What does reg T regulate? Amount of cash/credit in the markets.

How does it do that? By regulating the rules of borrowing for market securities.

In order to do this, there are rules against using outside leverage to participate in the securities markets (you are not supposed to take money from a home equity loan for deposit into the stock market, you know that, right?). Otherwise there would be +50% leveraging in the market, and Reg T is written to keep this from happening.

It's not that the bank won't lend you money for mutual fund investing because they won't, but because they can't.

Where'd you get your series 7, JC Penny?

Mr. A

LOL.

So I correct your inaccuracy, and you resort to name calling.  Very Put Trader-ish.

[quote=BankFC]Definition of Reg T from Investopedia:

"The Federal Reserve Board regulation that governs customer cash accounts and the amount of credit that brokerage firms and dealers may extend to customers for the purchase of securities."

So you're saying you can walk in to your local bank, and they can/will give you up to 50% margin on your securities to buy more securities?  I don't think so.

No my friend, Reg T regulates brokerage firms and securities dealers, not banks.  Banks want no part of securities lending, except to take on AS COLLATERAL to shore up a deal to lend money for something other than securities, say real estate.[/quote]

For Banks, It's reg U and banks can and will loan 50% of the FMV of pledged equities/brokerage accounts.

[quote=ManDate][quote=BankFC]

In regards to controlling your destiny.  I agree...another reason I like RE...no one is going to make shady decisions behind my back (in a corporate boardroom) to drive the value of my investment to zero.  [/quote]

Ever heard of Eminent Domain? Ever heard of the Supreme Court decision in re it? The one where a local government can decide that they can invoke Eminent Domain if they can get a better tax use out of your property?

Not down to zero... Unless you just bought, or refinanced, and you have 10% into it and an ED offer at 75% of what you paid.

Mr. A

[quote=BankFC]

LOL.

So I correct your inaccuracy, and you resort to name calling.  Very Put Trader-ish.

[/quote]

You corrected my inaccuracy?

Sorry baby!  You don't know what you are talking about.

I corrected your correction and you resort to deflection of the issue. Very Bankfa-ish.

Mr. A

That very well might be correct.  I'll check with a couple lenders about the practical policies regarding how they treat Reg U.

Either way you slice it, Mr. A was Mr. Wrong. 

Ah you guys are all missing the boat.  The best investment and way more fun that managing real estate is this

http://www.barrett-jackson.com/auctionresults/common/cardeta il.asp?id=183447

or this

http://www.remarkablecars.com/ppads/showproduct.php/product/ 1429

[QUOTE]=Indyone

For Banks, It's reg U and banks can and will loan 50% of the FMV of pledged equities/brokerage accounts.

[/quote]

But you must attest that the proceeds of the loan will not be used to invest in securities of any type.

The point is, BankFC's sneer that the bank will not lend for mutual fund purchases is misguided (to be charitable).

Mr. A

Lol,

While it may not be illegal, why don't you just try to get a commercial lender to lend you $500,000 to put into a mutual fund???

Don't mind the laughs, and watch the door on the way out of the bank.

[quote=babbling looney]

Ah you guys are all missing the boat.  The best investment and way more fun that managing real estate is this

http://www.barrett-jackson.com/auctionresults/common/cardeta il.asp?id=183447

or this

http://www.remarkablecars.com/ppads/showproduct.php/product/ 1429

[/quote]

Now that's an investment I could get excited about.  I'd like to see a downturn in that market so those of us who don't have $2 million to spend on a car can buy a fun little toy like that.  Wait, do my kids really have to go to college?

[quote=BankFC]

Lol,

While it may not be illegal, why don't you just try to get a commercial lender to lend you $500,000 to put into a mutual fund???

Don't mind the laughs, and watch the door on the way out of the bank.

[/quote]

We must be talking past each other. I just said that banks may not lend you money for the expressed purpose of investing in securities.

They can lend money using securities as collateral.

The reason that they can not lend you money for investing in securities (and for right now I'm putting aside the prohibition against buying mutual funds on initial margin) is that, if they did, you could potentially have a securities position in which you had zero equity.

Historically, it was determined that one reason for the crash of 1929 was the excessive use of leverage wherein the average investor could buy with 10% down. The downside of this leverage being a snowballing of a moderate correction into a market crash.

The decision was made to raise the minimum margin requirement was to be 50%. In order to effectuate this reforem, it was necessary to separate the banks from the brokers, and give them separate regulations.

I'm saying this in hopes that you will be specific in your rebuttal. As opposed to your quippish responses thus far.

Mr. A

We must be talking past each other. I just said that banks may not lend you money for the expressed purpose of investing in securities.

They can lend money using securities as collateral.

I think you are talking past each other. Mr A is correct about lending money to buy securites or for market investments.

Also, as a former commercial lender I can tell you that I was highly unlikely to use securites as collateral for a loan, especially stocks and mutual funds.  Maybe US Treasuries or short term AAA Bonds at a low loan to value amount, but even then I would also require secondary collateral.

Thank you, BL.

Mr.A

[quote=mranonymous2u][quote=BankFC]

Lol,

While it may not be illegal, why don't you just try to get a commercial lender to lend you $500,000 to put into a mutual fund???

Don't mind the laughs, and watch the door on the way out of the bank.

[/quote]

We must be talking past each other. I just said that banks may not lend you money for the expressed purpose of investing in securities.

They can lend money using securities as collateral.

The reason that they can not lend you money for investing in securities (and for right now I'm putting aside the prohibition against buying mutual funds on initial margin) is that, if they did, you could potentially have a securities position in which you had zero equity.

Historically, it was determined that one reason for the crash of 1929 was the excessive use of leverage wherein the average investor could buy with 10% down. The downside of this leverage being a snowballing of a moderate correction into a market crash.

The decision was made to raise the minimum margin requirement was to be 50%. In order to effectuate this reforem, it was necessary to separate the banks from the brokers, and give them separate regulations.

I'm saying this in hopes that you will be specific in your rebuttal. As opposed to your quippish responses thus far.

Mr. A

Sharp enough to split a hair... Split a hare? EEEEEEEEEheeheeheeheeheeheehee!

I'll stipulate to your point (if that's the correct usage).

Either way, the fact remains that the bank doesn't not lend money to invest in the securities because they distain the quality of the markets as opposed to the quality of the Real Estate Market.

Right?

Mr. A

Hey, I’m gonna sell my trailer in Briny Breezes Florida. Talk about real estate that works.

[quote=BondGuy]Hey, I'm gonna sell my trailer in Briny Breezes Florida. Talk about real estate that works.[/quote]

Really? Where was it before the hurricane?

Mr. A

[quote=mranonymous2u]

Sharp enough to split a hair... Split a hare? EEEEEEEEEheeheeheeheeheeheehee!

I'll stipulate to your point (if that's the correct usage).

Either way, the fact remains that the bank doesn't not lend money to invest in the securities because they distain the quality of the markets as opposed to the quality of the Real Estate Market.

Right?

Mr. A

[/quote]

Banks don't lend to purchase speculative investments (period) unless there is adequate collateral or repayment from other sources and unless the loan to value ratio is low.  For instance when I was doing real estate type loans maximium lending rule of thumb is 80% ltv for residential, 45 to 50% ltv for commercial properties and less than 50% ltv if at all for unimproved property with no income history. Unimproved land with history of income and leases (grazing land or timber stands) was considered.  Lending on just the land, not the cattle or timber business, I mean.  That was a different proposition entirely.

The fear is that the loan might default and then you (the bank) will have the hassle and expense of foreclosure and putting the property back on the market at a possibly reduced market value or not being able to move the property in a timely manner.  There is nothing a bank hates more than OREO (other real estate owned).  At some point OREO has to be charged off as a loss or liquidated. If we have to go through this process, then the margin of ltv better be pretty good to make a profit. 

The main rationale for not using investments or securities as the primary collateral  is that the value can swing dramatically in the negative and throw the LTV out of wack.  Real estate has its ups and downs but not nearly as dramatic.  The issue with real estate is the liquidity of the repossessed collateral.  It really doesn't have to do so much with disdaining the market or not.

Instead of this, client takes same $50k and buys a $500,000 house.  RE market anually averages 6% (national historical compounded average). 

1st year - client makes $30k
2nd year - client makes $32k
3rd year - client makes $34k
4th year - client makes $36k
5th year - client makes $38k  (house valued at $670k now)
6th year - client makes $40k
7th year - client makes $42.5k
8th year - client makes $45k  797.50
9th year - client makes $48k
10th year - client makes $50k (house valued at $895.5k now)

And this is just 10 years with the national average appreciation rate of 6 percent. 

SUMMARY

reply

client year 1 pay 45k in interest payments @ 9% add taxes and insurance net  less than  about (-20k)

year 2 ect ect

[quote=mranonymous2u]

[quote=BondGuy]Hey, I'm gonna sell my trailer in Briny Breezes Florida. Talk about real estate that works.[/quote]

Really? Where was it before the hurricane?

Mr. A

[/quote]

Briny Breezes five hundred residents will vote next week to accept or reject a developer's $500,000,000 offer to buy their trailer park lock, stock and barrel. My guess is that for most of the residents, who will be getting in excess of a million dollars each for properties for which they paid no more than $150,000, that vote is going to be a resounding yes. Who hoo, I'm gonna get me house without wheels. That is, after I get back from Disney World!

Who said the Florida real estate market was dead? 

Isn't Capitalism great?