarter of a century.
I want to comment on a statement that I saw on the internet which quoted Ben Bernanke, (http://biz.yahoo.com/ap/080304/bernanke_mortgage_crisis.html) -(start quote)- "One of the suggestions Bernanke made was for mortgage and other financial companies to reduce the amount of the loan to provide relief to a struggling owner. `Principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure,' Bernanke said.-(end quote)-
This is surprisingly similar to a suggestion that I sent the Board through this feedback service on 02/14/2008. -(start quote)- "And a real 'stimulus' package that I would like to suggest: Mandate that banks offer amnesty on a certain percentage of the principle of outstanding mortgages, and then recalculate monthly payments. This would succeed in offsetting some of the craziness that invaded the market during the end of the Greenspan era and would give homeowners who are struggling to make payments much more relief than a $1000 check from George W. ever will.-(quote quote)-
I am seriously curious if my e-mail had made a difference. But since the Fed is seriously considering a "principle reduction" strategy, I would like to make a suggestion of a value: 36%. I arrived at this value by calculating that the market is currently 20% over-valued, and then multiplying the remaining value by the standard amount for a down-payment (20%). I think the second reduction is justified because of the surprising number of loans which were made without a down payment during the last 10 years. I would suggest taking all loans with a value between $60k to $3 Million that were granted between 1998-2008 and chopping off 36% from the current principle. Let the banks write it off as a loss, and let the homeowners be merry.
More importantly, let money flow into the economy to rejuvenate some of the depressed areas which have become slums over the last 30 years. I live in the Boston area, and can truthfully say that half of it is beautiful and half is in need of help. I want it all to be beautiful in 10 years time.
In conclusion, thank you for the good work you have done so far, but press on into the future to help to ensure our nation's economy stays strong for generations to come. If you'd be interested in any additional feedback from this member of the younger generation, please have your staff get in touch with me. It would be my pleasure to attempt to add more insights to steer our economy towards prosperity.
Thank you,
Robert Van Dyk
(contact info redacted)
Wed, May 14, 2008 at 10:07 AM
Mr. Bernanke & and the members of the Board of the Federal Reserve,
I have written to you in the past about how financial decisions will effect people in my generation born after 1980. My concerns are primarily that rising costs are a heavy burden for young people and that simple economics is hindering America's ability to be an intellectual world leader.
Let me say, first, that I applaud the actions taken by the Fed recently to lower interest rates. I am in favor of your efforts to push Basel II policies of risk mitigation. I also believe you have done a marvelous job withstanding the "mortgage crisis" which seems to have settled at the institutional level. At the current state of affairs, the remaining business is to bailout the homeowners who are so bad at math that they signed up for mortgages that they couldn't afford.
This is the primary reason I write you today. I notice there is a bill that is being discussed in Congress which proposes to make $300 Billion available to assist these troubled homeowners. I also see the following very promising wording associated with this bill: "a mortgage holder accepts a substantial write-down - payment in full no more than 85% of the property's current appraised value." At the same time, I am hearing that our President and Republican members of the Senate are opposed to these measures. This begs the question if the opposition fully understands the value to America of seeing this bill passed. As the chairmen of the Federal Reserve, I implore you to show your support for this bill (that is, assuming you agree with the merits and underlaying benefits it provides). I would ask that you explain in simple terms what the country has to risk by penalizing those who are in the unenviable position of not being able to afford their mortgages.
Along the lines of preventing an institutional collapse in the future, it seems to me like Basel II will accomplish this and I am in agreement with a quote that I read in a recent speech from Mr. Bernanke, "In particular, future liquidity planning will have to take into account the possibility of a sudden loss of substantial amounts of secured financing." This seems to say that when the next Bear Sterns happens they *will* have been already labeled as a risk and they *won't* receive a bailout. Kudos for that!
Now to talk about less pressing, but no less important matters concerning the risks that rising costs will hinder the progress of our nation. Namely, college costs are too high for middle class American families. Average post-college debt for students is $10-20k. I have no problems with those debt levels. However, because of the nature of averages there are students who have much lower and much higher post-college debt levels. I am mainly concerned with students who come out of college with much higher debt, and I have a very simple proposal to reward these students for pursuing higher education without effecting the policies which schools use for setting tuition prices. That is: push for ALL payments made toward college loans tax deductible, not just the interest. Somebody saddled with $40-50k in school loans who earns $50k a year currently gets about $5k in deductions from that loan, but effectively earns (after $12k in taxes and $12k in loan repayment) a mere $26k per year. This is dangerously low for a college educated individual to have to live on. No wonder so many occupy their free time pursuing easy money such as (a) the tech boom in the late 90's or (b) real estate investment in the early part of the current decade.
Alternatively, somebody with the debt described above could choose to only pay the minimum of $6k per year for 30 years (the banks would LOVE that), but I think it is much better to lessen their tax burden to $6k a year so that they can get on their feet quicker after attaining their costly, but invaluable education.
Thank you for listening and I wish you luck maintaining America's ability to be economic and intellectual pillars of strength in the world.
Sincerely,
Robert Van Dyk
(contact info redacted)
Wed, Jul 23, 2008 at 9:02 AM
Ben Bernanke,
As the economy marches forward at a turtle's pace, Americans are enduring hardships. I am in the camp of people who would ask, "Who needs them?" and shrug my shoulders. Then, I hear a story in the news about a women in Taunton, MA who killed herself after her home was foreclosed and it breaks my heart (http://www3.whdh.com/news/articles/local/BO83144/).
So, it is with some hesitation that I offer an unconventional solution. Mae&Mac reportedly "manage" half the countries mortgages already. I say, make rates so attractive at these two institutions that all citizens are compelled to "lower their monthly payment AND their interest rate by re-financing with Mae&Mac". Place governing control of Mae&Mac into the hands of the experts at the Federal Reserve, then erase the high mortgages from the books. Meanwhile, organize and centralize residential property taxes (PT) to be managed by the what remains of Mae&Mac. Substitute high mortgage payments for high (but not quite as high) property tax payments. Let me give you an example of the system that I envision. I would expect PT on a 700 sqft condo would be affordable to a family earning $20k/year. I would expect 1500 sqft to be a price for a family earning $100k/year. With these goal levels, we can pragmatically figure out how to set the PT to make it affordable. We already know that Americans are supposed to pay about 30% in income taxes per year, so somebody earning $100k only really takes home $70k. We know that this person is supposedly to hold a mortgage where the monthly payment is half of his take-home salary, which is $3k/month for $100k/year... or a $500k, 30 year mortgage. Property taxes for this property would probably be in the range of $500/month. We note that PT+mortgage on a $500k home are approximately $40k per year. Let's cut that in half, for arguments sake. Instead of sending $5k/year to the gov't and $35k/year to some corporation who has demonstrated in the last 5 years that THEY AREN'T RESPONSIBLE ENOUGH TO HANDLE IT... let's send $20k/year to the gov't and let the citizen keep the additional $20k/year so he can spend it HOW HE WANTS. Eliminating mortgages and raising property taxes is a win-win situation (the only LOSERS are the banks who have proven that they DESERVE TO LOSE). Increasing the property tax will (a) put more money in the gov't's hands to spend on social welfare programs (such as health care and social security), and (b) give *more* control to the lower classes to climb to higher status levels in society.
So, in conclusion, I admit that this is an unconventional solution to the mortgage mess in this country, but the mortgage mess is certainly an unconventional problem. In the meantime, PEOPLE ARE DYING. Try firing a search for "suicide foreclosure" into Google. There more results than a responsible nation should be able to tolerate.
Thank you very much,
Robert Van Dyk
(contact info redacted)
Tue, Sep 9, 2008 at 11:52 AM
Ben Bernanke & the Office of the Federal Reserve,
I came across an interesting quotation while reading Wikipedia the other day. I understand that Wikipedia is by no means an authoritative source for United States housing policy benchmarks, but in general the statements made on the site tend to ring true. It said, "In the United States and Canada, a commonly accepted guideline for housing affordability is a housing cost that does not exceed 30% of a household's gross income. Housing costs considered in this guideline generally include taxes and insurance for owners, and usually include utility costs."
I asked myself, "Only 30%?" This figure seemed low to me. My salary ($6300/month) would afford (based on this percentage) a mere $1900/month, which is what some rents go for in the city I live (Cambridge, MA). This is enough to buy a $300k condo that is 7-15 miles outside the city, but that is undesirable because of the extra commute time and the lack of public transportation services that exist in the outskirts. Thus, I face condos within the city limits that go for $500k, which would entail a loan that is valued at closer to 40% of my monthly wage (and that does not figure in taxes, insurance, or utilities).
I even notice that my household income is above average in my state based on a review of this website: http://www.dataplace.org/area_overview/?place=x124783 which indexes many national economic statistics. How can my earning power be higher than the standard, but below the benchmark for "affordability"?
Thus, I ask if the Federal Reserve has any guidelines that substantiate the claim that affordable housing is "30% of gross income". I have found the resource "http://www.federalreserveeducation.org", but this does not appear to give the level of guidance that is possible. I fear that the lack of guidance from government with regard to how a younger generation should approach choosing a place to live would save the country a great deal of anxiety. I envision an online website tool that accepts a number of different "key financial metrics" and then a list of "personal preferences" so that a database can be queried to return options/advise and the varying levels of "affordability" (20%, 30%, 40%, et cetera...).
If the board is interested, I have experience as a software engineer and could make a refined prototype of what I am thinking about. I mean, the fact is that their are HUGE AMOUNTS of economic data available to use to make informed decisions, but many of these sources are underutilized and if the Federal Reserve could publish the "Housing Affordability Calculator" it would serve invaluably to guide people into living situations where the risks are well understood. I mean... if more people had a reliable way to measure the risks they were taking during the housing bubble, there would not have been a housing bubble. Right?
Thanks,
Rob
Mon, Sep 22, 2008 at 11:23 AM
Ben Bernanke & the Chairmen of the Federal Reserve,
Your methods for helping to ensure the future of the American economy are exemplary. I think you have significantly helped the world to get past the mistakes made by former chairman Greenspan. It was a stroke of genius to make Goldman and Morgan Stanley into Bank Holding Companies. I imagine making these organizations operate as customer facing corporations like BoA, Citi and JPM will help to unite the comfortableness of Main St. with the business pursuits of Wall St.
So, now the the Federal Reserve has an emergency power over Freddie and Fannie Mae, does this mean that mortgage payments become the effective property of the government? In other words, as people pay their mortgages back over the next few years will the government be able to channel this money towards paying off our national debt? I calculate that mortgage payments for 50% of the country (the percent that Freddie/Fannie own) is about $1 Trillion dollars. These assets would significantly help towards contributing to pay off the national debt over a number of years. Beyond that point, these assets would serve as a brilliant source to fund Social Security and other critical government services that are desirable (Medicare, public education, and NSA/NASA for example). Additionally, if all of the nation's real estate mortgages came under the umbrella of a Federally managed mortgage company whose value is used to fund goods and services the way income taxes are currently used, it seems to be like income taxes can be completely eliminated.
Imagine: an America which isn't run using money stolen from the pockets of it's workers. I see huge benefits in allowing citizens to pay a "federal mortgage tax" and "sales taxes" and simply folding the branch of government known as the IRS up and telling them that nobody ever liked them anyway. This would be a boon for American businesses who would be granted the ability to compete in the global economy without the burden of "income taxes". This would be a boon for American government who would gain needed funding to support America's lowest earning citizens so they have a "right to pursue happiness". This would be a boon for Americans because the best and brightest of us would be given an opportunity to make the CHOICE of whether to live in much desirable urban population centers with high "federal mortgage taxes" or in cheaper suburban villages with more funds available for disposable income. A rare Win-Win-Win situation!
I hope this is the way it goes. This would guarantee the future of our nation and give us economic security for many, many decades to come. The current board allow with Paulson and Bush will establish a legacy of being the men who handled the American financial crisis of the early 21st Century (just like FDR is lauded for saving us from the Great Depression).
Regardless, keep up the good work!
Robert Van Dyk
(contact info redacted)
Wed, Oct 22, 2008 at 10:53 AM
Chairman Bernanke,
You concluded you recent testimony with, "If the Congress proceeds with a fiscal package, it should consider including measures to help improve access to credit by consumers, homebuyers, businesses, and other borrowers. Such actions might be particularly effective at promoting economic growth and job creation." I understand that it's in the hands of Congress to approval any particular packages, but I believe there should be emphasis on measures to help *businesses* so that job creation is encouraged. With new jobs, the people hired into them would indirectly gain an additional ability to consume, thus there isn't a need to target them initially. Additionally, in regards to homebuying, you made the following statement in your testimony, "The proximate cause of the financial turmoil was the steep increase and subsequent decline of house prices nationwide". I believe the latter section of this statement is misleading. Home prices continue to remain higher than they should. According to the Census Bureau (http://www.census.gov/Press-Release/www/releases/archives/income_wealth/012528.html) the average US household income in 2007 was $50k. Yet, the average prices for a mortgage are $220k (Sept 2008 report: http://www.ofheo.gov/newsroom.aspx?ID=466&q1=1&q2=None). If you look at page 5 of this report, you see some troubling data. The average home prices have increased by an average of 4.4% since 1991 and 5.2% since 2000. This is bad for affordability because this rate is greater than the annual rates which salaries have increased since 1991 and 2000, respectively. Thus, what needs to happen for the benefit of homebuyers is that home prices must continue to decline to values that reflect approximately 3% and 4% annual appreciation which would dictate that the average prices should actually be between $165k and $195k. Now, short of giving a $75,000 tax credit to all first-time homebuyers, the only way to make these homes affordable is for the prices to decrease another 10% to 20%. I will repeat it to make it clear, a fiscal package like the one we got this summer will NOT help stimulate the housing market because prospective homebuyers have NOT been terminated from their jobs during the past year. And I will repeat what I think my other point is: we have an immediate need to provide money to BUSINESSES (not banks) to create jobs for the individuals who have lost their old ones. New jobs will put bread on our tables and gas in our tanks. Bank hand-outs will NOT accomplish these things because for way too long, banks have abandoned their role as responsible business lenders and they have failed at the task of empowering new businesses that have the capability to create jobs.
Sincerely,
Robert Van Dyk
(contact info redacted)
Fri, Oct 31, 2008 at 4:58 PM
Chairman Bernanke,
While evaluating your speech on the future of mortgage finance, I noted that there's much indecision for the best course of action to take. I hope to give advice from the perspective of somebody who wants to buy a home and start a family in the next year or two. I am 26 and earn $76k/year. I hold a B.S. in Engineering and a M.S. in Science. I have paid off approximately $25k out of the $50k in student loans that I had when I graduated in 2004.
Look at the problem from several perspectives. What is best for the taxpayers? the shareholders? the homeowners? There's no magic formula that can ensure that these groups be serviced equally. Using the last 10 years as a guide, it seems like an explosion of condos is best for shareholders. Additionally, towns with lots of condo have more people occupying less space which decreases the per capita tax burden on each individual. However, homeowners have not gained an advantage from these recent developments because condo prices have become comparable to Single Family House prices. Meanwhile, you can't "put an addition" of a condominium when you are about to welcome a new son or daughter into the world. You must sell the condo and buy bigger. Similarly, privacy is scarcer for condo-owners than homeowners. Thus, how can homeowners become as well serviced as shareholders and taxpayers? By STRICTLY REGULATING prices of new developments, the rest of the market will fall into place. How will price regulation help? Well, the part of the market where efficiencies are needed is mainly during construction. Thus, the investor has pressures to control the amount spent on design, construction, and sales. If the investor hires a bad designer that ends up overrunning the budget, the cost of the real estate should absolutely NOT be passed off to the homeowner, but this is all too often the case. Thus, empowering a regulatory board to assign maximum prices for the resale of new construction would help keep the investors honest to the costs of creating real estate. Now, if the new buildings truly cost the $800k prices that I've seen in Boston then there's a much bigger problem than real estate that is bringing the economy down (maybe cost of raw materials, maybe cost of labor). However, I don't think that's the case. I think a crew in Boston could reasonably erect a 200 unit building for less than $100 Million, or an average cost of $500,000 per unit. I think this margin would leave enough room for the investor to make a handy profit on the building, and it would leave the homeowners with a piece of real estate that they can afford. Meanwhile, if NEW construction in Boston started selling for $500,000 then people would stop seeking to sell older buildings (that are in need of major maintenance) for prices that are much higher than that. So, the comps would favor lower prices.
Look for a follow-up to this because of submission length requirements.
Thank you,
Robert Van Dyk
===
Chairman Bernanke,
This continues from an earlier submission that I made in response to the speech you gave on the future of mortgage finance.
And my argument that mortgage finance be operated as a public utility hinges on the need to keep prices honest. Using the previous example where the couple in the condo needed to "upgrade" because they were welcoming a child into the world highlights two important points. First, larger families need more space. Second, they don't always get to "time" when they can upgrade. Thus, it's important to give homeowners an "easy out" so that they aren't left carrying two mortgages for a number of months after they buy their larger dwelling. Public GSEs would be capable of transferring the mortgage from the smaller dwelling to the larger dwelling and then offer the former on the open market for any price that is greater than the remaining mortgage of the previous homeowner and still ensure a PROFIT. This easy-in, easy-out system of mortgage finance would be a boon for shareholders (lower administrative overhead) and homeowners (less hassle during buy/sell). Finally, I'll mention the charter of a public utility: "safe, adequate, and proper utility services are provided at reasonable rates for customers". The government already regulates housing safety. Individuals regulate what is "adequate and proper" for them. Isn't it in the best interest of the country that "the rates of customers" be regulated by a public entity instead of greedy financial institutions or inept real estate investors? Because I fear that if left in control of private finance that eventually another BOOM will draw thousands of "real estate investors" into the market just like during the early decade that set the stage for this whole mess. And that brings me to my final word... don't worry about preventing "stressed financial conditions". Worry about preventing the next real estate boom. If you can prevent "irrational exuberance", then you will have succeeded in your post at the Federal Reserve.
Thank You,
Robert Van Dyk
(contact info redacted)
Thu, Dec 4, 2008 at 6:03 PM
Chairman Ben S. Bernanke,
I found your December 4 speech "Housing, Mortgage Markets, and Foreclosures" quite interesting. I'm going to cut to the chase, though. Many aspects of the foreclosure avoidance planning seams to aim to get people "above-water". What it in place to prevent these people from selling their real estate for profit after they are in the black? I saw one sentence that addressed this, "the borrower is required to share any subsequent appreciation of the home with the government". I do not see this as a sound solution as long as prices continue to decline. By helping people get back "above water" the supply of available houses will increase, increasing prices, and creating a new bubble. When this new bubble pops, the government and banks will be primed for a "rinse and repeat" of new reactive plans. Additionally, Secretary Paulson's idea to make loans "affordable" at 4.5% is laughable because a house which sold for $300k when APRs were 8% will sell for $300k + $x when APRs are 4.5% (where $x is the difference in monthly interest payments spread over the term of the loan. From what I have seen from previous decades, lower APRs drive the HPI to increase well beyond the rate of inflation.
******** Instead, I provide a suggestion which will end the recession during the day the legislation is enacted. *******
Take every loan in the country and slash the principle by 35%. Then, provide strict guidance to housing appraisers to valuate all of their listed properties 35% less than their 2008 values. Why 35%? According to Bob Hagerty of the Wall Street Journal in his recent article "The Future of Housing Prices" (http://online.wsj.com/article/SB122764977315457619.html) this is what the average HPI has inflated by over the last 20 years (and in a private e-mail with me, he listed his own source as Mark Zandi, chief economist of Moody's Economy.com). Anyway, this instantaneous devaluing of the mortgages and the HPI will adequately accomplish the goal of making mortgages affordable, which will rescue the housing market. Meanwhile, the likelihood of owners selling their properties after they've been put "above-water" will disappear because the "less than brilliant" individuals who bought during peak of the boom will still be in the red when they can't get appraisers to provide a good valuation of their properties. Just remember... every house and every mortgage in America needs the 35% adjustment. Without that, the universal deflation of the economy to increase the value of the dollar won't work properly.
Thank you for your time,
Robert Van Dyk
(contact info redacted)
Tue, Oct 20, 2009 at 2:20 PM
Ben Bernanke & the Office of the Federal Reserve,
Why should the American public keep trusting our government financial advisers when the country's top financial institutions are allowed to pay huge bonuses to their executives?
With limited help provided by income-based repayment (http://www.ibrinfo.org/), which is limited to only certain types of loans, how are students expected to afford their huge graduation debts from private lenders?
Is anybody doing anything to improve the nation's transportation systems these days? I know this isn't the Federal Reserves core business, but the biggest issue is Planning and Financing so the Federal Reserve should be expected to help on the latter part. I live in Boston which is notable for a very expensive highway that cleared space for hundreds of millions of dollars of development and helps thousands of people to a shorter commute everyday. Yet the price tag of the "Big Dig" is dangled over the heads of millions of Massachusetts residents for toll hikes and tax increases. Can the Federal Reserve help the American public realize that the cost of a project like the Big Dig is insignificant to the value that it adds to the public landscape of our country? As for the recent stimulus, the LACK OF PLANNING is evident and the only projects that have gotten funding in my area that I am aware of is "new curbs" along Storrow Drive on the Charles River. Curbs? That's the best they could do? Let's face it, America needs better LONG TERM PLANNING skills. We don't think of the big picture often enough and I think the reason for that is that we're driven by unrealistic financial deadlines. But yeah, if the Federal Reserve to somehow earmark $100 per citizen for "special transportation expenses" in 2014-2016 the net value added to the country would be a HUGE payoff.
Finally, when inflation hits can I expect larger than the standard 4% annual increase in my salary? The middle class is getting CREAMED by the cost of goods increasing a lot (milk costs $4+) while our salaries mostly stay the same.
Thank you,
Robert Van Dyk
(contact info redacted)
Tue, Jan 26, 2010 at 9:15 AM
Ben Bernanke and the Board of the Federal Reserve,
I'm beginning to see articles that indicate there's a desire for the Fed to raise interest rates. Please do not take this action. I fear it will have negative impacts throughout the economy. Thirty years ago, interest rates cooked at 18% and have steadily come down. The steady decrease has ushered in steady housing price increases at the pace of about 10-12% per year. There's a natural inverse relationship between interest rates and housing prices. I wrote about this in 2008 (http://www.robertvandyk.com/roblog/2008/12/numerical-progressions.html). Meanwhile, both of these track according the average American wages, which have remained more or less flat for the last two or three years. Thus, I beg you to keep the federal funds rate at 0% until average American wages increase 5-10% from what they were in 2008 lest you depress the market value of every house in America. Unless you want to ruin housing prices to penalize home owners, which I sincerely hope you don't.
Thank you,
Robert Van Dyk
Fri, Feb 5, 2010 at 11:47 AM
Ben Bernanke and the Board of the Federal Reserve,
I've heard estimates lately that 33% of mortgages are greater than the current market values of the properties they cover. A story on NPR this morning made the claim that this statistic is racing towards the 50% and the story argued that a tipping-point is vastly approaching where consumers will no longer feel ashamed by defaulting on their mortgages. The convoluted situation is now that bankers are delaying foreclosure because forcing a family out of their $400k home and selling that home for $340k is not in their best interests. In other words, pockets of out-of-whack real estate markets are contributing significantly to the unstable economy. In many cases, it's in many homeowner's best economic interest to stop paying for a mortgage when the principle is more than their property is worth. The fact that foreclosure is the best monetary option for owners who can afford to pay speaks volumes about the economy and a change is needed to straighten everything out.
I'd urge you to take a look at this data (that claims 33% to 50% of homeowners are underwater) and release a statement to confirm or deny whether it's factual or not. If it's not true, it'd be good to see less panic in the media. But if it's true, I'd urge you to suggest a solution that would affect all mortgage holders. Simply propping up small amounts of owners with "Hope for Homeowners" does a disservice to the vast majority of the country who doesn't qualify for that program. Allow bankers to write-off 30% of the principle of every "owner-occupied mortgage" in this country (via Federal Reserve mandate or by urging Congress to pass a "Real Estate Principle Adjustment Bill". This will depress real estate prices across the board (which will also push rent prices down), but it won't cost homeowners a dime and it'll put the over-whelming majority back in the black. Killing "incentives to foreclose" is critical to the stability of the economy. I'd welcome an opportunity to discuss this issue more and you should feel free to contact me.
Thank you for your time,
Robert Van Dyk
(contact info redacted)
That is all. Thank you for reading this far.
