August 6, 2005

This Weekend’s Unanswered Questions (080605)

Filed under: Business Moves,Economy,TWUQs — Tom @ 6:50 am

Another installment in a nearly-regular series of mysteries and pseudo-mysteries (usually 3-4) this inquiring mind would like to have answers for (some links included may require free registration):

QUESTION 1: Who didn’t see this coming? (HT Wizbang)

BERLIN (Reuters) – Wikipedia, the Web encyclopaedia written and edited by Internet users from all over the world, plans to impose stricter editorial rules to prevent vandalism of its content, founder Jimmy Wales was quoted as saying Friday.

In an interview with German daily Sueddeutsche Zeitung, Wales, who launched Wikipedia with partner Larry Sanger in 2001, said it needed to find a balance between protecting information from abuse and providing open access to improve entries.

“There may soon be so-called stable contents. In this case, we’d freeze the pages whose quality is undisputed,” he said.

Citing a recent example of vandalism, Wales recalled how following the election of the new Pope Benedict in April, a user substituted the pontiff’s photo on the Wikipedia site with that of the evil emperor from the Star Wars film series.

“The picture was only on the page for a minute. But whoever opens the article at this moment will get annoyed — and therefore doubt our credibility,” he told the paper.

If they don’t do this, the poor Wiki content monitors will lose their minds.

QUESTION 2: Is an outside takeover of General Motors actually possible?

Eric Rasmusen says yes. Three shareholders appear to own about 37% of the company. Successful takeovers have occurred in many less-concentrated situations.

QUESTION 3: Who wants to bet against this situation becoming a problem?

From CNN/Money:

As more and more people have rushed to be homeowners, they actually own less of their homes than they have in decades…adding another risk factor to the overheated real estate market.

On average, homeowners have 56.3 percent equity in their homes, according to Demos, a public-interest research group. In 1973, equity averaged 68.3 percent; in the 1950s, it was upwards of 80 percent.

Two main factors are at work:
- Homeowners are starting off further behind. In the past, the standard downpayment was 20 percent. A 2003 National Association of Realtors survey reported than less than half of all home buyers now put that much down; many obtain 100 percent, even 103 percent, financing.
- Homeowners are yanking out cash. From 2001 through 2004, Americans took $330 billion in equity out of their homes, according Freddie Mac. In 2005 alone, they’ll pull out as much as $160 billion.

Demos’s senior research associate and author of A House of Cards: Refinancing the American Dream, Javier Silva, said that, even in the absence of a real estate crash, many families “are facing a financial crisis,” partially because they’ve taken on more mortgage debt.

If everyone were at 56% equity it would be no big deal. The problem is that there are millions of families at less than 10%. Thanks to 125% and 135% financing, there are more than enough negative-equity situations. These people are heavily dependent on continuing increases in real estate values. If the increases slow down or change to declines, watch out.

There’s no doubt that many individuals and families are taking on a collectively unprecedented level of risk. The only question now is whether this situation will come back to haunt the economy as a whole.