How Entitled Are You?

Posted by guest, Apr 01, 2008 2:44PM

I'm gonna pretend I was asked question A at a Goldman interview.

Lets see... there are 300 million people in the US, maybe 75 million residential housing units, each one has maybe $30,000 equity value. Answer: $2.2 trillion. So among the multiple choices I say #5: $2.7 trillion.

Posted by ESguru, Apr 01, 2008 2:45PM

1. $38.6 Trillion - A. The surplus equity value of all residential housing in the United States
2. $11.9 Trillion - E. The 75 year Medicare "Solvency Gap" (75 year present value of unfunded Medicare obligations)
3. $13.7 Trillion - C. The United States Gross Domestic Product (2007)
4. $ 7.1 Trillion - D. The present value of unfunded social security obligations
5. $ 2.7 Trillion - F. Total outlays in the federal budget (2007)
6. $ 0.5 Trillion - B. The defense budget of the United States

Posted by guest, Apr 01, 2008 2:50PM

1. D
2. E
3. C
4. A
5. F
6. B

Nailed it.

Posted by guest, Apr 01, 2008 2:55PM

1. A
2. E
3. C
4. D
5. F
6. B

What's the prize? A date with BL or the Muffster?

Posted by onetwo , Apr 01, 2008 2:58PM

1. $38.6 Trillion: E
2. $11.9 Trillion: D
3. $13.7 Trillion: C
4. $ 7.1 Trillion: A
5. $ 2.7 Trillion: F
6. $ 0.5 Trillion: B

Posted by guest, Apr 01, 2008 3:01PM

A. The surplus equity value of all residential housing in the United States
2. $11.9 Trillion
B. The defense budget of the United States
6. $ 0.5 Trillion
C. The United States Gross Domestic Product (2007)
3. $13.7 Trillion
D. The present value of unfunded social security obligations
4. $ 7.1 Trillion
E. The 75 year Medicare "Solvency Gap" (75 year present value of unfunded Medicare obligations)
1. $38.6 Trillion
F. Total outlays in the federal budget (2007)
5. $ 2.7 Trillion

Posted by Bulging Bracket, Apr 01, 2008 3:03PM

What, like it's hard?

I do like how 2:44 is going to fail horribly at any interview. Exactly why do you assume that the mean equity value of houses is $30k. How do you get 75M residential housing units from a population of 300M (question wasn't value of owner occupied or single family homes)? "Lots" of people are in sub-prime/high ratio loans, but, er, not THAT many. You seem like a BSC summer analyst. Maybe BOA? Hmm... well Citi is hiring... er... Have you been watching March Madness? Get used to saying "we'll pick you up!"

Too bad that RB got the GDP question wrong. I reiterate ESguru's answers.

Posted by guest, Apr 01, 2008 3:03PM

1e 2a 3c 4b 5f 6d ?

Posted by guest, Apr 01, 2008 3:04PM

1.E
2.A
3.C
4.D
5.F
6.B

Posted by guest, Apr 01, 2008 3:07PM

Wasnt it just a month ago that americans avg equity in homes fell below 50% since the great depression? This was pretty big news at the time. At least if you are the federal reserve, or care what they are looking at.
s75

Posted by HAM05, Apr 01, 2008 3:10PM

damn mouthbreathers

Posted by guest, Apr 01, 2008 3:12PM

I feel good about 2A, 3C, and 6B.

A little more shaky on 1E, 5F , and 4D by process of elimination?

-s75

Posted by guest, Apr 01, 2008 3:12PM

This whole rally is fake. It started out as an April Fools hoax by Doug Kass Doug Kass, of Seabreeze Partners Short LP which caused a massive short covering rally.

Posted by fatsdomino, Apr 01, 2008 3:12PM

1.D
2.E
3.C
4.F
5.B
6.A

Posted by guest, Apr 01, 2008 3:15PM

great post!

Posted by guest, Apr 01, 2008 3:20PM

Trick Question... none of them are accurate values for any of the line items

Posted by Anonymous, Apr 01, 2008 3:22PM

1D
2E
3C
4F
5B
6A

Posted by NomadTrader, Apr 01, 2008 3:25PM

C'mon - this is April Fools. Here are the real answers.
1) 38.6 Trillion - What Jimmy Cayne could lose if allowed a lifetime run amok,
2)11.9 Trillion - Amount Vegas would have lost if Davidson had won NCAA,
3)13.7 trillion - Amount of gold worn by Indian women on a daily basis,
4)7.1 trillion - Hirohito's Palace circa 1988,
5)2.7 trillion - total value of Palace today,
6)0.5 trillion - annual Wall Street lap dance tab.

Don't be fooled people!

Posted by guest, Apr 01, 2008 3:26PM

@3:03 guessed at the mean equity value, cause the mean price is like $100,000. Most people don't live in NY, Boston, SF, LA. A nice house in Charlotte is $229,000. And no I dont work at BofA...

Posted by guest, Apr 01, 2008 3:27PM

decafb

Posted by guest, Apr 01, 2008 3:33PM

Larry Kudlow told me there is no housing bubble, we don't spend all that much on defense, and the deficit isn't really very big if you exclude Iraq.

Paul Krugman told me there are no unfunded obligations or gaps in social security or medicare, these are just bogeymen cooked up by the right-wing.

So I'm going to go with "about tree fiddy" for each of those.

Posted by guest, Apr 01, 2008 3:34PM

@3:26 - the average price of a house in the US last month was around $200,000

Posted by guest, Apr 01, 2008 3:38PM

i think you mean the median price? the average is well away from that.

Posted by Bulging Bracket, Apr 01, 2008 3:41PM

Average net equity was also nowhere near 30%... 2005 census had 55.1 as mean for those with mortgages, and only 2/3rds of owner occupiers had mortgages... so rough estimate is net equity represents 70% of value of owner occupied housing units...

Posted by guest, Apr 01, 2008 3:54PM

The total resi-mortgage debt outstanding is around $9 trillion. I call BS on the 38 trillion surplus equity number.

Posted by guest, Apr 01, 2008 3:57PM

well done NomadTrader. i would have guessed the same as ESguru, but i think you hit the nail on the head.

Posted by guest, Apr 01, 2008 3:57PM

its 10 trillion, or 11 trillion if you count second lien

Posted by guest, Apr 01, 2008 4:02PM

9 trillion includes second liens. It is north of 10 if you count HELOCs.

Posted by onetwo , Apr 01, 2008 4:12PM

I may not be right, but assuming this isn't BS april fool's, I think it's helpful to remember who wrote the piece: Carney.

What can that tell us? Well Carney is about as free-market, laissez faire, get the gov't the fuck out of the way as they come. He also believes that much of the political discourse in this country is sorely off-base and we SHOULD be talking about the unfunded government liabilities. Likely then he came across this piece supporting his thesis and wanted to see if anyone knew just how bad the problems are that lie ahead (US is pretty much a massive GM/Ford if we don't change the entitlement structure). Assuming i'm right he also probably wanted to point out that defense spending isn't crippling our budget (0.5b), and that our gov't budget is too high (2.7b that one i know).

Well, at least that's how i approached it. Could be completely wrong, but it always helps to know your audience. Then again it could all be complete BS. But i believe the title of the piece gives a bit away.

Posted by guest, Apr 01, 2008 4:13PM

Whhhat? 9 trillion is low. Whose data are you using? FRB statistical supplement has 11 trillion 1-4fam as of 3Q07.

http://www.federalreserve.gov/Pubs/supplement/2008/02/table1_54.htm

Fannie mae agrees.

http://www.fanniemae.com/media/pdf/economics/monthly/2008/031108.pdf

-s75

Posted by guest, Apr 01, 2008 4:14PM

hummm. Why is carney posting as Equity Private?

Posted by onetwo , Apr 01, 2008 4:16PM

And it's just now that I see EP wrote this piece. Anyways, she has very congruent viewpoints/beliefs to JC and my line of reasoning holds up regardless--I would have looked at it the same way had I known EP was the author.

Sorry EP.

Posted by diablo, Apr 01, 2008 4:21PM

What's the point?

Posted by Bulging Bracket, Apr 01, 2008 4:30PM

http://www.cbpp.org/3-25-08health.htm

Medicare for #1... though looking at the numbers it doesn't look like we've got a good number for net housing equity. I'm very interested in sourcing for the number used for net housing equity.

Posted by Random Banker, Apr 01, 2008 4:32PM

1-2:

Equity private is comparing some annualized numbers to other cumulative numbers. This is is exactly the type of shit right wing half wits try to pawn off on the American people as an honest look at the fiscal state of the government.

But then again, I don't know what GDP is these days so my judgment can't be trusted either. I think I stored 11 trillion in my brain as approximate GDP when i was an undergraduate and have never looked it up or done the simply compounding since.

Posted by Anonymous, Apr 01, 2008 4:32PM

I thought Carney was in Thailand visiting his 13 y/o girlfriend??

Posted by ep, Apr 01, 2008 4:35PM

1. $38.6 Trillion - E. Medicare's unfunded gap. The other number that's tossed around a lot is from the 2008 trustee's report- you can breathe a sigh of relief there, it's only $36.3 Trillion.

2. $11.9 Trillion - A. The equity value of all residential housing in the United States (Federal Reserve Board figure for end of 2007).

3. $13.7 Trillion - C. United States Gross Domestic Product (2007 via CBO).

4. $7.1 Trillion - D. Present value of unfunded Social Security Obligations (2008 Trustee Report, probably optimistic)

5. $2.7 Trillion - F. Sum of all Federal Budget outlays (Fiscal Year 2008 budget of the United States)

6. $0.5 Trillion - B. United States Defense Budget (Fiscal Year 2008 budget of the United States).

Posted by ep, Apr 01, 2008 4:40PM

Random Banker quips:

"Equity private is comparing some annualized numbers to other cumulative numbers. This is is exactly the type of shit right wing half wits try to pawn off on the American people as an honest look at the fiscal state of the government."

I think you really need to do some of the math on what it means to have a present value of unfunded liabilities figure that is on the order of 12x of the entire sum of present day federal outlays and 13-14x the entire sum of all federal receipts.

Even "right wing halfwits" can't legislate the math to look much worse.

If you want current to current figures, tripling the payroll tax TODAY will only buy these programs another 15 years of solvency- and that's with best-case assumptions (which have been low by 15% since anyone started tracking figures).

Posted by guest, Apr 01, 2008 4:41PM

GDP is definitely about $14 trillion or just under

Fed's flow of funds (sorry to be a Fed nerd today!) should be the source for residential real estate equity. I didn't look it up in the spirit of the game, but i vaguely recall it to be over $10 trillion so i just went with the # closest to that

-s75

Posted by Debter, Apr 01, 2008 4:43PM

PGP (that's Pete G. Peterson) told me unfunded PV liabil's around 40 tril...and that's not UGK tril I'm talking about (RNP Bun B, or was it Pimp C)...last night on PBS.

Posted by guest, Apr 01, 2008 4:45PM

Oh, EP, now that you posted your answers ... I went to look it up, I see only $9.6 trillion in household equity in the Z1, may I ask where are you getting your number?

Posted by ep, Apr 01, 2008 4:46PM

"PGP (that's Pete G. Peterson) told me unfunded PV liabil's around 40 tril...and that's not UGK tril I'm talking about (RNP Bun B, or was it Pimp C)...last night on PBS."

That's a little low, but about right, if you add both Social Security and MediX programs.

Posted by guest, Apr 01, 2008 4:47PM

OK, the PV of unfunded Soc Sec and Medicare benefits is 4x GDP. And the military budget is only one fifth the total budget (if you don't count Iraq, a big don't), so don't go thinking you can fund it by reducing that.

How about some answers. Cut the benefits that go largely to the elderly? That's not gonna happen. There will be colonies of sick old people sleeping under bridges. Gross.

Problem is that any solution will bring up from a pay as you go to a funded system and we therefore need to address that unfunded gap. The budget surplusses in the 90's were there for a reason: to allow us to retire debt and slim down enough to meet those future obligations. Some dummy though managed to let those surplusses go away, by cutting taxes.

Posted by ESguru, Apr 01, 2008 4:49PM

Damn. 4 out of 6. 'D' for Diploma, Right?

Posted by guest, Apr 01, 2008 4:52PM

Problem is bigger than what we can solve by typing here. As a society should we really be investing so much in order to keep geezers alive? Its like wasting water on plants that produce no fruit. I think the power of AARP has something to do with it.

Posted by ep, Apr 01, 2008 4:58PM

"Oh, EP, now that you posted your answers ... I went to look it up, I see only $9.6 trillion in household equity in the Z1, may I ask where are you getting your number?"

Actually, you're correct. The last quarter has equity rates at the lowest basically in history. I was using bad figures. The correct source for the more current numbers should be the Flow of Funds Accounts figures for Q4 2007 which shows them at $9.65 trillion with a record low 47.9%.

See: http://www.federalreserve.gov/releases/z1/Current/z1.pdf (page 110)

Posted by guest, Apr 01, 2008 5:01PM

s75@4:13,

You would look up the flow of funds pg 86 (91 on the pdf) here
http://www.federalreserve.gov/releases/z1/Current/annuals/a2005-2007.pdf

For 2007, Household sector 10508.8 (line 2) - Home equity loans 1119.5 (line 22) = ~9 trillion of home mortgages.

Posted by guest, Apr 01, 2008 5:06PM

Follow-up to 5:01, the 11 trillion number includes helocs, 'non-financial corporate business' and 'non-farm noncorporate business.'

Posted by guest, Apr 01, 2008 5:13PM

"How about some answers. Cut the benefits that go largely to the elderly? That's not gonna happen. There will be colonies of sick old people sleeping under bridges. Gross."

Typical liberal BS, eh? So if other people dont pay for your healthcare when you are old - you will be living under a bridge? Is that what happens to all liberals?

I thought you were supposed to responsible throughout your lives and set aside a nesting egg to support yourself in retirement. Looks like you dont believe in that.

Some 'dummy' actually gave people's money back to them to let them decide what they wanted to do with it. Alien concept in liberal circles, I know.

Incidentally, some people created massive entitlement schemes which were by design supposed to go bankrupt. Clearly you cannot call them dummies. So what should we call them - frauds? Cheats? Liars?

Posted by guest, Apr 01, 2008 5:14PM

@EP, thanks for clarifying. I would hate to not reconcile with you properly.

@5:01 your number is low, you have to add lines 3 and 4 on p86. look, they do it for you right there on the previous page on line 2. total home mortgage = 11135.8.

yours truly,
series7.5

Posted by guest, Apr 01, 2008 5:15PM

@506 those count, it is all debt on single family resi housing stock. as you said, "total resi-mortgage debt outstanding"

Posted by guest, Apr 01, 2008 5:28PM

We can argue over semantics but if you go back to how the fed actually calculates the net equity, they include HELOCS but exclude the other 2 things I mentioned above - so they come to ~10.5 trillion.

So we were both right as well as wrong. I call truce.

Posted by guest, Apr 01, 2008 5:34PM

Who cares?

Posted by diablo, Apr 01, 2008 5:34PM

EP wants to make this a political site judging by her comments and the comments of a few in reaction to her post. No thanks, I have plenty of places to go for that. This entitlement thing is not tabloid material unless you want tabloid quality discussion.

Carney is the only guy we can take seriously once in while, and that's a struggle sometimes (for him). Bess, on the other hand, is unique, nobody can come close to her even though a good editor working with her could make her stuff even better, but not by much. Bess is truly a genius and that's why I come here.

Posted by ep, Apr 01, 2008 5:52PM

"EP wants to make this a political site judging by her comments and the comments of a few in reaction to her post. No thanks, I have plenty of places to go for that. This entitlement thing is not tabloid material unless you want tabloid quality discussion."

1. Politics don't interest me. Finance interests me.

2. We seem to have gotten plenty of tabloid quality discussion here.

3. By the number of comments on this post, I think you're view is a minority one, still, I aim to please. I'm happy to provide more "separated at birth" entries for you!

Posted by guest, Apr 01, 2008 6:32PM

A lot of people guessed $0.5 trillion is the defense budget. The Iraq war by itself has cost well over $1 trillion over the past five years (and that doesn't include the surge). So that's at least $0.2 trillion per annum. And then we have an ongoing war in Afghanistan. Then there are the ordinary expenses of maintaining the Army, Air Force, Navy and any other forces I've missed, plus the civilian DOD workforce. Plus missile defense and offense, nuclear weapon storage and maintenance. Then there's the military research and development effort. Unless it's easily looked up on Google and everyone knows the answer, I'm guessing the annual defense budget is more than $0.5 trillion.

Posted by ep, Apr 01, 2008 6:44PM

"Unless it's easily looked up on Google and everyone knows the answer, I'm guessing the annual defense budget is more than $0.5 trillion."

I've got an idea, instead of your back of the napkin analysis, how about just going and looking up the figures in the Federal Budget of the United States? That way, instead of looking like you have an agenda, you can be an authority on the subject.

:)

Posted by guest, Apr 01, 2008 6:45PM

@6:32 the defense budget is what is budgeted, not what is actually spent. The money that pays for the wars is not in the budget. This is why Congress repeatedly has to vote for more money for the wars.

Posted by guest, Apr 01, 2008 7:06PM

Incidentally, Google simple churns out oodles of BS that some hippie economists (major oxymoron alert) out together for the loony left, the stuff that was picked up by NYT and printed on the editorial page.

They basically assumed every kind of cost they could (including lost potential earnings of every soldier killed) but carefully avoided putting any numbers on even the remotest benefit that might accrue from the war (duly weighted by whatever its probability).

Had a similar analysis been applied to automobile related deaths within the country, the effective cost of every car would probably work out to 2 million dollars.

Posted by guest, Apr 01, 2008 10:48PM

who cares. bush is still an ex-coke snorting asshole.

Posted by guest, Apr 02, 2008 2:41AM

Guest @6:45pm. Thank you for your comment. I was (in a crude way) trying to get a handle on what was spent on defense per annum. Obviously, the question asked for the defense budget. Those are two different questions. Always optimistic, I assumed after five years, we would have a budget for what goes on in Iran and Afghanistan.

Posted by guest, Apr 02, 2008 7:47AM

if comments are the measure of the worth of a post, may I suggest you lead off with the following guaranteed crowd pleaser: "Q: What is the difference between a Jew and a pizza?"

Posted by Novice, Apr 02, 2008 11:23AM

Just jumping in for the defense spending debate: it's usually 20% of the budget, but call it a quarter because of 'unexpected' expenditures that would have made the defense budget look too bloated had it been presented together. So it's 5% of GDP, with two thirds of that going to the AF and Navy.