How Would We Clean Up This Mess?
Readers suggested a topic about sweeping up after the housing bubble. “Weekend topic suggestion: How would ‘we’ (HBBers) clean up this mess? Now that the damage is done, we can play ‘policy wonk’ amongst ourselves. What would we do if we were in charge? If we were Bernanke, Paulson, members of Congress, etc.? How would we solve this situation to bring it to a resolution? And how could we prevent it from happening in the future? We’d have to examine how we got here in the first place, maybe there’s some fundamental problems that need to be handled, like requiring kids in school to become financially literate.”
“For example, on a local level, I would have liked to have given some of my county commission members a good pasting for the completely irresponsible way that builders and developers were given leeway to do whatever they wanted, to the detriment of the community.”
“The housing bubble and the bust speaks to my ongoing concern about how ‘business’ and corporate entities have been allowed to take precedence over ‘the people.’ Why cannot the two entities co-exist for the good of each other? (Gee, what a concept, and why does it have to seem laughable and naive?)”
“Anyway, what would we do about it if we were put in charge? For starters, if I were Bernanke, I’d do the Volcker.”
One said. “I would try to introduce the concept of fear into those who are fearless regarding the acquisition of debt. It’s crazy when multitudes will commit thirty years of future earnings to a bottom line of a contract that they don’t care to understand.”
A reply, “I agree with this. Perhaps financial history should be a subject taught at the high school level?”
Another, “Grade school. Scrap the Christopher Columbus propaganda, and replace it with Dirty Joe Kennedy and the rise and fall of the 1920’s bull market.”
One was frustrated, “I’ve tried so many times to warn people about whom I care concerning this mess. Either this mess is so unbelievable that people don’t want to believe it or I’m not convincing enough…any suggestions on how others on this board have been able to convince friends & family that there is a housing mess and what could occur as a result of it?”
One looked at incentives, “I would work to make sure risk remains connected to reward. When those who knowingly make junk loans are immediately and amply rewarded for these loans and at the same time are allowed to pawn the junk off to someone else then you end up with the mess we are in now.”
Another wants a decent return on savings. “How about if the Fed declared a cease fire in the War on Savers, and focused on getting that U.S. national savings rate back up from negative levels?”
One had a press release, “I would issue a public statement containing the following points:’
“No taxpayer bailout for mortgage holders. They are responsible for repaying their loans they contractually agreed to, or arranging otherwise through private markets.”
“Anyone filing bankruptcy from multiple home loans, who committed fraud on mortgage applications (either by claiming primary residence or inflating income > 20%) is going to spend a minimum of 24 months in federal prison, unless they agree to pay back the full amount as stated on the loan.”
“Then I would let the free market sort out the mess. Zero down loans are fine for those with a stellar credit or repayment record, especially for a primary home.”
One made this point, “Fraud is already a felony. Like anything typically responded to by more legislation, if the present laws had been enforced in the first place, there wouldn’t have been a problem. We could really enemize the industry by focusing on the enforcement side.”
“Imagine undercover FBI agents working as loan officers, account execs, *borrowers*, HA! So much fraud, right out in the open… Start sending people away in jumpsuits and those guys will fall in line. Hell, they’re used to commission pay with little loyalty, all they need is a $$$ upside to start ratting each other out. The whole biz got way too fraudy.”
And another added, “The U.S. already has too many people in jail. Fraudsters should make restitution for their fraud. If there were no Fannie Mae, and no bail-outs, mortgage stooges would not be able to pump-n-dump fraudulent mortgages, as there would be nobody to buy them. The free market really does work, only we’ve never really tried it yet.”
One was for self-preservation, “Save yourself, then stand back and let everyone else learn their lesson. This country needs a national BK just to clean house and get it’s priorities straight. Only then will we prepared for whatever the future may hold.”
One poster hopes the message gets out, “What would you do, if you were in charge of something in government or business that would clean this mess up and prevent it from happening in the future? ‘They’ may not listen to us, but at least, if we blog it out here, our policies and ideas are out there, so that people can see the right moves and compare it with the future idiocy that is sure to come.”
1. It would help if the federal govt stopped working to undermine traditional prudent lending practices, such as requiring a downpayment or limiting the size of loans to levels a household will be able to repay…
The market will work this out.Once again the sheeple were suckered into the game and left holding the bag.It shows just how good our education system is when it comes to finance.
Not sure what the government can do at this point.They are trying to fight inflation so lowering rates might not be a good idea.Also worried about the falling dollar.
This will work itself out in the end but a lot of people are going to learn a good financial lesson.How soon they forgot 2000, amazeing.
Actually, the sheeple aren’t left holding the bag. It is the banks. With $0 down and 100+%LTV loans, it is the banks that are holding the bag.
Banks went looking for the riskiest borrowers because only the riskiest would pay the higher rates. Now the banks are taking the losses.
obviously it is not the banks then, but the savers that have their money in those banks that are left holding the bag.
The banks will fold and rise from the ashes and their managers will do perfectly fine despite bankruptcy. The middle class will loose their savings in the banks and possibly their pensions (especially in Europe, where credit insurance is limited to 10-20K euro and where probably most of the CDO crap has ended up).
“…savers that have their money in those banks that are left holding the bag.”
What savers? Anyway, it is the taxpayer who is left holding the bag on whatever savings are out there, in the form of the FDIC guarantee of bank deposits up to $100K. As I learned during the S&L crisis, the govt does make good on these guarantees.
maybe in the US - but not in Europe. In Netherlands the guarantee is 20K while the average citizen has 50K in savings accounts (and because many have no savings at all the average saver problably has more than 100K in the bank - part of that is probably collateral for mortgages because of our stupid 50% HMD).
I agree that ultimately for any government guarantee / bailout the taxpayer is on the hook. No escape for the middle class.
1. How would ‘we’ (HBBers) clean up this mess?
Another vote for “it will work itself out in the end”. Yes it may be painful for many, but that’s the way humans tend to learn. If you try to make it less painful, or take away the pain completely, people will continue to do the risky things they did before (becasue there is no percieved downside to continue the risky behavior).
2. And how could we prevent it from happening in the future?
It will happen again and again and again…lenders and regulators will tighten, things will be “bad”, things will start getting better, that will last for a while, then someone will get the bright idea to loosen standards, or decrease margin requirements, or whatever (after all, these are good times, right, what could possibly go wrong?). Manias have been around since the first human. Blame the reptile brain.
and financial manias have been around since the invention of the stock market. It is no coincidence that the first full blown mania, tulipmania, developed shortly after the Dutch invented the stockmarket.
Come on - the invention of a modern-style stock market has nothing to do with being a starting point for financial manias. And as for tulipmania being the first - what kind of craziness do you think was going on in the 1500s after the first successful voyages to the New World? You don’t think people were organizing (and madly reselling) subscriptions at the cost of life savings to have the cut of some unknown bounty of some unknown ship?
to Paul in Jax: I think you should read up on your history. The scale of tulipmania is many times bigger than everything before, a majority of the Dutch population was involved. A major factor in this was that tulip bulbs were traded like stocks and on credit, except that the trade took place in the local taverns (of which there were on average 2 in every street because of lack of safe drinking water).
Trying to fight inflation? The Fed is causing inflation! Not too crazy about their method of keeping wages in check.
“U.S. immigration policy along with the threat of ‘outsourcing of jobs’ to lower wage jurisdictions is doing EXACTLY what it was designed to do, namely, provide cover for the inflationary policies being pursued by the Federal Reserve.”
http://www.financialsense.com/Market/kirby/2007/0716.html
Americans are causing inflation - by swiping credit cards, taking out car loans, home mortgages…
Americans provide the cover for inflation - by hiring cheap immigrant labor, purchasing products and services from companies that hire cheap immigrant labor, by buying the cheapest, lowest quality imports available, purposely eating empty low-cost foods and morphing themselves into a nation of lazy fat a$$es.
Americans want to have their cake and eat it too.
It is not the Federal Reserve - it is us. And we’re about to get what we deserve.
“And we’re about to get what we deserve.”
Hey Chris,
I object. I am neither fat nor lazy,nor do I eat empty, low-cost foods, nor do I hire immigrant labor, nor do I buy
cheap , low cost imports. I do not have a mortgage, did not buy a house, do not have any debt, don’t have a car or want one, don’t buy much of anything except books and organic food for me and my dog, and don’t eat cake.
And yes, it is the Fed…both the Reserve and the Government. And their miserable allies at the state and local level. And the banks, and the lenders, and the appraisers, and the MSM, and every other freaking fool who decided to play Real Estate Only Goes Up.
It’s not about what anyone deserves…those of us who did nothing to create this disaster will probably not be left untouched.
Of course not everyone in the US is a greedy, lazy, lying, cheating, ’something for nothing’ fat a$$ poser.
I haven’t partaken in the insanity either, and I know I will suffer. But I’ve used the time to prepare as much as possible for what’s coming - full pantry, vegetable garden, no debt and cash/gold/silver.
I believe those who deserve to survive (those with the intelligence and honesty to not participate in the phony pony show that passes as American society) will have the best chance - and at this point surviving what’s coming is all that matters.
It’s too late to fix, clean up, mitigate - like any other pyramid scheme, debt pyramids inflate until they can’t - then they implode.
It’s the monetary system itself - once interest (something for nothing) is attached implosion is inevitable.
I’m grateful to fake loser Americans who put on a show by going into debt - they gave me more time to prepare. Without them, we would have imploded years ago.
the problem is central banking, not the FED alone. In Europe where credit cards and shop-till-you-drop are less popular the inflation problem is exactly the same. The only real cause is a surging money supply (of course it helps if consumers are willing to go deeper and deeper into debt for todays pleasures).
I will be watching Top Chef while the carnage goes on around me.
“The market will work this out.”
Indeed. This is one problem with govt programs designed to goose homeownership rates by using govt-sponsored and -guaranteed 100% financing that provide households with neither the financial judgment, means nor discipline to pay off a mortgage loan the encouragement and ability to purchase homes they cannot afford. The market eventually adjusts to reflect the distortion, and then the walls collapse on the house of cards.
That is part of Blinky the Wonder Cat our President un-elect idea to show off home owners ship numbers….while these people own nothing but a bad loan and boat loads of debt. Remember him walking out and crowing about the home ownership levels? He and I should say his kind and his allies in all branches and departments work toward this.
Time to get back from the lightning pace gotta have it Pepsi generation, and back to slow healthy growth.
“Blinky the Wonder Cat ”
LMAO! Yep, like some really bad cartoon character. Homer Simpson would have done a better job.
America’s ILL and so is Bill!
Vote Bill the Cat for President
show off home owners ship numbers ??
Gun’s & Butter Babby….Works every time….Flood the country with easy money and the indians won’t give a rats a$$ what what the Chief’s do….
Until it all blows up in everybody’s face. I think that time is nigh.
I think there is a furious effort underway behind the curtain to forestall the blow up until after the election season is over, but if last week’s Wall Street results are any indication, the effort is in doubt…
BTW, I am not sure the Republicans need to go crazy trying to forestall the blow up. Romney is a leading Republican candidate who would come in as a dark horse and a turnaround specialist (like his father before him!), whose selling point would be a proven track record of cleaning up messes.
How are Hillary’s and Obama’s records on this criterion? (My guess: They have no record as turnaround specialists.)
“I am not sure the Republicans need to go crazy trying to forestall the blow up.”
Come on GS. Have you noticed any effort by the repubs to forestall this? Of course not. Can’t be done. Their best effort is george and the 4 horsemen doing a sad job jawboning on Friday. Do you think the foreclosures and the recession are going to wait upon Republican chances?
The speed of this implosion, and the credit crunch already becoming evident on Wall St. and globally will create a new reality.
“Turnaround specialist”–man, I never knew you were a cock-eyed optimist. Romney?? This is the jerk who tortured his dog–those who like Vick will probably vote for him.
Turnaround specialists start with getting rif of the organization’s dead weight through layoffs. There is plenty of dead weight in the US that needs to be eliminated - unfortunately, the only way to achieve that is war or a ‘terrorist’ attack.
Republican it will be…
“This is the jerk who tortured his dog–those who like Vick will probably vote for him.”
I am pretty sure the Romney camp leaked that story to the press to offset his squeaky clean image. The U.S. voters prefer their candidates with a bit of dirt behind the ears (e.g. lechers and reformed drunks can do very well)…
Romney is a leading Republican candidate who would come in as a dark horse and a turnaround specialist (like his father before him!), whose selling point would be a proven track record of cleaning up messes.
Where? Not in Massachusetts.
“traditional prudent lending practices, such as requiring a downpayment or limiting the size of loans to levels a household will be able to repay…”
Amen. Before the glory days of CDO’s, lenders did require down payments (except for those with substantial assets and perfect credit) and would not lend at insane multiples of household income.
The market may well take care of this itself. If banks actually have to keep mortgages on their books moving foward (horror!), traditional lending standards will be back in vogue before you can say “foreclosure.”
$10 Billion dollars a month shipped to Iraq, and pork barrel spending in the defense bill by both parties in Congress. Did we really vote for this kind of leadership?
No matter who wins control of government, this mess is unfixable
To add to the fun take a look at the Farm Bill just passed. The dems have become the farmers’ (the corporate farmers, that is) best buddies. It’s a five-year party for the ag industry.
Maybe that’s the Demo’s plan to win the red states from the Repugnant-Ones, come the next election.
“Maybe that’s the Demo’s plan to win the red states from the Repugnant-Ones, come the next election.”
You might be onto something with that comment Sallie. Here in upstate NY, Bill and Hil have been in my town (in support of agriculture) quite a few times in the last few years. I know our town is like the home for retired government types but still I’ve always wondered why they keep appearing in a town with 8000 people.
Last time they made a visit to one of our local retail farm establishments and invited lots of local farm families to attend (there are not any corporate owned farms that I know of in this town) and then took a stroll down our ~20 business downtown. The theme of the day was the support of upstate agriculture.
This part of NY leans heavily to the right so it is a good place to sow that seed.
Personally, I don’t think it matters who we vote for any more. We would still get this kind of leadership. The system is broken and they are all the same.
Yes, it matters. Yes, you HAVE to communicate with your representatives on the local, state and federal level. It is OUR government, we have to take some responsibility for it.
Ironically, I agree with both of your statements. Sigh.
I’d like to give some props to spike66 for the following quote in the bits bucket thread:
“We’ve come a long way from respect for honest dealings in a republic based on law and its swift enforcement.”
Ditto.
Here is a thoughtful piece on the campaign by some factions of the federal govt to destroy financial self-reliance among middle class families. BTW, whatever happened to conservative Republican values (which are nicely reflected in this piece, but hard to find on the ground these days)?
http://www.heritage.org/Research/Budget/wm529.cfm
GetStucco, on the local Friday night political punditry PBS show in the Tampa Bay area, they had a lady on who is a local active Republican of the old school. Very concerned about the environment, like Nixon was before he went mad. Very concerned what all the development was doing to the environment and the long term impacts. Also very annoyed with local governments for whining about their budget cuts, and she wanted to know what they’d done with the huge amounts of money they’d raked in during the bubble.
GS
The Rockefeller Republicans are back in control and have been for a while now.
You mean the Ann Coulter Republicans, don’t you?
“conservative Republican values”
That’s why folks like you lined up to vote for Bush/Cheney. However, as someone who has never voted for a republican, I can’t say I’m much impressed with your values.
Mccain+Thompson+Guiliani -whole lot of conservative values in that group
McCain - 2 wives, Guiliani - three, Thompson-two
Since the GOP doesnt believe in not interfering with people’s personal lives,their personal lives should be open to critique too.
We havent even got to the Senator scandal.
The only repub I respect is Ron Paul
Here is a passage which I believe is one the most accurate and potent explanations ever written for how the housing bubble got so far out of hand. And it dates from 1979!
From Economics in One Lesson by Henry Hazlitt:
“The case against government-guaranteed loans and mortgages to private businesses and persons is almost as strong as, though less obvious than, the case against direct government loans and mortgages. The advocates of government-guaranteed mortgages also forget that what is being lent is ultimately real capital, which is limited in supply, and they are helping identified B at the expense of some unidentified A. Government-guaranteed home mortgages, especially when a negligible down payment or no down payment whatever is required, inevitably mean more bad loans than otherwise. They force the general taxpayer to subsidize the bad risks and to defray the losses. They encourage people to “buy” houses that they cannot really afford. They tend eventually to bring about an oversupply of houses as compared with other things. They temporarily overstimulate building, raise the cost of building for everybody (including the buyers of the homes with the guaranteed mortgages), and may mislead the building industry into an eventually costly overexpansion. In brief, in the long run they do not increase overall national production but encourage malinvestment.”
Government-guaranteed home mortgages, especially when a negligible down payment or no down payment whatever is required, inevitably mean more bad loans than otherwise.
The vast majority of recent forclosures are from mortgages written by banks and mortgage brokers like Countrywinde, not Fannie Mae, Freddie Mac, or the FHA.
I think there’s definitely a need for programs that provide down-payment assistance and no-down-payment loans, particulary to first-time buyers. As long as they require some intensive education beforehand, they should be okay.
Good find, GS.
They forgot, “cause major price inflation in housing (and price out *truly qualified* buyers), as everyone will mistakenly believe that EVERYONE wants to live here.”
“The U.S. already has too many people in jail. Fraudsters should make restitution for their fraud. If there were no Fannie Mae, and no bail-outs, mortgage stooges would not be able to pump-n-dump fraudulent mortgages, as there would be nobody to buy them. The free market really does work, only we’ve never really tried it yet.”
Hmm, maybe that’s why all these jails and “FEMA Camps” are being built, for all the bubble fraudsters. Just kidding, sort of.
Well, I’d bring back the old bankruptcy laws and repeal the newer stuff that was enacted in favor of the banks.
I would also, on a state by state basis, shorten the time periods for taking property by adverse possession. In fact, I am going to propose this to my state reps in Florida. The purpose would be to get responsible, taxpaying citizens into abandoned properties to fix them up, keep the communities looking somewhat attractive, and to keep taxes being paid for local services, rather than having these properties become liabilities to the communities. Recently, the sheriff’s office here in Hillsborough County had a perfectly good residence knocked down at taxpayer expense. I understand why they did it, because it had become a shelter for vagrants, etc. But, instead of doing that, why not put a responsible family that is currently renting? Let them pay the taxes, keep up the property and ultimately acquire title.
“The U.S. already has too many people in jail. Fraudsters should make restitution for their fraud….”
What about reintroducing Debtor’s Prison? Make the borrower (or borrowers family) pay back the debt in order to get out of prison…
http://en.wikipedia.org/wiki/Debtor%27s_prison
Sounds like a new kind of homesteading. I’m thinking the gov’t would need to take legal possession of the properties before that could be done.
That might not be an issue, what with all the unpaid back taxes that are likely adding up.
Just kidding, sort of.
{shiver} Gotta go clean my Beretta…
I’ve tried so many times to warn people about whom I care concerning this mess. Either this mess is so unbelievable that people don’t want to believe it or I’m not convincing enough…any suggestions on how others on this board have been able to convince friends & family that there is a housing mess and what could occur as a result of it?
I think the whole situation is just unbelievable because it’s uncharted territory that *seems* to create so much wealth for people who could never have imagined having that much. So I think it’s a mental block - they don’t want to believe. And MSM surely hasn’t helped as they’ve been filling the punch bowl for years.
In my case, I warned and warned and warned and even got into some pretty heated arguments with co-workers, family, and friends. So I stopped. I bit my tongue almost until it fell off during numerous discussions. I walked away. In fact, one day I walked away and cried my eyes out because the conversation had made me feel like such a loser for my beliefs and my staying out of the market (well, and I’d been drinking a little so that probably helped the tears flow).
ANYway…now that word’s creeping out (and, really, it’s just a creep…maybe a crawl…but the facts are starting to be uncovered), the same people who mocked, bad-mouthed, ignored me no longer do when the subject comes up. Some have even come back to me for advice OR…get this…one actually finally thanked me for saving her and her husband from making a huge mistake just years before their retirement. My response? Not, “I told you so!” but a simple “You’re welcome.”
I have said it before and I’ll say it again - this blog without a doubt changed my life. That might sound cheesy, but it’s the truth. I would have been so tempted to make bad financial decisions - and may have taken the leap had I not found this site.
So my advice is to simply point them to articles, blogs, or whatever you find that is getting the real facts out. There’s enough to support your beliefs that you no longer need to be the one to explain it to family/friends.
eastcoaster, I completely understand. This comment of yours is spot on:
“I think the whole situation is just unbelievable because it’s uncharted territory that *seems* to create so much wealth for people who could never have imagined having that much. So I think it’s a mental block - they don’t want to believe.”
You’ve hit on a couple of important points, here. First of all, many middle class folks have a mindset that wealthier people must be smarter and must know more than they do, so whatever information comes from them must be right. This perception is not necessarily true. Depends on how the “wealthier” people got their money. Al Capone was wealthy. But he wasn’t right.
Another point is about the “mental block”. A lot of this comes from misinformation. Once a person has been given misinformation and believes it, for whatever reason (for example, the misinformation came from someone they admire), the misinformation in itself becomes a block. Think of it as a brick wall built of misinformation. Before you can get to the person behind that wall, you have to dismantle the wall. And as you’ve so aptly pointed out, “I told you so” does not work. In fact, it can make people dig in their heels even more, because people hate to be proven wrong. So you’ve got to demonstrate that THEY are not wrong, but the information is wrong. You have to assure them of their own rightness as people and THEN you can demonstrate how the information they have is not right. When they can see that, THEN you can give them the correct information and they can use it.
because it’s uncharted territory ??
Its been “Chartered” before…S & L debacle in 91….The only difference is that one was the commercial market and this one is the residential side…
It was also chartered in the 1920s residential construction boom.
During the past 6 months I’ve convinced alot of people to leave the stock market and invest in government bond funds and bank deposits. My most effective weapon is a graph of housing prices from 1950 to present. Then I explain to them what created the bubble - Wall Street chicanery, bad monetary policy, and uninformed buyers and investors. Still others have been poking fun at me, and calling me Mr. Doom and Gloom. But not so much anymore.
Very good illustration of what I was so verbosely trying to explain. Thanks, Jeff. Very nicely and simply put.
Jeff
I use Dr Shiller’s numbers, which show that inflation-adjusted housing has gone up twice as much from 1995-2005 as it did during WW2.
http://en.wikipedia.org/wiki/Image:Shiller_IE2_Fig_2-1.png
During the war, people had money in their pockets after a decade of Depression and no new civilian housing was being built. In the recent period, there was no similar fundamental justification. That gets them thinking and wondering “why?” Then I use the Fed’s own Flow of Funds numbers to show that mortgage debt exploded over that period and prices were bid up entirely with borrowed money. New mortgage loans went up 584% in 10 years. See “Household Sector” under “Home Mortgages” Table F.218 on page 41.
http://www.federalreserve.gov/releases/z1/current/annuals/a1995-2006.pdf
“… any suggestions on how others on this board have been able to convince friends & family that there is a housing mess and what could occur as a result of it?”
My experience is that these people are heavily under the influence of GroupThink and that the only way to counter this type of Think is to isolate them from the group and wear away this Thinking by subjecting them to facts and reason, one person at a time.
Admittingly I have have limited success in this area, mostly because the prevailing mindset is so wide and pervasive. But there have been some successes.
It is interesting to witness the “aha” moment when what I am saying suddenly hits home; some undefinable change occurs in their expressions as their mind shifts from the thinking mode to the listening mode.
I discovered the process works only when armed with facts and time. The facts work best when they are visual, such as charts. The time may consist of several encounters or sessions covering several days.
“these people are heavily under the influence of GroupThink and that the only way to counter this type of Think is to isolate them from the group and wear away this Thinking by subjecting them to facts and reason, one person at a time.”
Excellent point, combo, ONE PERSON AT A TIME. You are exactly right on this, trying to convince groups doesn’t work, unless you are trying to stir up a mob. But individuals can be convinced, just as you say. And that is the ONLY way. By the way, the smarter marketing firms know this, having found out that, in many cases, when they do focus group surveys, the information they get isn’t very good. That’s because of the group nature of the survey. One person influences another in group settings. However, when people are surveyed one on one, then the truth comes out and the marketing firm can tabulate the results and see where the real consensus is.
Check this out:
Cognitive Biases
I lived the bubble/bust in the Silicon Valley in the early 1990’s. Prices doubled in four years and then fell 30%. I bought when they had fallen 20%, and then sat on a loss for 4 years. Living in Phoenix, I too tried to warn people what was going on but people looked at me like I was crazy. It made no sense, there was no shortage of land and it was clear the frenzy was speculator driven. A friend of mine had an employee who was buying houses on credit cards. Now those folks who argued with me that I was wrong are very silent. I sold my Phoenix place in late 2004 to move to Yuma AZ for a job and stayed out of the market because my gut told me it was insanity. I missed the huge run up in prices on my Phx place (things got wild in the next 6 mo), but I am also not sitting on a huge loss at the moment in Yuma. I resent those who are asking for government assistance for the fools who got themselves into this mess. If the gov’t bails out the banks, its me who is paying for the recklessness and stupidity of others.
The politicians have no interest in cleaning up this mess and lack the integrity to do so unless there was some significant political gain. Unless there is literally rioting in the streets and real threats upon the leadership, therefore, nothing meaningful will be implemented.
I think it was Jefferson who stated in no uncertain terms that the solution is not more government, but an educated populace:
“I know no safe depositary of the ultimate powers of the society but the people themselves; and if we think them not enlightened enough to exercise their control with a wholesome discretion, the remedy is not to take it from them, but to inform their discretion by education. This is the true corrective of abuses of constitutional power.”
–Thomas Jefferson to W. Jarvis, 1820.
This principle is also true to financial matters. The government clearly cannot exercise financial discipline nor financial sense. The power should never have been given to it in the first place and it must now be returned to the people. Those people who can learn and take the time to learn will prosper and those who do not will suffer. This is how lessons are learned and progress is made.
If, on the other hand, the government can be induced to step in and remove consequences from foolish and dnagerous behavior, then no lessons will be learned and no progress will be made. The people who rely on this type of solution will be reduced to infantile behavior and demands for somebody else to cure the ills they bring upon themselves.
“I know no safe depositary of the ultimate powers of the society but the people themselves; and if we think them not enlightened enough to exercise their control with a wholesome discretion, the remedy is not to take it from them, but to inform their discretion by education. This is the true corrective of abuses of constitutional power.”
–Thomas Jefferson to W. Jarvis, 1820.
Wow, KIA, from the bottom of my heart, thank you for that. Call me a sentimental old fool, but that brought tears to my eyes.
Good libertarian comments so far!
Well, the people are in for quite an “education” in the upcoming months. They have been ignorant of the perils of borrowing for 30 years. That’s about to change.
If you want a great Thomas Jefferson quote, here is one:
“I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs. ”
Tell me people, is this not what we see happening before our very eyes? The problem is primarily (although not solely) fiat currency.
Yes, that quote shows a fantastic understanding of banks (and the power of money), credit, and human nature (greed/hoarding instincts). IMO, it also explains why we need regulations. There can be no free market as long as the people with money have all the power…and if the people with power have all the money.
Debt does NOT equal wealth. Time for the sheeple to grasp that harsh reality.
The Germans were by far the most educated nation in the world in the 1930s. Common sense is what a nation needs. I don’t see a nation filled with common sense any place on this globe.
You’re right. Seriously, it’s another reason to buy precious metal bullion in case we go through some (hopefully short) period of dark savage ages.
With both parents working these days, education of children is given low priority. Better to have mom and dad both drive SUVs and give Johnny an X-box.
What’s assumed by Jefferson (and probably rightly so for the times) is that demand for education exceeded supply. He wrote these words at age 80 the year after seeing his dream the University of Virginia open its doors [our beloved U, zpz] so he was pretty focused on the idea of education at the time.
Today most people aren’t at all interested in education. You can lead a horse to water. . .
“Today most people aren’t at all interested in education.”
That’s an interesting comment but maybe too broadly applied. I’ve lived in a lot of places. I find the higher income towns very heavily into their children’s educations….to the point of crazy competitiveness over people who are supposedly their friends.
The schools are often supported with Spanish camps, art camps, space camps, robot camps, theater camps. You name it. If it helps Johnny get his Ivy League placement its all good.
Good post KIA. I just saw “Sicko” the other night. Now, I like Michael Moore flicks, but I do take them with a grain of salt (sometimes even the whole salt lick).
However, this is one of the messages of his movie. That things work best when government fears the people, not the other way around. In this country, unfortunately, the people fear government. We need a change. A big, big change.
Jefferson lived in a time when the population was basically Anglo-Saxon, with shared values, culture, and education. Only property-owning white males could vote, which may have been exclusionary, but probably led to a much better class of politicians than the carnival barkers we have today. Society and the individuals in it were mostly self-disciplined and relatively moral. Contrast that to the mobocracy (and idiocracy) we have today.
I love Jefferson as much as the next guy, but we shouldn’t take financial advice from him. As intelligent as he was on many many matters, he did die heavily in debt after being born into a very rich family. He understood very little about the good banks and credit can provide.
“Grade school. Scrap the Christopher Columbus propaganda, and replace it with Dirty Joe Kennedy and the rise and fall of the 1920’s bull market.”
I agree with this. The approach to the bust and the financial decline here in the US is two fold: clean up the immediate problems created AND rework the basics of education. It’s pretty bad when even a simple concept like expenses must be less than income is not understood.
There is so much that needs to be done with respect to education. Problem is schools are now expected to take care of feeding, clothing, healthcare needs (including mental health), “social” needs, etc. The teachers/schools can no longer devote the time to properly educate students.
Add to that the discipline problems (can’t punish kids anymore…might destroy their self-esteem, you know).
If students who complete 12+ years of school are not able to balance a checkbook or understand simple debt, we have a major problem with our educational system.
One of my cousins teaches Home Ec at a public school in suburban Baltimore. Her course includes personal finance, balancing a checkbook, and stock basics.
When I was in high school, we learned about mortgage interest and finance in pre-calculus. Not everyone took pre-calc. Bring back Home Ec!
Teach Galbraith!
I’m not up on economic gurus, in fact I first learned about Austrian economics on this blog. Seemed to make a lot of sense to me. For those of you who follow economics, what is the central theme of Austrian economics as opposed to Galbraith, for instance?
A simple answer.
Galbraith is a stooge for the Central Banksters and the Fed.
The Austrians would ELIMINATE the Fed, put us back on a Gold Standard and stop pyramid banking schemes by allowing multiple rounds of inflation of the money supply and credit.
This always leads to inflation in prices and the so-called business cycle.
The Fed is destroying our money and making price inflation a standard policy. Look at the value of the dollar since the Fed started in 1913. It is worth a nickel. Thats inflation.
Sorry for the punctuation. I am using a damned Italian keyboard and havenàt figured out the right keys. Be back in Germany tomorrow, so I can respond on a machine I am more familiar with.
6:20 time in Venice.
-D.
Thanks, diogenes. That’s kind of what I thought. It’s the Austrians for me. By the way, Happy Trails to you!
I agree with you regarding Austrian economics. I’m tired of mixed economies and the leftists pointing to their distorted social engineering failures and blaming the failures on capitalism.
Haven’t read as much as should have, but that Minsky character seems to be pretty relevant these days.
It’s a matter of honest weights and measures. The people want them. government does not.
OK, part of the problem is that we ARE the government. As much as we say THEY are out of touch with the people, we have a responsiblity to make sure that doesn’t happen. We can at least give our local, state and federal representatives a phone call once in a while. After all, they work for us and need to be reminded of that fact. Even a simple phone call or fax (email is not that effective, I have found) can make a huge difference. But WE have to communicate. That is our responsibility. I have been pleasantly surprised recently by the response of one of my state representatives.
Totally agree, Palmetto.
Even though you might not hear right away from your representative when you e-mail, know that they will notice if thousands of e-mails are received which basically say take the same position.
I’ve also been surprised by the follow up of some govt agencies when I’ve contacted them.
I’m fully convinced that Sen. Dodd’s turnaround is 100% due to the e-mails, faxes, phone calls, etc. received by the many folks who follow the credit/housing bubble.
“Men now seem eager to vest all powers in government, i.e., in the apparatus of social compulsion and coercion. They aim at totalitarianism, that is, conditions in which all human affairs are managed by governments. They hail every step toward more government interference as progress toward a more perfect world; they are confident that the governments will transform the earth into a paradise. . . . [Governments] have transformed taxation into confiscation and expropriation; they have proclaimed heedless spending as the best method to increase health and welfare. But when the inevitable consequences of such policies, long before predicted by economists, become more and more obvious, public opinion did not place the blame on these cherished policies; it indicted capitalism.”–vonMises
Make _Virus of the Mind_ required reading in high school.
Never heard of it…What is it about ??
It’s about memes, or self-reproducing ideas; such as: “Real Estate Always Goes Up”.
From the editorial review on Amazon: ‘If you’ve ever wondered how and why people become robotically enslaved by advertising, religion, sexual fantasy, and cults, wonder no more. It’s all because of “mind viruses,” or “memes,” and those who understand how to plant them into other’s minds.’
George Orwell’s essay: “Politics and the English Language” would be informative as well.
Teach Galbraith? Might as well teach Marx.
Galbraith was the most celebrated nothing in economic history.
Have you read this book? Name-calling and strawman character assassination are great sport, but don’t belong on this blog. (Mainstream economists hate Galbraith because he violated the unwritten rules of their club.)
————————————————————————-
A SHORT HISTORY OF FINANCIAL EUPHORIA
John Kenneth Galbraith - Author
Book: Paperback | 131 x 197mm | 128 pages |
ISBN 9780140238563 | 15 Jun 1994 | Penguin
As markets and economies around the world face meltdown, one man can sit back and say “I told you so!”. Galbraith looks at the sobering lessons from history in his witty essay A Short History of Financial Euphoria. From “Tulipomania” in 1636 to Black Monday in 1987 and numerous examples in between, he illustrates the unbroken cycle of boom and bust which we are experiencing again today. How can people be so willing to get caught up in the mania of speculation when history tells us that a collapse is almost inevitable? In this wise essay, Galbraith reviews the major speculative episodes of the last three centuries, drawing important lessons on speculative economics and demonstrates that money and intelligence are not necessarily linked.
http://www.penguin.ca/nf/Book/BookDisplay/0,,9780140238563,00.html
I’ve read Galbraith. Can’t stand him. He’s a social commentator, not an economist, very similar to Krugman.
Here’s the central theme of Galbraith and Krugman: I hate income inequality. Oohee, oohee, I just hate it. Look, see, how much poverty there is. Look, see, how many rich people there are. Who can change this? Government.
Thank you Paul in Jax, couldn’t have said it better myself.
Both Galbraith and Krugman have an agenda; prove “unbridled” capitalism is inferior to an economy directed by “experts”…..like themselves. Consequently, they contort themselves relentlessly to prove their political (not economic) points.
They are little better than the “global warming”, chicken little “experts” of today.
“prove “unbridled” capitalism is inferior to an economy directed by “experts”
This is a misreading of Krugman. His issues are largely with a corporatist agenda, specifically that of the multinationals, and their political allies, and their drive for profit without regard for consequences.
“Unbridled” capitalism–is a favorite euphemism for unethical practices.
Child labor in India and North Africa–no problem, it’s unbridled capitalism.
Slave labor conditions in China and Vietnam–no problem, it’s unbridled capitalism.
Human organs harvested and sold on the open market, from impoverished folk in India, southeast Asia and of course, Chinese political prisoners–no problem, it’s unbridled capitalism.
Deadly environmental damage–i.e. Union Carbide, 20 years after the chemical slaugher at Bhopal, has not yet cleaned up the plant there, and fosgene and mercury continue to contaminate the soil and water–no problem, it’s unbridled captialism.
People with this attitude assume they will escape the consequences unscathed..and maybe they will. As long as it happens to someone else’s kids, who cares, it’s unbridled capitalism.
“Unbridled capitalism”–the Paulie Walmuts school of economics. Those with the muscle make the rules–the laws and regulations enacted by the people to ensure a fair and honest marketplace be damned.
AMEN, SPIKE!!!!!
I don’t agree with all of Galbraith’s political ideas, but I admire his independent voice in a world where they are scarce. And none of the Galbraith-bashing comments above addressed the book I referenced, which was a remarkably prophetic description of the tech stock bubble and the housing bubble which followed in the subsequent decade to its publication.
As for cleaning this up, well it’s gonna’ take a mighty big crew that’s for sure. I picture the last night of Mardi Gras on Bourbon Street when the clean-up crews drive down power spraying the street top to bottom until, by the next morning, you’d never know how crazy it had become unless you witnessed it. Some people will be hit much harder than others, for sure. But much of the reality is - people will just be forced to rent again. That’s not so horrible.
As for the predatory lenders, I suppose there should be some kind of punishment to those who are proven to have been unethical (if not illegal). Fines? Permanent loss of licenses? Not sure what route to take there. But they shouldn’t escape without some form of disciplinary action. That would send the message that it’s ok to conduct business that way as long as you can get away with it.
However, to PREVENT this from happening again, I think you need to look no further than to absolute tightening of credit (from any kind of loan to credit cards and everything else that falls under the umbrella). Force people to EARN things in life. Stop making it all so dang easy. So many people equate the easy money with a wonderful economy. I equate it with a troubled economy who will do anything to keep people spending. It’s a sign of trouble, not bliss. IMO.
What a mess.
As a PS to my own comment: But much of the reality is - people will just be forced to rent again. That’s not so horrible. I’d just like to share that my grandmother was a lovely, happy, delightful woman. A true role model. Always. She lived thru the Great Depression. She had 4 children. They were not rich by any means - maybe even considered poor. Her husband died many years before she did. And she never, EVER owned a home - not with him; not without him. Yes, a lifelong renter. And, again, the best woman I ever knew. She puts what’s really important in life in crystal clear perspective.
“But much of the reality is - people will just be forced to rent again. That’s not so horrible.”
It’s not so horrible, I’m renting right now. But I must say, I much preferred it when I had my own place, during the time period when it made more sense to own than rent. I liked the fact that I wasn’t being “pillar to posted” by landlords, management companies, etc. Of course, my view is a little colored by the fact that for a period of time, renting around these parts really bit the big one. But I liked when I was living in my modest Florida concrete block house on a nice little piece of land in a quiet neighborhood, no HOA. No rules or regulations imposed by a landlord or management company. Free to make my own improvements, or postpone improvements if I went through a lean period. Divorce and the bubble changed that. I’m looking forward to owning something modest again.
Echo, like I was reading my own story. It will happen. Those of us who have put off the need for instant gratification will be rewarded. Seems to be like fishing. You don’t always have to have one on the line to enjoy. Sometimes it’s nice to sit back, wait and have a beer.
The best thing I would say in the long term is elect Ron Paul.
http://www.youtube.com/watch?v=FG_HuFtP8w8
But, that would take a giant leap of faith for people to vote while using their brains.
I wholeheartedly agree with you regarding Paul, Patricio. We need to be talking this guy up to our friends and family.
I’d vote for him if he got on the ticket, but do you really think he will win? Seems like the issues he stands for ( namely upholding the constitution ) is above the average Americans head, unfortunately.
Upholding the Constitution? I like the rest of his views, but he is decidedly against my Constitutional right to do what I want with my own body, and I can never vote for a misogynist viewpoint like that.
Understand your gripe, but the country will not have time to be arguing over abortion views in the coming years ahead. To the contrary, we are in a severe crisis right now that is about to get a whole lot worse. Voting in another beaurocrat will not get us any closer to solving the problems. I think on some of the bigger issues right now, Ron Paul has the right idea. Not perfect mind you but on the right track.
You see now… this is a great example of bubble think! Taking one issue and basing your entire decision on it.
‘Real estate always goes up!’
sounds the same as:
“but he is decidedly against my Constitutional right to do what I want with my own body, and I can never vote for a misogynist viewpoint like that.”
They both have truth to them, but as mentioned above do you go with the Groupthink thing or do you weigh all the evidence yourself and make your decision for yourself based on ALL the facts.
I agree with Carmello with apologies to irvine!
If people want to get this turned around they are going to have to be laser focused on the issue of economic stability. I understand the reluctance and I have my axes to grind with many a platform argument too. But at the end of the day one has to decide on what issue most deeply requires our attention.
One possible consideration…if our medical infrastructure collapses due to economic irresponsiblility where will that leave women’s rights? Perhaps the rich will get their abortions but forget everyone else. Then even though legality won’t be the issue, the result will be the same.
Hey Irvinesinglemom, I am proudly pro-choice and I agree with SimpleSimon - there won’t be time to argue about abortion when the big issues come up, and they will. It will be time to pay the bill. If you don’t like Ron Paul for his stance on abortion, vote for the Libertarian Party candidate instead. As part of their platform, they will keep laws off of a woman’s body and allow her to own her own life, just as a man owns his own body too.
he is decidedly against my Constitutional right to do what I want with my own body, and I can never vote for a misogynist viewpoint like that.
A few years ago a woman (Susan Smith?) put her two toddlers into a car and drove it into a lake, leaving them to drown. Society rightly called her a murderer and sentenced her accordingly (life in prison). If she would have killed them in the womb, that would have been “a choice” in the doublespeak of moral cowards. Once you conceive a life, it ceases to be about you and “your body” - there’s a separate human being, separate and distinct from you, who has entered the equation, and you have no right to snuff out that life.
Sammy,
I’m a mother of three, and love them more than life itself. IAs I look at my kids, the thought of having an abortion is so upsetting, it’s almost unbearable. I would do anything in my power to protect that baby.
Thankfully, I’ve have never had to decide whether or not to have an abortion (no “unwanted” pregnancies) — just out of pure luck.
All that being said, I cannot see how my personal feelings should get in the way of someone else doing what they feel is absolutely necessary in their particular situation.
There is not a single man on this earth who understands what it means to be pregnant and carry a baby. No man can possibly understand the agony of giving up your own baby for adoption (you NEVER forget). No man will have to endure the permanent physical changes (all detrimental) to a woman’s body due to pregnancy & childbirth.
By forcing women to have babies they cannot properly care for…and forcing them to put them up for adoption, we engage in one of cruelest forms of slavery (forced surrogacy).
Sorry, but there’s no way any man (or woman, for that matter) should be able to tell a woman what to do with HER body.
BTW, making abortion illegal just pushes the entire industry underground and risks the lives of the women in addition to the fetuses. I’d venture to guess there is very little difference in the number of abortions whether the practice is legal or not — desperate girls will do desperate things, irrespective of the law.
This is just inaccurate. Paul would leave it to the states to decide. Shouldn’t be decided at the federal level. He’s stated this many, many times
Paul would leave it to the states to decide.
That’s exactly how things were before Row v. Wade.
SimpleSimon, I voted for losers most of the elections. I don’t regard the act of voting as a horse race - voting for someone who I think would win. I vote for my philosophy and I am at peace with myself for every election (except 2004 when I held my nose and voted for Bush). I voted Libertarian Party every chance I could get. If none was running for a particular office, I would vote for the one who is more for the free market than the other candidate. I cannot vote for Ron Paul in the Republican primary since I’m a registered Libertarian.
I do understand the point of your question. I do not think Ron Paul would win. Our government is a reflection of the American people. It wants its cake and to eat it to - the entire 20,000 calorie cake (hence epidemic of grossly fat people). Its spending is out of control. JQ public’s spending is out of control. There are only two bright things that happened in the last 4 years that give the last glimmer of hope: The ports deal and the immigration bill were both backed by the established politicians in both major parties, but the American public on all sides of the political spectrum gave a resounding NO! We were heard. The immigration bill would have cost American taxpayers far more money by increasing entitlements to non-Americans.
I liked his comment deflecting the claim that the economy is great right now, ‘If I got a million dollar loan a month, I’d be doing fine as well, but some day you’re going to have to pay it back.’
Amen! Ron Paul is a towering beacon of intelligence and integrity among the Hollow Men put forward by the Republicrats and their Wall Street wirepullers. I sent him $100 the other day, and must say, the satisfaction I got from supporting him against the Establishment was worth every penny. I’ve used all my powers of persuasion to encourage and educate friends and family members to cut off all support for the whores and swindlers of the Republicrat nomenklatura, and instead switch that support to Ron Paul and other worthy independents.
Abolish Wall Street and the Fed. If you do not do this you are looking at another massive scandal down the road.
They both have to go.
Testify, brothah joe!
How does one abolish Wall Street?
Good question, sleepless. Might even be good for a thread of its own. I don’t know that we need to abolish it, Wall Street might end up being the architect of its own doom. On the other hand, my idea is that if it is going to insist on acting like a casino full of fraud, relegate it to the status of Las Vegas and regulate in similar fashion, according to the gaming laws.
That’s what I was wondering. Wall street is not a government institution. I guess we first must have communist control, then you would get your wish. Wall Street is a symbol of Capitalism and freedom, precisely the same ideas that at least 19 hijackers hated back on September 11, 2001.
Wall St is not about capitalism. It is about abuse of capitalism. The worst part is that those who commit crimes there do not go to prison unless they are a small-time crook.
First thing is to make anyone on commission, who makes bad or questionable loans to repay their commission back to the bank, if the homeowner defaults in say the first year or two….
How many REagents could afford to pay back even a $10,000 commission let alone $20-30-50K?
OOooooooooh, I kind of like that! Make sure that the “gatekeepers” have a stake in making sure that people can actually afford a house, instead of shopping appraisals and lying about incomes on stated income loans.
I kind of like the idea of real estate agents begging me (steady job, cash in the bank, sterling credit) to work with them, giving all sorts of concessions, etc. Unfortunately, I think you would just end up with people selling RE agents schemes to protect/hide their commission money - trusts, overseas accounts, etc. You would have to have all real estate commissions going forward put into escrow for that year (or two), which would lead to under the counted payments. Might be constitutional issues too.
That would be just another cost passed down to buyers in the form of higher costs due to “mortgage fraud insurance” premiums.
I like the idea of bringing back Volcker. IMO, interest rates need to rise to counteract the Greenspan damage. There are a lot of inflationary pressures out there now and in the near term future. The only deflationary pressures I see are house prices coming down.
Politicians think an ownership society is somehow important. I don’t understand why. When the money tightens, home ownership rates could drift downward for a generation to 50% while immigration continues to add more people to the U.S.
Have you seen Volcker recently? He makes Dick Cheney look like a model of good health.
It isn’t possible to clean up this mess and prevent it in future UNLESS you want to live under a communist style culture. One of the reasons the USA was successful in the past was because it allowed individuals to invest, win or lose, by using their own thought process and deciding for themselves. The more regulations you bring in, the more you crush the human spirit to invent.
That said, unfortunately times HAVE changed and we are now governed by liars, crooks and charlatans as never before who are not interested in anything but their own self interests and the interests of those in their close group. The current crop of incredibly blatant crooks in government being a prime example. Don’t misread that. The opposition party are also corrupt by these characters we have in office now take the prize.
Connections to Wall Street, the oil industry, the arms industry, pharma industry, etc, is where all the big money is and where all the current crop of highly placed government whores hang out.
Example: Wall Street backed the current mess we see in the housing sector. It was a gamble but with a win-win situation for Wall Street. They cannot lose. Thousands of ordinary Joe America’s will go into foreclosure and lose their homes which will ruin many lives. For a short period of time, Wall Street (and the hacks who are their Public Relations outlets like CNBC’s Comedy Business Show and the SEC) will sadly report Wall Street has lost money but they will not tell you how they are going to get it back so those multi-million bonus checks still arrive. So how will Wall Street get it back? They will start to recoup that money by stealing, via manipulation, money out of the 401k’s, etc.
In these situations, if one lives in a capitalist society, you have to rely on peoples freedom of thought unless you want a big TV screen on every corner with a GW Bush look alike telling you as you pass by, “We are working hard - We are Making Progress - Trust Us.”
I can guarantee you one thing, those who get caught in this boom and bust, will be like those who got caught in the tech boom and bust. Once bitten - twice shy. However, the whores who control the purse strings, Wall Street, the big banks, etc, know that another train load of suckers will pull into the station in the next few years and they are probably busy thinking of ways to fleece them right now.
“It isn’t possible to clean up this mess and prevent it in future UNLESS you want to live under a communist style culture.”
I see your point, but as it stands now, it looks to me like we are fast approaching a corporate-fascist state and that is just as unacceptable to me.
I don’t know that we need any more regulation as such, but we do need to enforce what we’ve got, where criminal acts and fraud have been committed. Also, institutions have to be relegated to their proper place. Wall Street and Vegas should merge, IMHO. I’m serious. Wall Street should be under the same rules and regulations as Vegas, as it has departed so far from sound principles of investment.
There are small signs of rationality in our current government though:
A 73 year old man and cohort were sentenced to clean a war memorial after being charged with fraud in encouraging junk yards to give them scrap metal for free. The defendents promised they would use the scrap metal to create a memorial for Iraq war veterans. Instead they sold the scrap metal and kept the cash. The judge sentenced the defendents to clean the war memorial with a toothbrush and to pay $9,000 restitution. I think this was in Florida. Not sure.
Maria Bartiromo and those other dolts at CNBC, oh and Larry Goldilocks Kuntlow are responsible for all this too.
You can’t have an info commercial running all day on CNBC and not have a lot of people believe what they are selling. Buy now or be left behind or buy now because prices aren’t going any lower.
They all must of gone to same school as David Lereah. Car Salesman school!
Cocaine Larry, Art Laffer and the rest of the supply siders/borrow and spenderds need to do some long jail terms. If this whole BS economy unwinds in a bad way, they’ll be lucky to keep their life.
“It isn’t possible to clean up this mess and prevent it in future UNLESS you want to live under a communist style culture.”
I agree with much of what you say, but can you explain to me what a communist style culture is? And why would having one make future debacles harder to occur?
Communism (the state) controls everything and there is no sduch thing as “free enterprise”. Property is owned by the state. Factories are owned by the state. The employer of ALL citizens is the state. Profit is controlled by the state. Read, “Animal Farm” by George Orwell.
Why can’t we have a middle-ground?
Govt (the people) regulate or own basic (necessary) goods and services like water, air/environment, healthcare, food, infrastructure, etc. The capitalists can control all the “wants”.
You can’t have a free market if the rich control basic necessities where everyone has to pay, no matter how expensive or how poor the quality, simply because we NEED it.
That being said, I’m 100% for a smaller govt that stays entirely out of people’s private affairs (unless asked to intervene via the courts).
1. People who declare bankruptcy have a dollar sign branded into their foreheads to warn people dealing with them.
2. Only one bankruptcy per lifetime. You don’t learn your lesson the first time, you’re hopeless.
3. Asset based accounts. Similar to gold backed currency. Banks offer asset based accounts based upon a hard asset like gold, silver, iron, land, stock, oil, copper, corn, cotton etc. When you use the ATM card to extract “money” your account is deducted in units of the asset, not in dollars. If the government inflates the dollars and your hard asset becomes more valuable because of that, when you take out for example $100, you will only be deducted $100 worth of the asset which will be less if the government inflates the currency. This makes the Federal Reserve irrelevant. They can destroy the currency by printing money but your wealth will remain intact.
Bozonian:
I would change that to One Home/House/Personal BK in a lifetime…. Medical events should not be included…..
=———————–
2. Only one bankruptcy per lifetime. You don’t learn your lesson the first time, you’re hopeless.
I would add complete denial of all credit to anyone who declares bankruptcy until the original debts are paid off.
I choose door number three there, bozonian.
I liked all three, however previously I had suggested “DS” tattoo
on foreheads lasting 1yr for every 10K worth of bailout.
I would also say support small business here, I owned my own business and had nothing but grief and problems from Gov local and Federal and just abolish the SBA what a joke. If we supported small Gov here like we support rebuilding Iraq it would HAVE been a renaissance in business over here. I could wax on poetically for pages on what could of been, instead we got mcmansions and an economy hamstrung for years.
Patricio, that’s a GREAT point. Many small businesses are incredibly valuable, providing value to communities, providing needed products and services. That’s my major beef with Wall Street and most particularly hedge funds and private equity: no value, really. Just funny money making more funny money. No employment, nothing that people can really use to improve the quality of life. Now, what if some of these folks with all their money were to decide to start or back businesses that actually DID or PRODUCED something? Back in the day, that used to be my concept of Wall Street: invest your money into a company that is sound and productive, you’ll do well if they do well.
Many small businesses are incredibly valuable, providing value to communities, providing needed products and services.
Some do, some don’t. There’s a huge difference between a small business that delivers a superior product or service, and small busines that thrives because it’s The Only Game In Town.
We vote with our dollars every day. If you use local businesses, that money tends to stay in the community. If you use Wal-Mart and other big box retailers, that money leaves the community forever.
Good comments, BubbleViewer. WalMart did me a favor recently, by shutting down its mid-sized operation and moving to a big-box location further away from where I live. I didn’t buy too much stuff there to begin with, but there were some shipping supplies like tape and labels I used to buy there. Purely convenience. Now I go to a couple of small local shops, like Ace Hardware, local dollar store, etc. to get those things. Slight inconvenience, but really about the same price-wise. Part of Wal-Mart’s ruse is that they build the perception of being cheaper and I’ve found out they are not always cheaper.
“If you use local businesses, that money tends to stay in the community”
So you think your local retailer is selling anything made locally?
If I look at my own small community, the shops are mostly antique shops and higher end clothing ($280 dresses, $80 tank tops) The stores mostly employ 2-3 people tops.
My goodness, I have to drive 1/2 an hour to find a store that sells socks! The last store I was in had an employee (relative?) going home because she had stayed up too late the night before. Didn’t even ask just announced she was leaving…yeah I’m motivated to support people like her.
“If you use local businesses, that money tends to stay in the community”
It helps if your local business is worth patronizing. I don’t believe that non-chain stores are inherently superior to chains. When I lived in the ‘hood and the boondocks, the local businesses were uniformly terrible. We didn’t have Wal*Mart, but we had K-Mart, wasn’t much better.
Probably the single most important thing to do is return money to a gold standard or something like it. It doesn’t have to be gold but it should be some hard asset that the government must give you in return for your dollar. Copper, oil, land, silver, gold, whatever. If the government had to deliver you a barrel of crude for your dollar, or a gram of gold or whatever, they’d not be so cavalier about going into debt.
Because money really has no hard value lenders are willing to throw caution to the wind and lend to anyone. If the money had real value, people and especially the government would be more careful in how it was used.
Once foreigners who have been amassing dollars face the fact that those massive dollar assets they hold are going to plummet in value soon, they’ll start buying real assets with them forcing prices on those items to astronomical levels for Americans. Land, gold, silver, copper, iron, oil and everything that people compete for will shoot up in price. Oil is already doing it. There is no shortage but what is out there is being bought by foreigners for what they’ve always paid, but since the dollar is sinking in value, we pay more. Useless junk sold at Walmart might not shoot up but then, who really needs that stuff?
Who really competes for it? Oh. Conveniently, the “core inflation” statistic ignores the real important items like food and gasoline. Their excuse is, “those things are too volatile”. If they really wanted a true measure of inflation they could take the running average of volatile commodities like this over the last year and use that. They don’t want to however since the “core inflation” is used to determine cost-of-living raises they want it to be as low as possile. It’s pure bullcrap.
It may have be ok for rednecks to approve billions poured down the toilet on a war but when it starts to affect their standard of living, they might change their minds.
‘the “core inflation” statistic ignores the real important items like food and gasoline.’
And that’s what makes it completely useless as a statistic, no matter what “their” excuses are. You know, who says THEY have to be the big mega-megas? What if someone right here on the blog put together a “core inflation” number that we could track, that took into account food and energy? We don’t have to agree to what THEY say it is. We already know it is idiotic.
those statistics are available on stadowstats.com.
With current M3 rates of 12-14% in the US and Europe (and negative real GDP), rates on savings accounts need to be 15% minimum and mortgage rates even higher. That should cure this kind of housing bubbles and corporate greed bubbles for good. In that case people need to save (earn) before they can spend. But I guess we have a whole generation now that learned it the other way round and will never adapt to such a reality.
Thanks, nhz.
sorry for spelling mistake, shadowstats.com, of course …
http://tinyurl.com/zyey9
It is simple:
Don’t clean up the mess.
The bigger the mess, the cheaper the houses after the shake-out.
Plus, feeling the consequences does a lot to guide one’s behavior, economic or otherwise.
Paul
We need to start building small self-sufficient houses with greenhouses and solar and move towards being less dependent on Big Oil and Wal-Mart.People who are independent and can survive are more likely to stand up for their rights and think for themselves.
I like that, lost. Even more than laws and the enforcement thereof, it is important that people as individuals make changes and assist their loved ones to do so.
Agree. We as society need to learn to live within our means and delay the gratification. Simple can be better and get rid of the “keeping up with the jones” attitude. Abolish Madison Avenue that tries to make everyone feel their not good enough and promotes over consumption.
BTW, I work for a “big oil” but I also live on this planet.
I’m all for simplicity. The only way I will accept “abolishing Madison avenue” is by personal boycott, otherwise the alternative is grey socialist stormtroopers ending the remnants of freedom. Madison Avenue is advertising. Advertising is all private enterprise, not done by government.
As for simple living, I have a 1989 26 inch Mitsubishi color TV that works great. I will keep it as long as I can (coming soon will be the HDTV ordeal though). I have an economy car (paid for). I live in 1000 square feet and it’s big enough for me. Delayed gratification? I can easily live on the same $65,000 income I had back in the year 2000 and be as comfortable as now.
No offense, Bill, but your 65k income is no great hardship.
I understand. For clarity, by the year 2000 I had 15 years of engineering experience in embedded software engineering and a MSCS. We engineers always said we’ll never become rich though. I could not live my parents’ standard of living on $65,000 to support a homemaker wife and children. At 3.7% annual inflation income increase that would be $83,000 today. Still need to be a 2 income family in that case! Thanks!
I hope that what will come out of this mess is a longer-term economic focus. It’s just shocking how many mainstream economists have been parotting the mainstream media’s line that “there’s no way we can have a U.S. recession in 2007 because of liquidity, global growth, etc.”
Oh, yeah? Well what about a big recession starting early in 2008? That idea just gets brushed right under the rug. Stock markets have always been leading indicators that anticipate the future. The stock market of the summer of 2006 did that. But by the spring of 2007, the stock market became so myopic that it couldn’t see beyond today’s buyout buyback hype.
The U.S. economy sailed downwind with huge momentum driving corporate earnings for about 3-4 years. Conditions couldn’t have been better. But now, the economy is involved in a big sweeping two-year turn into the wind. By the 1st-2nd quarter of 2008, the turn will be complete, and the boat is just gonna come to a standstill. The real drag on the market over the next six months will be a realization that 80-90% of U.S. companies will have difficulty generating ANY earnings growth over a 3-4 year period. The other 10-20% are the best run companies, biggest companies, and those with low leverage, high overseas exposure, and ability to profit from falling dollar. It’s not just HBers that are screwed. It’s any hyped-up small-cap U.S. company with a lot of leverage on the balance sheet. And there are thousands of those.
SERIOUSLY where is TXchick today?????
I would ask her: How much has the devalued dollar ADDED to corporate earnings in the last 3 years?
=============================================
The U.S. economy sailed downwind with huge momentum driving corporate earnings for about 3-4 years
Check the earnings reports for IBM. They are one of the few corporations that breaks out currency impact.
Fraudsters should make restitution for their fraud
Perhaps the answer here, where fraud is detected is to make the loan balance that ended up not being paid like school loans where there is no statute of limitations and pursue these folks forever. the message would be loud and clear. Sort of like a debtors prison without the bars.
I may be a bit ad nauseum with my rant that globalization is THE WORST. IDEA. EVER. Another blogger here (jag and I think Wino Bear) felt that globalization makes countries better able to get along because of trade, etc. I would argue that one of the possible byproducts of globalization as it pertains to the housing bubble and bust is that you have countries like China holding our debt and that debt is quickly becoming close to worthless.
Now, Japan invested heavily in the US back in the 80s and took it in the shorts when the investments went south. But does anyone honestly think China is going to stand by and do the same? I don’t. They freakin’ executed one of their own for fraud, for Chrissakes. It’s all well and good to say “let the markets take care of themselves”. But I don’t think China is going to agree to this, do you? I know it sounds extreme, but I wouldn’t put it past China to point a few missiles at the US and say “fork over or else”. The concept of “face” is a lot more important to China than it is to the US. This is the kind of unintended consequence that could occur as a result of globalization. It was announced on the news last night that the Boosh administration intends to sell massive amounts of arms to “moderate” Middle Eastern countries like Saudi Arabia. Could this be a payoff for their tanking investments in the US? I wonder. That’s why I say that as much as we may like “the markets to take care of themselves”, countries like China may not agree, in that so much fraud has taken place. Excuse me, but I don’t want to be on the hook to slave away to repay China just because some of my fellow citizens lost their minds.
From an arguable thought (globalization is the worst idea ever) palmetto, you descend into really ludicrous territory.
The Chinese, who can’t even get away with threatening tiny Taiwan, will now (because they bought bad investments in the US mortgages) will threaten the US?
This is the same US that has allowed China into the world market and been the source of its extraordinary economic improvement in the last decade or so? So the Chinese will have a credible threat of killing their Golden Goose?
Brilliant. I don’t subscribe to the notion that the Chinese (anymore than the Japanese before them) are now the “Masters of the Universe”. They are a people run by petty bureaucrats who’s vision is limited to what will best keep them in power. They tolerate their version of “capitalism” because it enrichs the bureaucrats and they will protect that source of extraordinary wealth (in my opinion) because they are no different than any other petty despots in world history.
If this means eating a huge loss on some bad investments, so be it. After all, who are the average Chinese people going to complain to? Will they ever even know a loss has been realized?
They’ll eat the losses and move on. The Chinese Communist Party is neither brilliant nor dumb. They operate on self-interest. They’ll do what keeps them in power and what makes they rich(er).
jag, even though I know I annoy the snot out of you, I hope you are right about China. Just because they haven’t moved on Taiwan as yet, doesn’t mean they won’t. I’m going to wait and see on that one.
But you did say “they operate on self-interest”. Which would imply they would do what they feel they have to do to protect their interests. While it may not come to pointing missiles at us (and I really, really hope not), they certainly don’t seem to care much about slipping a little melamine or lead into the food supply, do they?
Aw, heck, jag, we don’t have to be at loggerheads with each other. Frankly, from your perspective as a banker, I am interested in hearing your views on the departure from sound banking principles that appears to have occurred in recent years. I know you have some views on this, because I read your post about the retired military guy who you used to meet with when you were with the trust department of a bank. Confidence needs to be restored to banking and perhaps you could have some influence in that area.
Palmy, the thought of China threatening the US points out an interesting change in world affairs. There was a time not too long ago that the very idea would be ludicrous, as jag points out, but no longer is that the case. Can china do anything? who knows, but perceptions are very often leading indicators of reality.
interesting read: The Case Against a Global Economy by Jerry Mander
palmetto,
I’ve probably been as much surprised about the departure from rational mortgage lending practices as anyone at this site. What went on in the last five years (not being in the mortgage business and not having been in the market for one) as I came to understand it through this site (and others) blew me away. I still don’t understand how it got so out of hand other than to understand human nature and markets (seemingly “good” things like more “flexible” lending practices, tend to ALWAYS get out of hand when an EXPECTATION of rising asset prices come into the equation).
I can’t possibly defend it. I’d only add that it is just another chapter in the foibles of human beings. “Securitization” of mortgage debt wasn’t a bad idea. Making loans to marginal borrows wasn’t necessarily a bad idea (all the time). However, what I didn’t see, what I don’t think anyone outside the mortgage lending business could see, was the corruption that was generated by the freenzy to generate loans…..ANY KIND OF loan. These were a series of individual transactions, each one increasingly marginal (if not increasingly fraudulent) that just about everyone involved rationalized by saying the problems with the loans (from a conventional perspective) would be erased by the “inevitable” appreciation of the property.
Certainly no one in the industry was going to blow the whistle on the gravy train. Perhaps the only lender who might have had the credibility in subprime lending (Golden West Financial) sold out to Wachovia around 05. Maybe the couple who own GWF knew things had gotten nutty and were smart to get out but they can hardly be blamed for going public with their concerns….in a way, they did….they SOLD AT THE TOP!
Of course this subprime lending gig was nonsense but, again, unless you were intimate with all the games that were going on in the industry (that were unprecedented) you might not imagine anything was amiss.
Such is what happens in free markets. Things sometimes go to extremes. New rules are always developed in the aftermath of these events to prevent this kind of thing from happening in the future. They’re needed. It’s sad some nice people are going to get hosed (along with speculators, greedy buyers and people who used fraud to get mortgages). But it isn’t the first time something like this has happened in markets and business and I’m certain it won’t be the last time either. Last I saw, just about everyone I know had the capacity to be greedy…as do their kids.
“Of course this subprime lending gig was nonsense but, again, unless you were intimate with all the games that were going on in the industry (that were unprecedented) you might not imagine anything was amiss. ”
“Lending gig”?? Oh, nicely put. Just another blip on the highway called unbridled capitalism. Of course when the Fed lowers interest rates to near zero, Greenspan encourages the unsavvy to take out ARMS while 30 year fixed rates at a decades-low cost, the Fed floods the markets with cheap dollars while hiding M3, regulators and the SEC crawl into caves, things do go awry. Nationally. And with disastrous results, the majority of which have not yet been felt. The country as a whole will be paying dearly for this “lending gig”.
And yes “nice people will be hosed”–too bad it’s not bankers and their kids taking the hits. As they were the creators and beneficiaries of this clusterbomb.
China doesn’t have to point missiles at us. They can just dump our debt in the open market. If they chose to accept a 30-40% loss (max) on their Treasury bond holdings, they could cripple us financially. They are buying over 40% of new T-bond issues now. If they just stop buying more, the 10-year is 6.5% easily. If they start to sell on a large scale, it wouldn’t be any surpise to see 8-9% rates - with the appropriate additional widening in risk spreads. Junk bonds would go back to paying 14-16%.
From the POV of the old men in Beijing, it could very well be worthwhile. They might think of it as a few hundred billion dollar investment in replacing us as the world’s dominant power. For them, finance is merely a tool, not an end in itself.
Hey Palmetto, how would you reconcile your support of Austrian economics with your stance against “globalism?”
How do you define “globalism” in the first place? By “globalism” do you mean one world government? Or do you mean unbridled free trade?
If you are opposed to free world trade, you cannot be in agreement with Austrian economics. They are more radical laissez faire than Republican pundits who talk the talk.
It’s not a military threat from China that concerns me (not for 10-20 years at least). It’s their financial influence. Per the Federal Treasury, China’s government now buys over 40% of our new-issue Treasury debt. If they simply quit buying more NEW debt, the 10-year would go to 6.5% quite rapidly. If they were to actually sell any significant amount, the rates would be pushed even higher. If they chose to dump T-bonds, the bond market would crater - followed by our debt-addicted economy. In that scenario, I could easily see 9% rates on the 10-year.
But, but, but…
Wouldn’t they lose a lot of MONEY???
Well, yes. Likely 25-30% in the later scenario. But unlike us, the Chinese Communist Party sees money as a means, not an end. If they saw an opportunity to crush us economically so that they could replace us as the dominant global power, I’m not sure the potential loss of a few hundred billion would be that big a deterrent. In fact, they might view it as an excellent investment.
Comment by palmetto
2007-07-29 08:28:24
“ First of all, many middle class folks have a mindset that wealthier people must be smarter and must know more than they do…A lot of this comes from misinformation… Before you can get to the person behind that wall, you have to dismantle the wall. And as you’ve so aptly pointed out, “I told you so” does not work. In fact, it can make people dig in their heels even more, because people hate to be proven wrong. So you’ve got to demonstrate that THEY are not wrong, but the information is wrong…”
You should be a lobbyist, palmy. I mean it–you would seriously kick some ass. Of course, your obvious bias towards truth, accurate observation, and honorable dealing are serious defects, but you sure understand how people like to think.
Maybe you could get over the truth and accuracy stuff eventually.
DC person here. You can lobby for any point of view, including the truth. You can only get paid for it if someone with money agrees with that point of view and is willing to shell out to support it.
Comment by palmetto
2007-07-29 08:28:24
“ First of all, many middle class folks have a mindset that wealthier people must be smarter and must know more than they do…A lot of this comes from misinformation… Before you can get to the person behind that wall, you have to dismantle the wall. And as you’ve so aptly pointed out, “I told you so” does not work. In fact, it can make people dig in their heels even more, because people hate to be proven wrong. So you’ve got to demonstrate that THEY are not wrong, but the information is wrong…”
You should be a lobbyist, palmy. I mean it–you would seriously kick some ass. Of course, your obvious bias towards truth, accurate observation, and honorable dealing are serious defects, but you sure understand how people like to think. Maybe you could get over the truth and accuracy stuff eventually.
“You should be a lobbyist, palmy.”
LOL, Olympiagal. I’m an activist at heart, and activist is a dirty word. But I like to think I’m an activist on behalf of myself and fellow citizens. That’s what government is supposed to be IMHO, the people’s lobby. We have to force them to do their jobs. We have to get our elected officials to see that their power does derive from the people, NOT from the corporations.
Oops, sorry for double post
Quit manipulating the money supply. As others have pointed out, artificially low interest rates punish and discourage savings, while rewarding and encouraging debt. Every bit as serious, such manipulations encourage excess consumption, driving the trade deficit higher.
The excess consumption has artificially pumped up the economy and largely prevented the painful but healthy readjustment of recession. From 1948-1982, there were 8 recessions in 34 years. The average recession lasted 14 months, so the typical cycle was 3 years of expansion followed by over a year of contraction. This was in the postwar boom years and so the pattern can certainly be considered to be consistent with a healthy economy.
Now fast forward a couple of decades. Since 1982, we have seen exactly 2 recessions: 1991 and 2001. Each one lasted about 8 months and had relatively small impact on output and unemployment. 2 recessions in 25 years is absurd. It’s not as if our economy over that time was really healthier than from 1946-1970, so what the heck happened?
In a word, Fed manipulation and deficit spending. Constant excess spending from the government provided a floor of demand through that period. Dis-savings increased that demand further. Savings rates had been 8-11% for decades. The rate collaped from 8% to 2% during the 1990s, held there for a few years and then dropped below zero in 2005 and are still negative. The government and the Fed have been running a Keynesian financial stimulus almost constantly for 25 years. We are near the end of this path, having now carried it to absurd extremes. The sheer size of the numbers required to sustain it are becoming Herculean.
The key result is that anyone who is too young to recall the 1981-82 recession has never seen severe economic dislocation. I am 41 years old and have a fairly clear memory of it; my sister who is 4 years younger doesn’t remember anything about the economy of that time and many folks my own age seem to be in the same boat as her. To them, economic “bad times” look like 2000-01 and the last 25 years are “normal” since that’s all they know.
Among the other things, the Fed has robbed our citizenry of its prudence. Many folks think nothing of taking risks that their parents would have avoided and their granparents would have seen as anathema, since they can’t remember a time when that action would have caused a serious problem and they have no sense of history.
The 25 year pattern of growing excess consumption, as measured by ever-growing trade and budget deficits, shrinking household savings and growing debt in all sectors of the economy is nearly at its end. It may in fact already be over, as those who have funded the non-government side of it grow tired. The decline of the dollar, collapse of the subprime MBS market, junk bonds and other forms of debt should be a warning. Savers have gone on strike by refusing to fund the debtors.
Normal economic conditions are reasserting themselves. Recessions serve to unwind the excesses of the previous expansion. We have decades of excesses to work out this time. We will relearn the definition of economic risk - painfully.
Awesome post, Deron. Everytime I hear someone say “let the markets take care of themselves”, this is the sort of thing that comes to mind. Sure, let them take care of themselves, provided there is no intervention and no gaming of the system, assisted by the gov.
“The key result is that anyone who is too young to recall the 1981-82 recession has never seen severe economic dislocation…..To them, economic “bad times” look like 2000-01 and the last 25 years are “normal” since that’s all they know.”
Deron, thank you for your post. I think your quote above hits the nail on the head, driving the misinformation and group think discussed earlier in this thread.
I am your sister’s age and I also try to make the point that people around my age and younger just have never witnessed bad times. I’ve certainly taken risks in my life, but having grandparents who were my age during the Great Depression and parents who learned from them certainly has provided me with a healthy dose of caution.
Great post
How to get people to save again? A long time ago, interest earned on money in savings accounts was not taxed. If our govt really wants to increase savings, stop taxing the interest earned on savings accts.
“If our govt really wants to increase savings, stop taxing the interest earned on savings accts.”
Maybe that’s why they started taxing savings…they want you to spend, not save. It’s so easy to create money with the click of a mouse or a policy change, they don’t need your stinky passbook savings or CD deposits to keep credit flowing freely.
How to get people to save again?
Spread the word about retirement accounts, including the fact that they can be tapped for a first-time homebuyer’s down payment.
My job instituted at 401(k) 4 years ago. Because my previous job had one (I worked 2 jobs for a while), I became the unofficial go-to person. A lot of people didn’t want to invest in it because they were afraid that the company would steal the money. Frankly, I wouldn’t put it past them (things were pretty shady for a while), but people were relieved to find out that the money is managed and held by a bank (ING, in our case), not the accounting department.
I would also stop advising people to “max out” their 401(k). The maximum you can invest is $15,500, which is a lot if you’re making $30,000 a year. Instead, encourage people to save enough to get a match. When my company matched, they matched 100% of the first 3% and 50% of everthing else, up to 10%, so that’s what I did.
Sorry, kahunabear, your post got eaten by the software. Here it is:
‘Perhaps marriage failure rates would be a better number for default rates on collaterlized mortage obligations. Chew on that wall street geniuses!’
‘I own (and I mean own) and have for over 20 years and it is a pain in the ass. There is always something to be maintained and $ that have to be thrown at it. When I looked at the cross section of people in the US, who all became qualified homeowners over the last few years, I knew we were in for trouble. Everyone is not a good home owner, or spouse, or parent. So, if you take the success rates on marriages and parenting, perhaps that gives us a potential success rate for home owners. Far different from the days when you had to prove yourself by putting up a good chunk of equity. Different from when the mortgagee actually cared about the appraisal because they would be toting the note.’
Kahunabear,
Excellent point!
It’d be interesting hear from NHZ what the home ownership rates are in Holland and other wealthy European countries….and what have the trends been in homeownership over the last decade.
I imagine that most Western European countries don’t have a 68% ownership rate like we have here in the States….I’d guess it’s closer to around 50% or 60%….and I wonder why that’s the case in wealthy European countries
it varies a lot between EU countries. In the Netherlands with probably the most favourable homeowner incentives in the world (like 50% HMD and an unbelievable collection of government mortgage guarantees, free loans, renter and buyer subsidies etc.) homeownership rate is between 50 and 55%. The funny thing is that our government says that our huge HMD (probably the highest in the world now) is VERY good for home ownership which has plainly proven wrong. Over the last 50 years or so while HMD was in full swing ownership rate has decreased instead of increased. Very logical if you ask me, but politicians still insist HMD helps low income earners and starters …
some other EU countries have far higher %, some in the 70-85% range (but I don’t know the details). Without a doubt those are the countries where government doesn’t continually try to manipulate the housing market.
P.S.: I should add that some EU countries have a bit different way of dealing with RE. Sometimes (mostly the more southern countries) people buy land when they are young, build a simple property some years later when they have again saved some money for stones and timber and maybe expand it many years later or upgrade when they have the finances. In some countries is was normal to build just the first floor of a home and add the second floor years later when money was available. All this demands some responsibility and I think that is good; easy credit destroyed it all. In Netherlands 20-somethings with zero savings and a first (wellpaid) job can get a million dollar, 10x income home without any downpayment; why save when you can enjoy it all right away, especially when the government guarantees to pay the mortgage in case of default.
Kahunabear,
glad Ben found your post, I read it earlier and it’s an important point. Home ownership is not some American Dream, it’s about responsibility, hard work, and doing what needs to be done, even if it’s not “fun” or “personally-rewarding”, or a quick way to make money.
And you’re right–a good swath of the country should never have become parents–because they’re irresponsible dolts, or been allowed to buy a mortgage–again, because they’re irresponsible dolts.
Yes, it is a great post Kahunabear. I tried homeownership and it’s like a part time job keeping the house in order. There is always work to do around the house. I had a 1,475 square foot house back in the 1990s. Your post is a good reminder. I have consultant friends who have farmland in the midwest and condos in Florida, as well as a house in Jamaica. They both work in Phoenix. I don’t believe them when they tell me they have no worries about their properties while they are working their engineering gigs. Having all that property in all sorts of locations and being too busy to check up on them would stress me to pieces! The day I will own real estate is the day I will stop being a jet-setter and stay in that same community for the long term (at least ten years). I would work 40 hour weeks at the job so that I could have the time to be responsible for my home maintenance, like I was in the ’90’s.
I would get rid of the lobbyists. Corporate types have taken over our country. Their interests are not our interests. Just look at where these corporate heads will be if we go in a deep recession.
As somebody mentioned earlier, savers have been systematically attacked. However, the worm is beginning to turn.
What really upsets me is the number of people who are completely ignorant of our situation.
I was so pleased when yesterday, a way-intelligent friend of mine called to say, “Hey, you were right!” I’ve been telling her for two years that the economy is headed off a cliff…I guess the 500 or so pts the Dow lost last wk made an impression on her. Sometimes I feel like I should just keep my comments to myself or just share them here on this board - but now that I (finally) have convinced someone to beware, that gives me the courage to keep sharing what I’ve learned here and through other sources.
Although I wouldn’t mind getting rid of the lobbyists, they are merely a symptom, not the problem. We have a bunch of people attempting to buy influence with the government, because that influence is worth buying. Every “reform” simply pushes the money and corruption into a different channel. The lobbyist’s lawyers will always be a step ahead since there’s so much money to be made - much like Wall St. Look at the way limitations on PACs led to the creation of the 527s.
The only solution that will be effective over the long-term is to shrink the government drastically. If it is has less money and less power, fewer resources will be wasted attempting to control it.
I’m going to solve this mess by hoarding cash, buying a home 50% off peak, and acting surprised the whole damn time.
I might pick up a repo’d car, too.
ROTFL
Yea… I’ve decided I need to start acting more surprised myself. If for no other reason as to not cause the sheeple to stampede in anger.
Got popcorn?
Neil
That is priceless advice. Particularly when friends and family begin paying the piper.
What! Joe lost his investment property to foreclosure! Oh my! I can’t believe it!
“Housing bubble? Really? I wouldn’t know about that. I don’t follow the housing market. Yeah, I heard about all of those predator loans. That’s just awful.”
Then, when they start asking why your financial situation is SO much better than theirs…
“Gosh, I guess I just happened to sell at the right time. Not knowing that much about stocks, I just kept adding to the precious coin collection my granddad started for me…”
This “mess” is not cleanable. Instead just like anything else in history..it will run its course..those that make money off of someone else’s misfortune will continue..those that made mistakes will talk about it till the grave..trying to warn others that come after them..some will learn others are doomed to repeat..in the end it will be taught at Harvard as a college course in 2020 and be a part of our children’s history book like the great depression…and like most other parts of history..It will repeat itself..
Thank you, Michelle. I get so tired of “they should do this, we should do that, you should do this.”
A little anecdote, a propos of nothing in particular: As an anti-government type, I was so disgusted by Geo. H.W. Bush’s capitulation to the more taxes crowd, along with his signing of the overreaching Clean Air Act and the American with Disabilities Act, that I joined and became fairly active in the Libertarian Party in the early 90s. In 1993 I went to the national party convention in Salt Lake City. I was shocked by what I discovered there: most of the delegates (far more than in the population at large) were overweight and out of shape. It also seemed to me that LP members were more likely to be working for the government and less likely to be entrepreneurs than the general population.
Here was a party espousing individual freedom and liberty whose members for the most part were refusing to take care of themselves and were clearly going to be a burden on others in the future. I found it both disgusting and eye-opening and quit the party - I didn’t want to be associated with those people.
I guess my point is that I sometimes wonder how many on this (or any) blog really lead lives that are completely alien from what they advocate.
Paul, I had a similar reaction when I went to an Objectivist discussion group. In the novels, all Ayn Rand heros and heroines were slim/slender, attractive, aware, and witty in the novels. The Randians in the group were usually poorly dressed and overweight. The moderator of the group even remarked that I wore good clothes - I made a point to dress office casual instead of real casual, out of respect. I had hopes of meeting attractive women. The only attractive one was married already though. I also checked up on younger objectivists on-line. To my horror, many of them are into rap “music.” One picture album showed a self-described objectivist with hair dyed blue. So much for orderly Randians.
You have to look at the average American next time you go to a movie theater or mall. Many of these people share your point of view. But they do not appear as you imagined them to be. It is very disconcerting that they are careless about their health, as you say.
But I betcha if you go to a Green Party convention, you would also see lots of sloppy obese people. Or Republican, or Democrat. Americans are generally fat and don’t realize they are needlessly shortening the youthful part of their lives.
no gaming of the system! I can’t believe that. If we have a form of legalized bribery in our election system how in heck are we going to have a level playing field. Much could be accomplished if we returned to a system of election reform, no outside money involved. Just plain ordinary elections.
‘We need to start building small self-sufficient houses with greenhouses and solar and move towards being less dependent on Big Oil and Wal-Mart.People who are independent and can survive are more likely to stand up for their rights and think for themselves.’
i agree all the way. this is one of the central issues of our time. we are being controlled by the big money boys. once we learn that decentralizing and working locally we can gain back our democracy. personally i live mostly off the ‘grid’.
Return lending to the model of “you eat what you kill.” One factor causing much worse lending standards was the ability to sell the time bomb to someone else before it blew up. Force lenders to hold the loans on their books instead of selling them off (except in liquidations of course). Also reverse the way the lending system has broken down the old vertically integrated model. While the new model of mortgage brokers > mortgage lenders > securitizers > bond sales > ultimate bagholder “worked” for a little while, the obvious flaws are becoming too glaring to ignore.
They are now all pointing fingers at each other and falling out over who the scapegoat will be. There will never be a better time to reintegrate the whole thing and go back to a single point of accountability. I suppose that we could also institute joint and several liability for the action of any member of the lending chain but that runs contrary to my belief in personal accountability. Well, that and the fact that we don’t need another vehicle for trial lawyers to enrich themselves.
“How would we clean up this mess?”
Clone Ben Jones!
If we had more people like Ben, people would not be effing each other for a buck.
We could list all the reasons that the RE bubble came about ,but now what do we do ?
I say the greatest factor that created this RE bubble was the faulty ,easy money ,fraudulent bad lending ,that financed a RE mania, that was supported by the MSM ,the real estate industrial complex , the advertising giants ,and all other powers that tend to
influence the acts of the people .Mass brainwashing ,without any challenge by parties that would be given a voice by the bias mainstream media , that was funded by the real estate industry advertisers ,no doubt play a roll in the market run-up.
It’s complex to determine why the normal check and balances didn’t come into play on the market playground , but suffice to say that during a mass mania ponzi scheme ,nobody thats profiting wants the party to end . We had to many sectors of the economy profiting by this real estate asset bubble ,after all it created jobs .
How does the public know when they aren’t getting fair and balanced reporting ? How does the public know when the regulators are sleeping on the job . Any trade group or special interest group will go haywire given free rein .
So I guess I’m a great believer in enforced rules/regulations for the protection of the people ,within the framework of a free market system . There are some mistakes that a society cannot afford to make if we just allow the free market to decide by loss and punishment .
So the cow is out of the barn ,so now what do we do ?We have to start by enforcing lending regulations ,which will be the very thing that will crash the RE market even more . What other choice is there ,they can’t just keep making bad loans to keep this market afloat ?So people and lenders are going to lose alot of money and alot of jobs will be lost, and we in America will be in a sorry state of affairs . I would only hope that if something comes out of this mess, that it would be greater objections in the future to self-interested trade groups gaining so much power that mainstream media becomes their cheerleaders . The sheep didn’t have a chance .
Since real estate is a major purchase and a major debt obligation for any family , while the RE prices determine property taxes and insurance ,it’s a area that deserves special enforcement of regulations ,Real estate getting out of whack will make alot of other thinks go out of whack .
So my issues with the fake RE run-up is to determine why the check and balance system failed to the point that it did in good old America .
Nice post Wizard. We let the free market run amok, the conmen took over and it sure worked itself into something –but the last thing it did was “work itself out.” Letting the market ponzi-fy itself, and cause a huge amount of damage — including collateral damage –first by raising prices to riduculous levels, then by decimating neighborhoods, removing many debt-addled buyers from the market and probably raising all of our taxes to the moon to clean up this mess, is not my idea of good policy.
It’s easy to just sigh and say “let themarket work” but you see, the market doesn’t work, and never has, unless you disincentivize cheating.
We had good lending standards on the books for decades –they worked just fine. The market will return to those standards fairly soon I think, but it still leaving a huge, painful, inimaginably expensive mess behind. I am not going to play into some boiler-room-scam idea of a free market (where some men — the con men — are so much more freer than others) and accept that this kind of carnage is the price we have to pay –over and over again– this isn’t “working itself out” –it’s economic suicide.
Jefferson’s words about an educated populace must be very well heeded — and the education needs to happen both through better disclosure from lenders but also from the media, who need to realize (as they probably are now) that they only screw themselves when the party ends by shilling for bubble- and mania-makers.
I agree that the public is going to learn one hard lesson from all this -but I’m praying that the biggest lesson they learn is that the price of any “freedom” is eternal vigilance –that means vigilance of the greedy, the scheming–the corrupters of the market.
The idea of checks and balances works — our political system survived longer than any other republic because of it — we need to start the hard work of figuring out how to apply it to our markets, or else our markets are going to work themselves and us into a mess we may never get out of.
Well said my friend .
Yep.
“There is no education like adversity.” - Benjamin Disraeli
There is nothing we need to do. Nothing we can do. The situation will corrected itself. Those who need an education will get it. Those who have already graduated will profit.
One of the problem currently is that the data base of appraisals comps on the record are in some cases based on cash back fraud or incentive deals . At the very least many areas are based on a high % of speculation purchases in a market that was riddled with unqualified buyers . This fact in general does not make the appraisal data banks of sale comps very stable .
Any thoughtful lender would be questioning how much they can continue to trust appraisals in a declining market . If I was a lender concerned about risk ,I would wonder how low will the market settle at . In fact , I just would not want to make any loans without at least 20% down if not 30% down . Of course being that tight on lending would be a market killer .
But ,until its established where the bottom is ,the lenders will continue to take on risk with lending until the market settles at stable prices . I think this is part of the reason why the industry keep wanting to call the bottom .
“In fact , I just would not want to make any loans without at least 20% down if not 30% down . Of course being that tight on lending would be a market killer .”
I stand by my prediction, excluding FHA, that 25% down will be required during the darkest days of this market.
Got popcorn?
Neil
I look at this issue as if it were a rattlesnake. The head is the Wall Street Fundies, the belly is the mortage lenders, and the tail is the FB home owners. I don’t know about the rest of you, but when I want to kill a rattlesnake, I cut off it’s head. I don’t go for the belly that was eating what the head told it to, or the tail that just makes a lot of noise.
The head of the housing rattlesnake, and the cause of the housing bubble is the Wall Street Fundies, who raked in hundreds of billions with their ponzi CDO lending schemes. The Fundies are the ones who have caused millions of innocent families to lose their homes and ruin their credit. (Not every FB was greedy, most just needed a decent place to try to raise a family & thanks to Wall Street’s inflation of real estate prices could not afford a home without gambling on a FB loan). The Fundies will also be responsible for the tanking of our economy and the resultant massive job losses and financial greif for people who were never even a part of the housing bubble. So I believe that the Fundies should be forced to make full financial restitution for the losses they have caused.
It seems UBL had the same idea as you Kid Clu.
As a disclaimer, please be assured that I don’t think you mean to blow up Wall Street. I meant it is ironic that the same conclusion on two different chains of reasoning was “Wall Street is Bad!”
Well said, Kid.
While many want to throw everyone in jail, I want to see 3X financial restitution…ALL assets are confiscated, including offshore holdings. Their debt cannot be discharged prematurely (no BK).
It would be great to see some of these Wall Street morons actually have to go out and get a real job. Real **work** might do them some good and let them see what all the J6s have to do to make a dollar.
Interesting points Kid Clu . I think all parts of the rattlesnake were responsible for the real estate bubble ,and nobody wanted to kill the rattlesnake or even question the rattlesnakes power to reek damage and bite .
Why worry about it. Just like the tech. bust of the late ’90’s, a lot of speculators are going to be handed their heads on a platter. The houses are still going to be there. It will just be a different ownership at lower prices to get back to historical norms after a overcorrection. I, for one, am really excited about the upcoming opportunity.
Richard,
Lots of people weren’t into tech stocks in the 1990s. I wasn’t. My net worth dropped from $400,000 to $250,000, but I was not discouraged. I knew tech investors who lost more than 80% of their net worth.
This time I think a lot more people got into this real estate bubble than the tech bubble. The losses will be widespread. For instance, in this bubble, the average savings rate is negative. People borrowed on their homes (already overinflated prices) to buy SUVs, big screen TVs, vacations, and the like. The credit crunch is huge and worldwide this time, whereas it seemed confined to just the U.S. in the 1990s. At worse, I think the U.S. unemployment rate will get up to 11% in the U.S. during the next decade. But that’s no worse than socialist European unemployment rates. As a side point, the unemployment rate in my hometown of Fresno and its nearby farm cities in California has been in the 11% range in the 1970s and 1980s, so I would be used to it.
On the positive side of the coin, many of us bloggers are renting and have in essence become much lighter on our feet. We can travel anywhere in the U.S. and get jobs if we have to. Meanwhile a mortgage payer is a slave.
I’m able to relocate to the east coast by the end of this week if I have to. That’s how ready I am. I’ve done that back in 2002 and made it there within 3 days from Phoenix by driving. I have confidence that my line of work will be in great demand for the next 8 or 9 years, but not necessarily in one place. I’m ready for that. Otherwise I can sit out without a job for 5 or 6 years.
Eliminate phony “employer-paid taxes” and pay income taxes once a year (i.e., all at once). If people realized exactly how much they’re truly paying maybe they’d pay more attention and vote accordingly.
Abolish the FDIC & the FSLIC. If people understood that all their money was at risk then they’d be much more careful about to whom they entrusted it.
I’m having a hard time getting on the “no bailouts” bandwagon. I have family in Cleveland, which has a huge number of foreclosures, and I’ve seen what a lot of empty houses can do to a neighborhood.
My grandmother lives in Shaker Heights, a nice suburb. Most of Shaker is still nice, but her area is going downhill fast. The house next door to her has been vacant for 2 years, and broken into at least 5 times.
The way I see it, we can pay now with a “bailout”, or we can pay later with crime, arson, and declining neighborhoods.
Maybe the best solution is for government to come down hard on the brokers (especially non-bank brokers) and encourage refinancing instead of foreclosure.
Yikes! If they did that, all the morons would continue to believe that “risk” was a thing of the past.
There are different reasons for foreclosures in many areas. Some are due to the credit bubble, and some are due to general economic malaise.
Unfortunately, propping up prices only serves to eliminate affordable housing. Much better to get on with the pain already & start from scratch (hopefully a bit wiser the next time).
Bill of Phoenix.
I got out of the stock market in 1996 and got back in at the bottom of 2002. Doubled my Roth by late 2005 sold out and retired. It is all a matter of timing. Bought my 2700 sq. ft. foreclosed McMansion in Southern Calif. in ‘85 at the bottom of a cycle at 3 times my earnings for the year. Again, it’s all a matter of timing. All of those houses in the Inland Empire - Riverside, San Bernardino, and out to the newer suburbs of Beaumont and Temecula will still be there in a couple of years, just different names on the deeds. Hate to have a 2/28 first with 6.5% margin and a second for the other 20% on one of those about now. It’s called entropy - can’t win, can’t break even and can’t get out of the game — at least whole.