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Real estate taxes are the first line of defence against real estate bubbles (because they force people to put up real money to support the bubble valuation, even if their bank takes leave of its senses and offers negative-amortisation, no-money-down loans). So declining real estate taxes weakens your defence against real estate bubbles.

Nothing prevents banks for loaning people money to pay both the mortgage and the taxes.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Fri Jun 3rd, 2011 at 06:07:57 PM EST
[ Parent ]
True in principle.

In practise, this tends to strain the credulity of even the most soundly sleeping financial regulator.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Jun 3rd, 2011 at 06:16:15 PM EST
[ Parent ]
and you dont think they still would have found a way to justify it?

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Fri Jun 3rd, 2011 at 09:50:54 PM EST
[ Parent ]
True in practice.

You pay the expenses and taxes through a consumer loan, not a mortgage.

Economics is politics by other means

by Migeru (migeru at eurotrib dot com) on Sat Jun 4th, 2011 at 04:10:17 AM EST
[ Parent ]
But the mechanics of that differ from the mechanics of a neg-amortisation loan.

Think about a negative-amortisation loan as an interest-only loan plus some fictional interest. This extra interest increases the bank's assets but not its liabilities, compared to an interest-only loan at a correspondingly lower interest. It's free funny-money for the bank, in that it comes with no funding cost - no extra liabilities means no need to borrow more from the CB.

Taxes don't work like that, because they have to be paid in real money, not Monopoly money. So a consumer loan to pay taxes actually increases the bank's liabilities, making it less attractive on paper.

(That, and mortgages typically come with stickier strings attached than consumer loans.)

Of course there are no regulations that a sufficiently incompetent or corrupt regulator cannot fuck up. Foolproof systems do not exist in economics, and even if they did nature is ever at work improving the stock of fools. But as a first line of defence, property taxes are not bad.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sat Jun 4th, 2011 at 06:22:23 AM EST
[ Parent ]

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