Blessed by the Potato

Since I know some of you at least haven’t picked up a calculator since high school, let’s go through a very quick simplified calculation of mortgage interest and payments. Just looking at a very simplified version of the formula, your interest per month = principal due * (yearly interest rate / 12). Like I said, very simplified. So, if you have a $400k mortgage, and your interest rate is 2%, you owe about $667 in interest every month. If your rate goes up to 3%, that’s $1000/mo. At 4%, $1333 — double what 2% was, which is pretty obvious for this simple case. At 6% you’d be paying $2000/mo in interest, and at 8% $2667/mo.

Of course, that isn’t what your mortgage payment is, since you also have to repay some of the principal that you borrowed each month so that by the end of your amortization period (whether that’s 35 years or something shorter, like a more traditional 25 year period). Let’s say that you paid an equal amount back towards the principal each month. Without interest, that’d be 400k/(25*120) = $1333/mo. Of course, you don’t pay down your principal in equal installments: mortgages are generally set up so that you have a fixed payment for the duration, part for interest, and part for principal, so that at the beginning you’re paying mostly for interest, and at the end you’re paying mostly towards principal.

At this point we could continue doing the calculations by hand, but that’s going to detract from what I’m trying to draw attention to, so let’s instead make use of an online mortgage calculator:

At 3%,

• a 25-year mortgage has payments of just under $1900
• and at 35-years, payments of $1540.

At 5%,

• a 25-year mortgage has payments of $2340
• and at 35-years, payments of $2020.

So when the rates were dropped to the bottom during this financial crisis last year, a 35-year mortgage got roughly 24% cheaper. This, to a large extent, has been what’s keeping the Toronto market afloat this year. To me, that’s crazy, because those monthly payments are only low as long as the rates are — once interest rates go back up, so too will the payments. People at large though are short-sighted and focus on the monthly payments rather than the actual cost. But what’s more bizarre is this quote from the Star’s real estate section:

“Those are very robust numbers,” said Toronto housing analyst Will Dunning. “Part of this seems to be fuelled by the fact that some buyers fear interest rates will go higher next year and are buying now rather than taking a chance on next year.”

If you fear rates will go higher next year, why rush to buy now? In Canada, you can’t “lock in” a low rate, at least, not long enough for it to really matter. While you might be able to find a lender that offers a 7- or 10-year term, for all practical purposes the longest you can lock in your rates for is 5 years. Five. Short. Years. And to lock in for that long, you often pay a premium rate, which largely factors in modest rate increases anyway. Right now you could probably get a variable-rate mortgage for less than 3%; a fixed 5-year would be over 5%. A 2% increase in rates is already factored in, and you get to start paying that right now. What is locked in?

Your principal.

The amount you actually pay for the house. 5 years from now when it’s time to get a new rate, you’ll have paid down… not very much on your 35-year mortgage. You’ll still owe about $375k of your original $400k if you had the 5% fixed rate — barely 6% of your house is paid off after 5 years. You’re still just as vulnerable to rates going up, since your principal is still virtually the same. If rates did go up, people focused on that monthly payment would probably bid less for a home, since they couldn’t afford any more (even with the low rates, we’re at the bleeding edge of affordability in Toronto) — this is why house prices generally move opposite to interest rates (as rates go up, prices come down).

Unfortunately in our world of cheap debt and rules of thumb, people mostly pay attention to this monthly figure, in the here and now, and think little of what the future might hold and how they might need to manage their risk. And we are at (or very close to) the point of maximum risk here: housing prices can’t go up forever. After all, someone has to keep buying, so everyone can’t be priced out forever. More importantly, interest rates can only go up from here. The overnight rate from the Bank of Canada is essentially zero right now, and bond yields are low — mortgages will not get any cheaper. And just as lower mortgage rates made the monthly payments lower for buyers, higher rates will make them, well, higher. Much higher.

So we return to the case of the forced savings, those unfortunate individuals (and yes, this describes some of my friends) who simply can’t manage to budget and save, so by buying property and paying down the mortgage they’re building equity, a forced savings program. However, if they’re already pushing the boundaries as it is, living hand-to-mouth, what happens if rates spike? If they don’t have the financial discipline to live as though rates were higher, and save the difference in good times, will they really (as they tell themselves they can) be able to tighten their belts and avoid foreclosure when rates really are higher? As you can see with the mortgage calculator, it doesn’t take very much change in rates at all to really affect the monthly payments you have to make. If it looks like things might get bad if we return to the ~6% rates of this decade, what about going to the 8% average rate of the last 20 years? Or spiking above 10% like in the 80’s and early 90’s? [At 8%, that 35-year mortgage goes from $1540/mo to $2841] Extending the amortization, going from a 25-year mortgage to a 35-year one can also reduce payments, as you can see above (~15%). Having the freedom to refinance into a longer amortization mortgage can be a good safety valve in the case of a temporary spike in interest rates, a problem with your job, etc. However most first-time buyers are going straight for the longest amortization they can get, so their ability to lower monthly payments has already gone straight into higher housing prices (and that price increase is probably permanent, as long as government policy allows for such ridiculously long amortizations).

The last shred of hope is that even though rates can only go up, they can take their sweet time getting there, with the example of Japan used to showcase how rates can be kept low for a very long period of time. However, the Japanese scenario is not likely to play out again here IMHO. There are a few reasons for that:

Japanese society valued having large cash savings. These deposits were psychologically sticky — the Japanese consumer, despite earning no interest on money sitting around, and having a very easy time of borrowing money, was not much interested in spending to stimulate the economy. Westerners, on the other hand, love their 0% financing car loans/leases, and get fed up with GICs that yield less than 1% after tax and look to deploy their capital elsewhere. Rates don’t have to stay low for nearly as long to have the desired effect of stimulating spending.

Japan was experiencing a bank crisis, but almost the reverse of what happened in this financial crisis: the banks were not solvent, but had plenty of liquidity, thanks to the savings of the Japanese housewives. The low rates for such a long time was their bank bailout. Because the debt markets can still demand a premium from banks to loan money (while deposits are generally the cheapest form of funding), it doesn’t matter too much to recapitalizing Western banks what the interest rate gets set at, as long as they can make their spread (unlike the Japanese in John Hempton/Bronte Capital’s example, zero rates does not translate into free funding for them).

There was competition for lending in Japan, squeezing margins. For a while, that was happening in the US, which is part of what brought on the crisis — margins no longer allowed for reasonable loss provisions, let alone profit. In Japan, the lack of a decent margin meant rates had to stay low so that the banks could be cash-flow positive, and they had to stay low for so long because everything was so inter-connected that the banks didn’t want to foreclose on heavy industry borrowers or golf courses that they actually owned themselves. In the US now, the foreclosures have happened, the bubble has burst, the write-downs are taken, and where needed, the taxpayer bailouts have been made. In the west, everyone is eager to borrow, and margins have been getting fatter as the banks use every excuse related to the crisis to hike fees (and also take advantage of the flight to safety to lower the margin paid for deposits, though the opposite happens at banks perceived as being riskier). Once we’re sure the risk of deflation is gone, it’ll back to business as usual.

Even if the Bank of Canada kept the overnight rate near zero for a long period of time, mortgage rates might still go up, since the bond markets that actually supply the funds to the banks can move independently of the central banks.

The housing market needs rates to stay at zero to stay stable; the banks probably prefer lower rates, but they’ll survive with higher ones. Inflation could loom for the rest of the economy though if rates stay too low for too long, and that is what the BoC is out to control. Low borrowing costs also tend to encourage leverage which leads to bubbles elsewhere…

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There was something of a movement afoot in the previous decade towards people having their heads (or for the very wealthy, their whole bodies) cryogenically frozen after their deaths. Partly in the hopes that someday, in the distant future, science (or advanced voodoo) may find ways to conquer death, and cure whatever it was that killed (or for those frozen just before their deaths, would have killed) them.

The concept always seemed just a little half-baked: after all, what use would the immortal demigods of the future have with the head of a frozen neanderthal such as yourself? Odds were good that if you were thawed, it would be purely at their whim, and you would have to spend the rest of eternity doing parlour tricks for them and their dinner guests, or spend mere hours running in terror through the last remaining forest preserves on an otherwise entirely urbanized planet as you serve as human prey in their safaris. Or perhaps they’d launch you deep into space, for future generations of explorers to defrost and gain valuable insight into what life was like in the barbaric 20th century.

Some of these real-world tangled issues of waking up a thousand years in the future were highlighted in the near-documentary series Futurama, which largely contributed to the downturn in the fad.

However, what if you still want to have your head frozen for posterity? Well, then it’s important to consider a number of issues, many of them scientific, such as what temperature will the service keep your head at, and how soon after death can it be frozen? Will there be an antifreeze/cryoprotectant solution of some sort to prevent crystallization, and what wards and charms will be placed on the cryotank to prevent zombiism (both rising as a zombie yourself, and also to prevent your bodiless brain from becoming zombie junk food)?

Just as important as how your head will be cared for is a consideration of how long it will be cared for. What is the financial health of your cryopreservation provider? Do they have a long-term plan? Is your one-time payment enough to provide an income stream that will see to your care in perpetuity, or is it set up like a Ponzi scheme, relying on money from new clients to keep the old ones frozen?

This last point has implications beyond just cryogenic head freezing: for anything that you will depend on for years into the future, especially something you pay for up front, what is the robustness of the organization behind it? Whether it’s a car that you might need warranty work on (though there is an implicit government guarantee behind most troubled automakers), or something without an explicit warranty, like a life insurance company or house, will what you’re buying stand up to the test of time?

The recession and financial crisis has served as a sort of shaking-out process for some of these companies. In the cryonic freezing space, I went back to an old article on it, and of 3 companies mentioned, 2 of them still have active websites (the 3rd hasn’t been updated since 2007, and even then many of the features have been “coming soon” since 2003, so they may have been a marginal player wiped out by the recession). According to the Wikipedia page on Cryonics, a number of smaller players have failed over the years, showing that it’s tough to find good help, especially after you’re dead.

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Fired Up! was actually, surprisingly… good!

I had really no hopes for the movie based on the previews, it just looked like a low-budget low-class teen sex and gross-out comedy. But for whatever reason, I gave it a shot, and it is genuinely funny. It actually has some warmth to it, and it’s hard not to like the characters. The gross-out stuff is kept to a minimum, and while lots of shenanigans are implied, the sex is kept off-camera too, so kids can actually watch it (though I don’t know about the unrated version I linked to above).

The basic premise is two jocks (and these are the skinniest football lugheads I’ve ever seen) who actually possess some wit and charm decide to ditch spending their summer sweating away at football camp, and go off to cheer camp instead to get girls. Along the way they get to know the girls and, while hilarity does ensue, they also grow up a bit.

Awwww.

It’s not a perfect movie, but it’s also not the annoying fart movie that I was expecting, so it’s well worth a watch if you haven’t seen it yet.

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Well, this was a very pleasantly cool summer. I didn’t spend nearly enough time outside enjoying it, and didn’t get all the summer reading I had hoped to done — boy do I miss the days of being a kid and having the summers off to do nothing but play video games and read. Here are the books I did get around to:

Warning, spoilers follow!

One Jump Ahead, Mark Van Name – this was a good military sci-fi read about a kidnapping, a nano-bot enhanced mercenary soldier, and his sarcastic sentient combat tank. It wasn’t particularly special, it’s not the sort of book you’ll be talking about with your friends years later, but it was very readable and enjoyable, well worth spending some alone time with on a sunny afternoon. I’m planning on picking up the next book in the series, Smiling Jack, if that adds any weight to the quasi-recommendation.

Bitterwood, James Maxey – this is mostly a fantasy tale about a dragon empire ruling over humanity, with a few sci-fi twists along the way. After losing his family to the dragon overlords, Bitterwood goes on a decades-long dragon-killing revenge quest… which unfortunately leads to him killing the king’s favourite son, which drives the dragon king to decide to exterminate humanity. Humans and sympathetic dragons must work together to stop the madness of the dragon king… Another good, quick read without much to complain about. I enjoyed the mis-mash of sci-fi and dragons and archers. Apparently there are two more books following this, but Bitterwood doesn’t look to have been written specifically for a trilogy, it stands pretty well on it’s own, and while it was fairly good, it didn’t leave me itching for more. Maybe next summer :)

Mistborn, Brandon Sanderson – This has been the best fantasy read of the summer for me. A very engrossing novel about an empire with an immortal emperor, who, as OSC puts it “if not evil, is nasty and arbitrary”. A slave rebellion seeks to overthrow the throne, lead by a powerful “allomancer”, one of the only ones in the slave caste’s ranks (in this world, powers are hereditary, and typically only nobles possess them). I found the system of magic that he’s created to be very engrossing — it’s magic, it’s powerful, but it’s also clearly limited, and possessing its own set of rules and trade-offs. The whole time I was reading about the magic system I was thinking of what a great RPG this world would make. It’s a real page-turner, and we’ve already picked up the rest of the trilogy: Well of Ascension and Hero of the Ages, but I can’t read them yet because Wayfare called dibs! Yes, the books are better than the titles. While I hadn’t heard of him before, Brandon Sanderson has been chosen to complete Robert Jordan’s Wheel of Time (which I also haven’t heard of). This is apparently a big deal. Whatever, I enjoyed the book and I’ll be sure to read through his other stuff!

Trade Pact Universe #1 Thousand Words For A Stranger, Julie Czerneda – I hadn’t heard about Julie Czerneda until she got a mention on John Scalzi’s Whatever, and that was unfortunate. She is a good writer (and Canadian), and I quite enjoyed the first book in her “Trade Pact Universe” series, about telepaths and space pirates. Some of her descriptions of telepathy (especially the “M’hir” — even reading silently, my mouth didn’t like trying to make sense of that “word”) rubbed me the wrong way, but the writing and dialogue is otherwise top-notch, and I’ve already picked up the second book in this series, as well as the first in another:

Species Imperative #1 Survival, Julie Czerneda – I liked this one a bit more from the “concept” side of sci-fi, but really didn’t fall in love with the plot or the characters — the main character seemed to just follow along without questioning what was happening to her enough, up to the point of running off to an alien world without ever getting a satisfactory answer to why a salmon researcher was so uniquely important to a galactic question. Maybe that’ll be answered in the next book of the series, but I started to get fatigued from the suspension of disbelief required to continue to not get pulled out of the story wondering why all the other characters were so worked up over the protagonist. Though from the concept side of things I did like her (brief) descriptions of the alien species, FTL travel, and a future earth where wilderness areas are rabidly protected. And there was an awful lot of duplicity on the part of the minor characters. It ends on a cliff-hanger, and even then I’m not sure I’m going to follow-up with the rest of the trilogy.

As you may have noticed, I’ve signed up as an Amazon affiliate, and the links above will take you directly to the Amazon page for each book. I don’t want that to influence whether or how you buy your books, and while all the books here were at least decent summer reads, I wouldn’t give a book a good review just to try to get an affiliate sale. However, if you are going to buy any of these, and if you might use Amazon, then might I suggest using the links here? The site gets a 4% kickback from any purchases made.

“It sure was nice of everyone to pull over so they could drive through all the wreckage.”

“That’s just apocalyptic courtesy.”

Just so you don’t forget, here are some main points of courtesy that you should follow in the event of the apocalypse (whether that’s zombies, plague, nuclear holocaust, or sentient machine overlords).

1. Pull your car over. Should you find yourself on the highway or otherwise commuting when the end of days comes — and if there is any kind of advanced notice, this is likely as would-be survivors flee the cities — be sure to pull your car over to the side of the road. Emergency crews and plucky, hardened survivors alike will need to scream between rows of wrecked cars as fast as possible, and if your vehicle is still rusting away in the centre of the lane, then nobody is going to be happy.
2. Lock the doors, but leave the key. Nobody fleeing from zombies wants to have to sleep in a tree, so do the kind thing and give them access to your house or flat by leaving the key in an obvious place, such as above the doorframe or beneath the welcome mat. Be sure to lock up however, as mindless hordes may find their way inside, turning your potential end-of-days-inn into a nightmarish trap. Even moderately intelligent fiends will have trouble working the locks, let alone finding the key. And that’s assuming the zombies haven’t eaten their own hands out of boredom. Intelligent hunter-killer robots, aliens, werewolves, and vampires (who are not otherwise forbidden from entering homes uninvited) won’t be stopped by such a ploy, but then, they won’t find an easily smashed or vapourized locked door much of a barrier either. Round doorknobs are best able to foil the maldextrous, including zombies and velociraptors, but can also trip up survivors coated in sticky blood or who are losing hand grip due to cold or spreading paralysis. And please, don’t be clever with the fingerprint readers or retina-scanners — even in the absence of the apocalypse, someone always figures out a way around those, and it often isn’t pretty (and when it is pretty, it’s nearly trivially easy, like stealing your wine glass).
3. Leave the gun, loaded. In nearly all end-of-the-world scenarios, survivors will need guns to battle zombies, demons, giant irradiated ants, aliens, terminators, or rival bands of insane, hungry raiders. So do the polite thing and pick yourself up a gun, even if it’s just a humble shotgun, and leave it in an obvious, easy-to-reach place, such as above the front door or over the fireplace mantle. The more ammo the better, but at the very least leave it fully loaded: the horrors that await are not always patient.
4. Stock some food. My mom learned this at an early age, since growing up on PEI you could never be too sure when a snowstorm or zombie cow invasion would strike, and how many days you’d be trapped for when it happened. My mom’s rule-of-thumb is to keep enough canned or dried food on hand to last each normal member of the household 8 months (I’ve never heard of the plows taking quite that long to clear the roads, even on PEI, but maybe things were different then). This might not be enough food should the sun be blotted from the sky and crops fail, but the important point is that it will last long enough that whoever sets up a temporary fortress in your house will probably have to move because the hordes have found them, and not because they ran out of a local supply of food. More selfishly, that’s probably enough food to let you hole up and wait for the fools that only stocked 6 months worth of food to start eating each other, significantly thinning the competition for resources before you have to resort to scavenging yourself.
5. Post clear warning signs for haunted, cursed, or otherwise dangerous areas. If your vacation retreat just happens to lie overtop a fissure to hell, be sure to make a large warning sign to that effect, and post it at all entrances to your property. You would feel really bad if trespassing, fornicating teenagers accidentally let a drop of blood (or eww, other bodily fluids) touch the unholy ground and free the evil contained within. They would likewise be super-pissed if they were reading through your private journal later to find that you knew about it all along, which could leave you open to serious legal liability should any remnants of civilization remain.
6. Fire. Fire is almost always a bonus, whether as a source of heat and light for survivors to cook by and tell stories, or to throw at relatively flammable plagues of insects or zombies. Always keep multiple sets of lighters and/or matches handy, as well as fuel. Wood is always a popular choice for a stationary fire, but something liquid or an aerosol will be needed if you find yourself in need of giving fire away, like a pretty orange present. Be careful though! You don’t want to accidentally drop a Molotov cocktail and burn down your only refuge against the darkness.
7. Books. You may be amazed at the amount of data you can put on a hard drive, and you might love the interaction of a blog, but when the power’s gone, and an EMP has killed all the electronics, nothing beats a good book. You can do yourself and those that might take up residence in your house a huge favour by creating a small library of your own — books on how to serve man, make gunpowder from stuff you might find around the house, and how to rebuild society from the ground up will be in particular demand, as will first aid guides and human-alien translation dictionaries. It never hurts to have too many: those you don’t read you can always burn!
8. A Shovel. We survived the dinosaurs by being small and living underground, and damnit, that’s the same strategy that will see us through the dragons and/or machine empires too. If you can build your existing house with several sub-surface levels, that’s probably the preferred solution, as you may also be able to pre-arrange for electricity and clean water with the right kind of infrastructure. Failing that, it’s always handy to keep a few shovels around. Be sure to call the gas company and mark out any nearby buried mains in advance, as they’re unlikely to answer the phone when the apocalypse comes. Even if you don’t take to subterranean life, the ability to dig holes is always handy for burying corpses, hiding treasure, and planting mines.
9. Die a good death.Let’s face facts, folks: assuming the end times are not too horrific, we all want to be rugged survivalists. But by its very definition, the apocalypse is going to kill most of us off, one way or another. The odds overwhelmingly suggest that you are going to be one of the ones to die in the first massive wave signaling the end of human civilization. In the event of nuclear fire, natural disasters, or an alien invasion, it isn’t likely that you’ll have much say in how you find your death, nor is it likely to matter much. But if a plague of zombies strikes, do be sure to find a way to die without joining the ranks of the undead. Trust me, the last thing your friends want to do is bash in your brains and set your corpse on fire so you won’t eat them. I can’t say I’d follow my own advice if faced with the situation, but if you find yourself captured by killer robots, don’t spend the last few miserable weeks of your existence slaving away in their factories building more killer robots to finish off humanity — find a quicker, nobler death. Nobody, but nobody, wants to wake up moments before their own death to find they’ve been cocooned and an alien monstrosity is eating them from the inside out. Three words: self-destruct device. A switch you can activate with your tongue and a small amount of explosives either in your pockets or surgically implanted can give you the merciful death you’re probably moaning for right now without even knowing it, and also take a few of those sumbitches down with you.
10. Stay sane. Seeing everyone and everything you ever loved vanish in a cloud of smoke or puddle of green ooze is extremely traumatizing, and it’s bound to play on the psyches of even the most grounded people. It’s ok if you go a little off the rails — some crying and screaming is par for the course. However, a group of people all losing their shit at once is never a pretty thing, and trust me, human sacrifice never makes it all better. While painting cryptic, taunting messages on the walls with your own blood (or ugh, other bodily fluids) can help relieve cabin fever when going outside means certain death, it’s not going to help the fragile psyches of the survivors that come across your decrepit lair. Even if the cake really is a lie.
11. Alcohol ain’t for drinkin. I’m just saying, alcohol is far too valuable as a disinfectant and flammable liquid to go just drinking your cares away in the first few nights after the apocalypse arrives. Pip up there lad, it’s only the end of the world! A hard night of boozing won’t change the fact, and you could deprive yourself of dozens of good homemade bombs in the process! That goes doubly for those of you that will, of course, perish — the survivors care little for your temporary numbness, and your selfish attitude might cost them the war, whatever it happens to be against!

These are all points of common apocalyptic courtesy, but not many people are aware of them — after all, you really only ever get to live through one apocalypse. Even if you don’t survive, which is likely, you owe it to the remnants of humanity to make their job repopulating the planet as easy as possible.

Along with these rules are the common-sense ways to avoid the apocalypse in the first place, such as not building labs that study highly infectious alien zombie agents near (which includes under!) large population centres. It’s always important to have failsafes and backups: for instance, why not build two world-saving asteroid-smashing rockets? Or heck, ten — consider it an economic stimulus! Avoid single points of failure, especially where such a failure could destroy the world. Think: if your demon prison is powered by the moon, what’s your backup in the event of an eclipse? If only one man knows the call-back codes to your nuclear bombers that are already in the air, what happens if he has a stroke or goes totally batshit loco? If your invincible army of unstoppable sentient and ill-tempered robots only have one weak spot on their backs, why not do everyone a favour and paint it bright orange or make it flash?

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