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Gold/Mining/Energy : Gold Price Monitor -- Ignore unavailable to you. Want to Upgrade?

To: LLCF who wrote (52694)	5/14/2000 11:38:00 AM
From: Hawkmoon	Read Replies (2) \| Respond to of 116762

David, You raised concerns about "inflated" real estate prices. However, by claiming this, you seem to imply that you, or some other particular entity, possess a standard by which all assets should be valued. Exactly how should value be assessed, and what standard will you use? There are two issues at work here, imo. The price of consumer essentials that are consumables, not assets, or items that depreciate upon purchase over a period of time. This category would include food, clothing, energy, vehicles, appliances.. etc. The other category are the hard assets like property, investments, or items purchased with intent that they might appreciate in value. Now for the Fed to target an actual asset's price, whether it be real estate or stocks, they are restricting the market's right to freely value what the actual price of such assets should be and what they are willing to pay for it. The Fed should ONLY HAVE A SAY OVER THE TERMS ON HOW THAT ASSET IS PURCHASED IF LEVERAGE/DEBT IS USED. If I have $100 million in cash sitting in my bank account, and wish to pay $2 million for a home that was worth $1 million a year ago, why should I have to pay a higher interest rate (since I don't wish to pay cash for the home since I may wish to keep my options open for a future investment) simply because the Fed thinks that home possesses an inflated price? Now if I have fewer assets and less collateral, obviously the bank is taking on greater risk and is justified in asking a higher interest rate to reward them for taking on that risk. In fact, if they perceive the home is excessively priced, they can outright deny me a loan under the perception that the value of the home probably will depreciate instead of appreciate. This is basic risk management. If I wish to go out and pay $400/share for Yahoo!, that should be my right. However, if I wish to use margin, or borrowed money, to execute that purchase, I am placing another entity at risk (the bank or brokerage), and thus implicitly must abide by the collateral standards they set. The same principle must apply for the purchase of real estate. Again, ...This is just basic risk management. The price of asset is determined by the perceived value of that asset on the part of the buyer (or seller if they are demanding more money). The ability to take something of lesser value and modify it, or develop it to the point where it is worth more in the eyes of a potential buyer IS THE HEART AND SOUL OF ALL ECONOMIC GROWTH. For the Fed to determine what people are willing to pay for an asset is wrong. However, for them to decide how much then lending community will participate in such purchases is correct. However, instead of blanket hikes in the prime rate, they should impose greater reserve requirements on banks and greater collateral requirements on borrowers. Hiking interest rates month after month creates artificial and uneccesary distortion in both the economy and the price of assets for those of use who are playing by the rules, saving our money, and not buying stocks on margin. Regards, Ron