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« Nonpartisan | Main | Or not »

Apr 25, 2009

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Spag

You forgot the importance of acting rich and having excessive leisure time while complaining or pontificating about matters of class and how unfair it all is.

Kim

Should stupidity be against the law? Isn't it the role of government to protect us from ourselves?

Beelzebubba

Eddy: thrift is a big stick in the spokes of a debt/credit based economy. The re-fies who kept reshackling themselves to new and improved debt from newly created credit were simply following the Keynesian script: "create more money to chase fewer goods". The trouble is, every now and then the lumpen run out of legal tender, social mood takes a turn and people start to do what is not in the central planners best interest, they begin to save. Banks start to do what is in their own best interest. But because the problem is the result of past excesses, it has to be worked off. It can't be injected or liposuctioned off.

No one dares question that the health of the state depends upon the expansion of the economy. Even after the metaphysical trespass on 9-11, the best advice government officials could offer was "go shopping" or "go spend money." That's what some people did.

Can that many people be wrong?

Ed Cone

Beez, I think the most telling moment in recent history might have been George H.W. Bush tooling around in his powerboat to tell Americans that a war didn't mean sacrifice and that cheap gas was a birthright.

Spag

Kind of like talking about sacrifice while walking the dog, blogging all day, and writing restaurant reviews and calling it hard work.

Roch101

"Kind of like talking about sacrifice while walking the dog, blogging all day, and writing restaurant reviews and calling it hard work." -- Spag

Are you serious? Mr. five-hundred-word-comment, twenty-times-a-day, stalking-a-local-blogger-every-day-of-the-week? What an ignorant way to attempt to impugn.

Ed Cone

Sam's awe at my productivity is flattering, but I think most people manage to hold down a job while walking their dogs and feeding themselves each day.

I don't think of myself as unusually productive or energetic, although it may be true that I write and edit more quickly than some people, and that I spend more time in front of a computer; given the fact that I work as a writer and an editor, this seems unremarkable to me, much as it impresses poor Sam.

winstongator

How do you define 'rich'? In South FL, many people who 'owned' homes in the $1Mil range were tapping home equity to buy cars & use as consumptive spending, and hitting up the option-arms. None of that was increasing wealth and it was rampant. Plus many were using the equity they got from one home to double, and triple down on their great investment.

This behavior will seem foreign to most people around here couldn't re-fi their $200k homes for > $400k, or their $75k 2/1 condos for > $300k. A check for $200k at the closing of a refi is tempting to rich & poor alike, and greed cuts across income brackets.

Ed Cone

WG, if the past few years have shown us anything, it's that cupidity and stupidity afflict all income brackets.

IHB is writing in a kind of shorthand, but I think the point is worth making: people who manage money well -- perhaps well enough to get and stay rich -- don't follow the model set by the banksters and the refi cowboys.

Some people would view a $1 million windfall as a chance to spend a million dollars plus leverage. Others would see the annual after-tax income on that amount (itself reduced by taxes), after allowing for inflation and some set-aside for a rainy day. Our culture encourages the former.

winstongator

Add one to my vocabulary.

Many of those ensnared in the housing bubble - the South FL flavor at least - were people who in the past had managed money well. Doctors & lawyers were pouring money into investment homes, often multiplied by at least 10X often using only 10% down.

When the original post was written, many pundits were claiming that the problems were contained to subprime mortgages. People could easily claim that it was the naivete of people who had low incomes and didn't know how to manage credit. We've seen this to be not true, especially as the number of 'prime' foreclosures has eclipsed the number of subprime.

Nearly every home purchased in FL or CA from 2005-2007 will have severe problems when they are sold. Today through short-sales or foreclosures causing banks severe problems, or tomorrow (or 5 years hence) when the seller will have to come up with many hundreds of thousands at the closing table. That is at least 2.5 million problemed to semi-problemed mortgages, with some of them already dealt with.

I enjoy reading the IHB and people should check out his book.

winstongator

Problems are being felt by even those who were not greedy and did not make terrible errors. In FL, prices on bank-owned properties are often well below 2003 vintage prices. While housing was expensive then, the bubble was much harder to see. Someone who bought then could have a foreclosed home on the market down the street listed for 25% off its 2002 new sales price.

If in 2003 you paid 10% more than the new price, you'd be looking at an over 30% loss if that sale is used as the comp for your home's appraisal. Even if you can still afford your payments, you're stuck, moving is not really an option.

I can't take credit for that last idea though.

Beelzebubba

Most people are wired to avoid making investment choices at the right times. This is natural. Humans participate unconsciously in social mood trends. It takes substantial training and introspection to go against these trends.

Fund managers at tops have the least cash and more exposure to risk. If you are one of the few who live to read the Commitments of Traders Report every Friday, you know what I mean. There is one class of investor who is always wrong. These are the "other reported positions" and the class identified as "non-commercial", mostly hedge fund managers and Sovereign Wealth Funds(SWFs) which are not required to reveal their positions.

The herd is always wrong at turns because the news is just to strong for them to go cognitive contrarian. This pertains to any investment class, and this is what happened to houses when they became the asset class called "fewer goods" when money was injected into the market 2000-2005. Add to that the second and third mortgages needed to qualify, the financials becoming 70% of S&P capitalization and blindfolded monkeys driving the short busses filled with financial illiterates and you have a hell of a cleanup in aisle four.

Spag

Roch, most of my comments by far are made after hours.

Ed, I assume you read all of those articles you link too. All one needs to do is pay attention to your timestamps and it is pretty clear that assuming you read all of those articles, that you spend most of your day reading stuff and blogging about it. That's real hard work.

Roch, I'm not stalking anyone but if that's the new theme you wish to resort to try and discredit people, go for it.

Sorry if I find it worth noting that Ed is one of those people pushing those values that he claims to be against. To cite Bush running around in his powerboat while Ed spends his day reading articles to blog about for no money, writing about walking his dog, traveling here and there it seems every other week, and commenting about the last restaurant he ate at- while making fun of Bush's alleged view of sacrifice during trying times- is ironic to say the least. Sorry you missed that, or if you don't agree with that analysis, it makes you consider me a stalker.

Roch, you are a smart guy, but sometimes in a stupid kind of way.

Spag

As for the subject matter of Ed's post, I was way before him and had better analysis back in January 2008.

Ed Cone

I spend most of my weekdays working at my job. I owe that to the people who pay my salary, and, given the thin staffing that defines our industry these days, it's a necessity if the sites I edit are to stay in business. I also spend a certain amount of time on weekends and vacations working, which is just the nature of my job.

I'm able to blog a fair amount, in part because of the nature of my work. I also time-shift posts, which is to say, I write them when I can and use the timing feature of the software to post them throughout the day.

And to tell the truth, I do more than we've discussed here: I write a newspaper column, volunteer in the community, maintain a social life, and am a reasonably attentive father, husband, and son.

This seems like a lot to Sam. Again, that's flattering, but, again, I don't see myself as particularly energetic or productive. Thanks, though, for the adulation.

In any case, the ad hominem stuff has nothing to do with the post. I encourage people to focus more on the topics, and less on the writer, which I think would be more interesting for everyone. Thanks!

winstongator

Ed, I'd like to see a housing bubble or recession category so that when you linked to stories in Dec 2007, at the beginning of the current recession, and people were still saying 'the economy is so good' it'd be easier to find them.

I think my name stamp got garbled, but I, or someone else brought up the magnitude of mortgage equity withdrawal, in the neighborhood of 5% of GDP per year. Just taking that out would have knocked 5% off GDP, but it stopped coming out in 2007 as home prices started going down.

I know I've linked to this one from the summer of 2007. Unfortunately the financial problems amounted to more than just some shorts covering.

Spag

It does seem like a lot, Ed. A lot of leisure time.

What do you call your "Bush on the speedboat" if not an "ad hominem" attack? You put it out there and I still find it ironic coming from you.

In any case, I linked to a post I wrote well over a year ago that was on point and with far more original thought than your cut and paste approach.

Ed Cone

WG, I should use categories and tabs more often. The economic pollyannas were here early and often. To their credit, they've come back since to say, oops, we really blew that one. Well, not really.

Sam, thank you, again. I'm sure there must be things you are good at, too!

Citing GHW Bush's words and actions is not an ad hominem attack; those words and actions seem to me to be directly relevant to a conversation about responsibility and sacrifice in contemporary culture. Perhaps you disagree, and feel that the speedboat was the right way to go. Feel free to make that case if you wish.

Also, my employment is unrelated to the house-buying habits of Americans in the bubble. I'm fortunate to have a good job. Given the realities of the publishing industry and the economy, it may not last forever. But that won't change the situation discussed in the post.

winstongator

One of the key things missed in this crisis is the geographic and temporal nature of the housing bubble. Foreclosures are concentrated in CA, FL, AZ & NV - the states that had the biggest bubbles. They also had the most HELOC abuse because they saw the most "HE" 'home-equity'. I put it in quotes because because a home appraised at a certain value did not indicate true equity.

The most toxic assets are directly linked to the worst loans (least documentation, reverse amortizing), in the worst regions, in the worst times 2005-2006. Please check that link to see that ResMae, a subprime lender not covered by the CRA, who probably packaged their loans to Lehman, Bear & Co, had 69.9% (I'm tempted to just round to 70%) of its loan from a 4-month period in 2006 have default notices.

Look at the other worst offenders: IndyMac, WorldSavings (was Golden West bought by Wachovia), Countrywide, & WaMu. All those are gone as independent entities, and WS/GW brought Wachovia down with it too.

The attitude towards housing & wealth is much different in FL than here in NC - at least it was. But it always has been. There was a speculative land bubble in FL in the 20's that has been listed as a cause of the great depression.

Spag

"those words and actions seem to me to be directly relevant to a conversation about responsibility and sacrifice in contemporary culture."

As do mine about the credibility a writer whose lifestyle appears to contradict his words and in fact make him that which he criticizes.

Ed Cone

WG, I think the geographic hotspots are pretty well understood. There are cultural differences between regions, as IHB shows with the Minnesota comparison -- that's one reason we chose to raise our children in Greensboro -- but the pernicious attitudes (and bad loans of all sorts, and McMansions and Escalades, etc) were found in every state. And of course you had NC-based banks buying CA lenders, the involvement of DC and Wall Street, and so on...this was and is a national malaise.

Sam, your fantasies about my lifestyle dovetail neatly with your awe at my productivity and, sadly, your own feelings of inadequacy, but comparing me to the President of the United States seems excessive even in that context.

More to the point, I could be sitting on Fafnir's hoard and it would not change the fact that Americans overspent and undersaved in an era symbolized by GHWB's no-sacrifices-needed moment. That stuff strikes me as more interesting than your projections, so I'm going to insist that we try to spend more time on the issues and less time on your favorite subject (me).

Spag

Ed, it is not a fantasy. It is apparent to anyone who reads your blog. Your Paris Hilton like lack of self awareness and idea of "hard work" and not what you perceive to be my "feelings of inadequacy" (wherever that idea came from) is the real interesting part.

To the point, are you "sacrificing" Ed, or is that something for other people to do? Your attack on Bush was ad hominem and highly hypocritical considering your own daily "work" routine regardless of how you try to spin it ("I'm able to blog a fair amount, in part because of the nature of my work" is a classic example).

I think I am capable of addressing the "subject" and your relation to it at the same time when it is relevant for discussion and provides a fine example of the subject in real life. I linked to my previous post on the subject of using credit to supplement income already.

Ed Cone

You need to brush up on your rhetorical terms, Sam.

Citing a president's record and putting it in the context of events is not an ad hominem attack. It addresses the argument, not the man.

An ad hominem would be, say, dismissing Bush on the basis of his family background, instead of questioning the message in his words and deeds.

I think our presidents should not pretend that we can fight wars without consequences. That was a crucial failing of George W. Bush as well. Perhaps you disagree?

winstongator

Wouldn't Sam Zell be considered rich. How did his property & corporate leverage schemes work out?

Ed Cone

He would be a good example of the truism floated yesterday in this thread, that cupidity and stupidity afflict all income brackets.

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