What Color Is The Sky In Your World?
by NYCityBoy
This is the second interview in my Regular Guy series of interviews.
My story is very similar to many people on this blog. I was born smart and handsome. Those around me recognized my tremendous athletic abilities early in life. At the age of 13 I lifted my first Volkswagen. My charm and good looks allowed me to sail through life. Oh wait, that is the fantasy world that exists only in my mind. I am supposed to be doing a post now for Ben Jones’ Housing Bubble Blog. I have to get back to reality. I just hate reality.
People generally have two worlds in front of them. They have the real world and the fantasy world. The way things are, and the way we want them to be, seldom have much in common. As adults we should be able to recognize the difference. Unfortunately, we see time and again that people too often choose to live in the world of fantasy, and ignore the real world. This varies from person to person and from subject to subject. When it came to the housing bubble all HBBers can probably see that the vast majority of the people around us chose to live in the fantasy world they had constructed. The population of that little world was bursting. It was a demographic explosion.
Early in 2005 I found myself in a place that often does not resemble the real world. It is called New York City or The Big Apple or Gotham. It is a place that attracts poets, dancers, actors and dreamers of all sorts. That is what is so odd. I found reality in this Mecca of fantasy. My baptism into the world of reality was helped along by $600,000 condos in Williamsburg, Brooklyn and $800,000 lofts in Harlem. Sometimes we see the ridiculous fantasies of those around us and it springs us into reality. That is what happened to me.
I turned to “alternative” information sources to find out what was going on in the world. The best information source I found was The Housing Bubble Blog. And soon a child, no, a boy, NYCityBoy was born. I was born a citizen of The Real World. I was baptized by the fire of the insanity of those around me.
Most of us are probably old enough to remember those glorious days of the Soviet Union and the Iron Curtain. I really miss the hairy armpits of those East German lady sprinters. Stories of defections were always great fodder for newspapers and television. It was like our side was winning, our nation was winning, when a diehard commie came over to our way of life. Following that example I went to work to get as many of my friends and family to defect to “our side”. My email rants could be two sentences or ten pages. The message was always the same. “You are living in a fantasy. Come over to the real world. We have plenty of space.” I hammered away, day after day, week after week. I had few victories to my name. The borders did not need to be manned.
One of the people on every “defection” email I ever sent was my buddy Dylan. This is a guy that has been a friend for more than 20 years. He was always the rock of our group. He is responsible and honest. His integrity cannot be questioned. He is the type of guy that has so much self-control that he can say, “I’m only going to eat 11 M&Ms” and then eat only eleven M&Ms. That is self-control. I have often turned to Dylan for guidance.
When I first started my emails I sensed that even Dylan was raising an eyebrow at my proclamations. Another friend called me “Chicken Little”. He has since repented. Others thought that I had gone nuts. That would not be a surprise. I have always been the, ahem, adventurous one of our group.
Dylan has agreed to be interviewed to give his thoughts on the Housing Mania and the mess surrounding it. This gives us yet another perspective from which to see this mess. Dylan is in great shape financially but he still has to think of the future. I would guess there are a lot of regular guys like Dylan out there. Let’s hear what he has to say.
When you first started receiving emails warning you about the housing bubble and its potential financial fallout what did you think?
Well, I agreed that housing prices were too high, but I didn’t realize the magnitude or what the real fallout would be. At first, I thought that the housing prices would stabilize and stay flat for a while and maybe go down a little, but not crash like it did. I knew housing prices were way out of whack when I’d go to some open houses/Parade of Homes and the prices of all these McMansions were twice as much as I’d pay for the house – it was nuts. Hell, even the appraised value of my house was too high.
I kept asking the same question over and over – who are all these people that are buying these huge homes and what do they do for a living? I never did get a good answer to that one. We make pretty good money and I didn’t think we could afford these homes – I thought I needed to get into another line of business. I was naïve in that I didn’t realize how low the lending standards had become. Looking back, we probably could have bought an $800k house. Actually, that’s not saying much. I could have lied on the application and bought anything I wanted.
Did you agree or disagree?
Like I said – a little bit of both. I had a good source from a person I trust, so I did take the warnings seriously. I didn’t always take all the advice, but I believed him. I guess part of me didn’t want to believe him – I wanted to continue to see my retirement plan go higher.
I assumed people would need to start taking responsibility for the giant mortgages they took out and if they couldn’t afford it, they’d lose their house and learn their lesson. I never expected the Government to bail out everyone and their brother. Well, I guess they are not bailing out the homeowners. I personally don’t think anybody should get bailed out. These banks and other financial institutions are getting rewarded for making some really bad decisions.
Were you reading or hearing that kind of outlook from any other source?
No
If “no”, why do you think that is?
The media doesn’t investigate anymore – they just spew what the “experts” say as gospel. Apparently, Journalism school doesn’t teach much anymore – the media are glorified Administrative Assistants to the experts/elites. Alan Greenspan and Ben Bernanke were the experts, so anything they said was golden. Therefore, there was rarely a dissenting viewpoint. At least none that anyone took seriously.
At what point did you think that the economy was in trouble?
Good question – I’m not really sure. Having been forewarned, it never came as a shock. I guess I wasn’t really worried until late 2008 when the “financial crisis” really went into full gear. Every day the market went down further and further. Then when the Government started bailing everyone out with billions, then trillions, of dollars that we didn’t have – that’s when I started getting scared and mad. It pisses me off that all the people and businesses that took unnecessary risks - either loans they knew they couldn’t afford or giving loans they knew the person couldn’t pay back, etc. - they all get bailed out. What about the responsible people? They get the distinguished pleasure of paying for all this crap. Where’s the incentive to be responsible, to save, to stay out of debt? It’s all ass-backwards.
If you could turn back the clock to 2005 what would you do differently?
Housing-wise, nothing. Actually, I thought it was great. We took advantage of the low interest rates and refinanced twice to lower rates and shorter terms – without cashing out! Imagine that! So, we went from a 30 year to a 20 year and finally to a 15 year at 4.875%. We don’t plan on moving any time soon, so we should come out ahead in the deal. Our house will be paid off right when our oldest starts college.
If I had a crystal ball, I would have bought financial stock, and gold, in 2005 and then sold the financials in early to mid 2008 and then ultra-shorted them and/or placed puts on them all until the end of 2008.
If you didn’t have kids would you do things differently?
Yeah – I wouldn’t have any 529 plans. Actually, no. Having kids doesn’t change the fact that both my wife and I are savers and don’t like debt. If we didn’t have kids, we’d probably travel more – things like that, but nothing else financially.
Are there any people you know that got themselves in trouble because they believed the hype?
Believe it or not, no – at least not yet. My mom sold her house during the boom times and got more money than the house was worth, but at the same time, she bought a new townhome at a higher than normal price, so it was close to a wash. Fortunately, most, of the people close to me are responsible with their money and didn’t do any crazy refinancing, at least as far as I know. Of course, most everybody I know lost a bunch of money in the stock market, but I don’t know anyone in real “trouble”.
How severe did you think the economic downturn would be?
Would be or will be? Honestly, I was never sure.
We are getting some nice relief right now, but I think we are in for much worse times ahead. Unless we get this ridiculous spending under control we are in big trouble.
Do you believe Ben Bernanke when he says the recession is near an end?
Ben Bernanke’s an idiot.
Would you want to buy stocks right now?
I have a hard time buying right now with the run up we’ve had. I’m a little too nervous that things are going to catch up to us. If I were (buying stocks) I would be very, very choosy.
How about real estate?
I’ve never been interested in real estate.
Do you believe the people around you are prepared emotionally for another big drop?
No, they’re not emotionally prepared. I think people are going to get pissed off at all these congressmen for spending all this money when the $hit hits the fan.
What is your opinion of the level of financial sense of the majority of the people around you?
On a scale of 1 to 10 I would say about a 3. I think they just listen to whatever everybody else says. It’s more of a herd mentality.
What is your outlook for the financial future of the United States?
Dismal. If we don’t stop spending money like drunken sailors, I’m very afraid of what is going to happen.
Do you worry about the economy your sons will inherit?
Of course! I not only worry about the economy they will inherit, but also the country they will inherit. Financially and culturally, our society has never been worse off. And it appears it will only get worse. It is very sad. Our founding-fathers would be very disappointed in us.
