The Housing Bubble

Ha, good one.

I used to have mixed feelings about prop 13. My mother owned a house in Riverside, that went from 250k to 650k and back to 175k. Do you think the tax appraisals would have followed this path? Why should someone who just wanted to live in their paid for house, have to pay tax on a BS value to support a crooked system? I think we need prop 13 nationwide.

Prop. 13 is not the problem. Out of control government growth and spending is the problem.

Comment by SV guy
2010-03-18 17:41:32
Prop. 13 is not the problem. Out of control government growth and spending is the problem.
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Exactly.

Govt ramped up its spending during the credit bubble, just like Joe Sixpack did.

Prop 13 should apply to primary residences only.

End of story.

There is no reason that a wealthy resident of Nevada, who pays no CA income tax, but owns property in CA, should increasingly share disproportionately in the cost of the services that their property enjoys.

That and the pension system in CA (part of the drunken sailor part) needs to be completely scrapped.

Against off-the-rack-suits?

I’ve just learned something new today!

I’ve heard that from people who live there - adultery is just a lot more accepted there, thus it’s less common for it to lead to divorce.

A local school board president was lost to a heart attack this week just after a stressful school board meeting where they were discussing reorganizing the district and shutting down an elementary school. She along w/her peers had just voted unanimously to shut down the school.

Today’s local paper outlines all the districts that will be experiencing cuts. Its tough to watch because it’s all the poorer communities and many of those kids are already in situations I would never send my kids into. (Sewer odors in the lunchroom, unsafe buildings, no books) One district reported taxes would have to be raised up to 400% to cover the loss. (Of course, they’ll have to cut services too) No info yet on cuts in the wealthier districts.

As an aside, we finally got our friend the appraiser to admit most of the housing inventory in this district isn’t that well maintained because most people are lucky enough to keep up with the taxes. But people buy anyway….like Elizabeth Warren says parents buy the school. I guess we’ll be discovering soon enough where the ceiling on affordability appears.

“More taxes coming …”

And less services. Pay more out, get less in return. Inflation, right?

But inflation is caused by too much money chasing too few goods and services. Now the problem is too little money to is available to chase the good and services, which creates a shortage of goods of services, which makes the cost - and thus the price - of these goods and services to rise.

Ever-increasing taxation for ever-deteriorating services. There’s a recipe for political stability.

Carrie:

Now do you see my point we must force kids into reading writing and speaking English..no more excuses for poor people. Hip hop ghetto must be eliminated,we cant afford it.

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Its tough to watch because it’s all the poorer communities and many of those kids are already in situations I would never send my kids into

Let me explain voodoo, er, supply side economics again:

Raise prices when times are good and claim scarcity of goods and services.

Raise prices when time are tough and claim scarcity of income while cutting goods and services.

Thinking people should get their news from a variety of sources, without wearing ideological blinders.

I have low expectations for the Tea Party “movement.” They’re a medley of pissed-off people with no real leaders, no coherent program, and they’re highly susceptible to manipulation by Republican operatives and K Street whores like Dick Army and Freedomworks. If anything positive comes from the Tea Party movement, it will be that a small minority of them will be motivated to think more deeply, educate themselves and those close to them, and reject blind allegiance to our political parties and the charlatans that lead them.

I have low expectations for the Tea Party “movement.” They’re a medley of pissed-off people with no real leaders, no coherent program, and they’re highly susceptible to manipulation by Republican operatives and K Street whores like Dick Army and Freedomworks.

Exactly right. There’s a whole lot of energy and rage there, but not much in the way of a coherent message or plan of attack. Dick Armey’s stinky fingers are all over the Tea Party, and that alone should give a thinking person pause.

“…think more deeply, educate themselves and those close to them, and reject blind allegiance to our political parties and the charlatans that lead them..”

I assume you mean BOTH parties, right?

It’s a whole lot easier to unite AGAINST something than FOR something.

Please note that the coffee party has, thus far, come to exactly nothing. Being in opposition to people being mean to each other is a very thin reason to get people organized to do much of anything.

All you have to do this June/November is pull the lever for the guy without ‘INCUMBANT’ after his name !!!

I don’t have proof but only a gut feeling that people who put themselves in the position of being cash-starved are not the people who tend to buy gold bullion.

The people you are talking about will sell their SUVs, ATVs, monster trucks, jet skis, dirt bikes, and big screen TVs if they are cash starved. They would have dumped their gold long before their toys.

I don’t think we’re going to see gold bullion under $1000 anytime soon. Unless, for some reason, the masses in India decide to cash in on the high prices. But if we do, I”m buying.

“The people you are talking about will sell their SUVs, ATVs, monster trucks, jet skis, dirt bikes, and big screen TVs if they are cash starved. They would have dumped their gold long before their toys.”

How could you forget BOATS in that? LOL.

Saw a truck the other day with a ‘boat for sale’ written all over the windows.

*first* the boat, *then* the truck.

I just sold my 2005 GMC which I bought new. It was HARD to find a buyer. I lucked into a cash buyer, but I priced it more than $3k below book so I leapfrogged all the clueless people asking top dollar.

The guy who bought it for his son also bought himself a 2006 Chevy diesel 4X4 that had only 20k miles on it. He told me the guy he bought it from had paid $57k for the truck brand new. The previous owner also sunk another $10k into a lift, wheels, and tires. He also added an auxiliary fuel tank system for nearly $2k, and a full steel hunting canopy for another $4k+, in addition to some other bells and whistles.

He had receipts totaling more than $80k. $80k for a truck! So, the guy offers him $30k cash, and the previous owner gets all bent out of shape and insulted telling him it’s worth way more than that, so the guy says “well, if you feel it’s worth more, then go ahead and shop it around and here’s my number if you have a change of heart, but that’s my final offer.” The guy called him back a few months later and tells him he can’t find a soul and he’ll take the $30k.

“selling an ounce of gold today will help solve - or at least will help delay - a lot of problems for cash starved people.”

Like those cash starved Chinese?

Or maybe we’re the sheep?

Maybe?

Well - in a physical sense we’re like plankton, but in an economic sense the collective economy as a whole is more like a large host that is indeed bigger (or at least *was* bigger) than the parasite(s).

One thing I’ve always wanted to do is to find a good measure of the delta of banks’ percentage of the overall economy. So far the only data I’ve got is this, from FDIC data that only goes back to 1993. Nevertheless that does show quite an alarming trend - that banks’ portion of the economy has grown by leaps and bounds in recent years.

This is of course easily visible on Main Street - literally - by just seeing the incredible number of both bank branches and of bank skyscrapers in downtowns. It’s not like these are stores handling physical goods - like groceries, hardware, etc. - these are office-only businesses, that take up very little space per employee - and yet take up a tremendous piece of the overall business real estate in America.

That ain’t right.

Packman - Arguably the problem is in part due to outsourcing/dollar overvaluation*. To the extant that we’re making less STUFF, less of the money in the economy is being recycled through wages and consumer spending. Instead it went through the financial world and was LENT out to create consumer spending. But more money lent to consumers today means more debt service tomorrow. And now it’s tomorrow.

*really two sides of the same coin, IMHO. If the dollar was worth less, foreigners wouldn’t be as cheap to employ and there’d be less outsourcing.

Really good point/question. But are we really making less stuff, with respect to how it affects GDP? E.g. if Company X, a U.S. company, outsources manufacturing of it’s product to China, and then sells it’s product for $N in the U.S. - does that $N get counted towards GDP? All of it? None of it? A portion of it?

Need to look that one up.

By the same token though - we may be making less physical stuff, via manufacturing - but GDP includes all stuff - including revenue services - even financial services. So as the amount of physical stuff we make goes down, it doesn’t take GDP down with it.

So - just found that GDP does not include things outsourced. GNP does - so that’s the key difference between GDP and GNP.

“One thing I’ve always wanted to do is to find a good measure of the delta of banks’ percentage of the overall economy.”

Ah, packman, I’ve seen that in graphical form recently. Now to remember where.

Please do if you can. I haven’t dug around much though - it’s probably out there in various forms.

Agree, Elanor.

And don’t forget that the bank sold that loan up the food chain and was paid a hefty bonus for doing so. Those a-holes were buying diamonds and yachts on the promise FB’s future labor with nary scruple long before the FB even began to think about morals.

The banks deserve to take it in the [insert orifice of choice].

And NEVER forget that the banks had the LAST WORD on approving those loans.

Yes, that’s true, and the entire lending business had changed in large part because of “automated” lending applications that would prevent the “discriminatory” lenders from giving loans to certain types of people we won’t mention.
The “credit score” was the sacrosanct answer to any problems with banks giving loans to people who didn’t deserve them.
While i admit it was a stupid plan, the banks thought they were covered. In the subprime areas, they had certified appraisals in the event they needed to cover any losses.
But most of these loans are not sub-prime, they are people who are strategically defaulting. They are not paying because the made a bad deal.
The banks did not GIVE them the money. The banks LENT them the money based on their good name and credit rating.
They SPENT the money, often on luxury items for consumption………..an act of WILLFUL neglect to frugality, and now, oh my oh my, they don’t want to pay back the money they BORROWED. That is what a LOAN is.

And though it may sound as if I am taking sides with the lenders, I am not. I am simply not allowing a free pass to DEBTORS to walk away from obligations they freely undertook. When these things happen, all civil society begins to fall apart. Who can you trust? Anyone?

“Who can you trust? Anyone?”

So you’re still looking for that honest man after all these years?

“But most of these loans are not sub-prime, they are people who are strategically defaulting. They are not paying because the made a bad deal.”

You seem to be overlooking the vast numbers of so-called prime buyers who are either making minimum payments and/or cashed out to where they can no longer “afford” the place, although it was dubious if they could in the first place.

I am simply not allowing a free pass to DEBTORS to walk away from obligations they freely undertook.

Who says the FB’s is getting a free pass? The FB’s had to return the house, and give up their “good name.” That was the deal, which the bank signed onto. And if that house is worth less than the FB borrowed, well that’s the bank’s fault. After all, the bank accepted the appraisal, often with their own crooked appraisers. The banks are being hoisted on their own petard, doubly so. First for being dumb enough for lending the money in the first place with only the house as collateral, second for believing their own crooked appraisals would never backfire on them. Hang ‘em high, I say.

And that’s in a non-recourse state with no re-fi. If the FB refi’d with toys, or bought in a recourse state, the FB is not getting off scot-free. The Fb is fried.

But - when you think about all that money you’ve put into your house - don’t you picture it as a stack of poor sagging bills, down in your basement tied to a chair, hungry, and longing to be set free? Don’t you feel like a slaveholder for not freeing up that cash that that’s tied up in your house?

(Excuse me while I go take a shower…)

no. not at all. the money tied up in the house and me, we are on friendly terms. it is lazy like me. it doesn’t have any desire to go prancing on the tables of the local casino. it doesn’t have visions of gliding into a hot new IPO for a dance with other people’s hot money. It is content to just lie around the house and rest. The FED will stimulate it once in a while, and agents from various government entities snoop around outside trying to pry it loose from its cozy little haven….but to no avail.
They have slipped their hands into the crevices occasionally and pried some of it away. I try to stop them, but I can’t be watching all the time and they know we are here. The tax assessor has us on a list.
My money will just have to rest a little longer. While the FED tries to kill my money so it can create “new” money, it is hidden mostly out of reach. The come around all too frequently, but we resist them. We stay secure behind these walls……………..

D.

Please run for office. Any office.

Healthcare isurance costs rise during a recession because the healthy young workers are the first to be laid off and the risk pool gets riskier.

No judgement on the right or wrong of it, but that is why. Cosmetic surgery prices meanwhile are going down and down.

“Preventing this sort of debacle in the future is all about disuading anybody from lending the money to them. Why?”

Then, why, praytell, is this all about a “liquidity crisis”. Frozen lending. No loans available. The entire focus of the correction from the Whitehouse and their advisors has been to RESTORE lending. Period.
Get the credit moving again. More debt. More loans. Lower interest rates.
Obviously, the “leaders” are delusional.
We need more credit contraction so this crap won’t get started again.

We need more credit contraction so this crap won’t get started again.

I can remember, back in the Jurassic period of the 1970s, when credit was a lot tighter than it is now. And that’s just how things were back then.

We dealt with it by saving up to buy things. Or we put them on layaway. Or (gasp!) we did without.

They played the game and they lost. Boo-hoo. As a renter who refused to get caught up in the madness, I shouldn’t be forced to pay for their mistakes.

Well Boo-Hoo for us too because no matter what the FB’s do, we’ve already paid for their “mistake” anyway.

We paid when they enacted bank bailouts. Game over for that. Now do you all want lower house prices or not because you’re not going to get them without massive walk-aways and foreclosures. That’s the disconnect I see here. 4 years ago you guys saw this coming and predicted walk-aways and now it’s all “bad buyer this, bad buyer that.”

Do you think you are going to be able to pick up houses for 200K when your neighbors are “dutifully” paying down their 500K notes? Do you really think it’s going to work that way?

If people don’t walk, prices are not going to come down because banks are not doing their job of foreclosing.

The way I see it, 2 parties are to blame, and if one of the parties is exempted from having to take its medicine, I’m not going to whine about the other party not being force-fed theirs.

Especially since most walking away have gone through years of mental-anguish, busted dreams and/or unrecoverable financial ruin whereas the banks have been rewarded.

I don’t feel sorry for the FBs, but their walking away does not anger me as much as our government/business cabal’s encouraging of the FB’s every step on their American dream path to ruin.

Rio,

Prices are set on the margin and there is always some level of churn in housing. If people who want to live in that neighborhood can’t get loans for more than $200K, then that is what the houses will sell for, no matter what size notes other neighbors are paying down.

That being said, I don’t worry too much about what other people are “getting” that I did not get. I know my personality and the stress of waiting for the forclosure or a 1099 on the COD income or just not having significant savings would wear me out.

Prices are set on the margin and there is always some level of churn in housing. If people who want to live in that neighborhood can’t get loans for more than $200K, then that is what the houses will sell for, no matter what size notes other neighbors are paying down.

That’s true. But I also think that more people walking-away (in that neighborhood), will bring prices down faster.

I also think that people who want a 200K house where neighbors are “dutifully” paying a 500K note, want their cake (a cheaper house) and to eat it too (to see FB’s in house arrest debtors prison). I just don’t think it will or should work that way in light of the big housing con job.

And Levi Strauss. He got his start (and made a lot of money) by selling durable pants to the miners.

“I’m starting to think that getting a home in a safe neighborhood where myself and Mrs. Chile can afford a house on one income would lead to a better education for Mini-chile.”

I couldn’t be further from your scenario. My wife and I both have to hustle… there is no way we could live anywhere safe w/good schools on one salary. We don’t mind hustling, but that’s a dumb luck because we don’t have a choice.

No one can live cheap and safe near good schools — that’s Warren’s premise. I think Chile wants to live cheap and safe, while the stay-at-home parent educates the Mini-Chile to make up for the bad school.

“while the stay-at-home parent educates the Mini-Chile to make up for the bad school.”

Way too risky, IMHO. Peer grouping is ginormously important. I’m not saying it can’t be overcome, but why risk it?

If you have a good ‘hood, with good parents and schools, AND you can have one SAH parent, you’ve hit the jackpot in my belief system.

No one can live cheap and safe near good schools — that’s Warren’s premise.

I like Warren’s writing a lot, but I have to disagree with her on this point — it’s certainly difficult to live “cheap and safe near good schools,” but it’s by no means impossible. It depends on one’s priorities and assumptions.

First and foremost is that well-ingrained notion that one should own a house in such an area, instead of exploiting the rental stock. I’ve known many people who used that tactic to their advantage in areas where they could never buy.

Secondly, what is the lifestyle that these two incomes support? Two car payments, central AC, cable TV, perhaps child care, and lots of meals out for two harried parents? I’m not suggesting a cutback in such things is for everyone, but it can be done.

Finally, as all HBBers know, there’s the question of when one buys in a certain school district. Prices are not monolithic over time. My parents bought a house in NoVa in the mid-’70s with just such issues in mind. That house was affordable on one income then, and that’s no longer the case. That doesn’t mean, however, that affordability will never rear its head in such a school district again. (Conversely, there’s no guarantee that a good school district will remain so over the life of a child’s education.)

Secondly, what is the lifestyle that these two incomes support?

This is where Warren’s book breaks down, IMO. She can only give some lame answer about “middle class families having to give up on being middle class” without specifying a clear line between middle-class and working class or poor class.

However, Warren does debunk the “Applebees and Starbucks” myth of cash-strapped parents spending too much on goodies. She compares the 2002 family to the 1970’s family and shows that the 70’s families spent as much discretionary income as the 2002 family — it’s just that the toys were less shiny and proportionally more expensive in the 70’s, so it’s hard for 2002 folks to think of them as goodies.

At least that’s what I got out of the book.

Bad chili, I agree w/your plan. If we were still in our last state I would not be in a top school district. I’ve been stay at home since 1997. At the time I made twice as much as my husband did so it was a decision that resulted in a big financial step down. In my opinion it was worth it but one way we made it work was to move out of the more populous coastal areas and move inland. That top district we’re in now: all on my DH’s salary. My return to work is definitely still in the fun money category. There are many reasons women work and I support anyone who decides that’s the best decision for their family but I know I made the right decision for us. Things are going quite well for us despite the lack of a Mercedes sedan or designer drapes or a even a mortgage in our name house. We could buy a house. We just want a house equal in value to what we sold in the other district and what we’re looking at is no where near it. However, we’re feeling quite satisfied w/life in the meantime. We’ve got everything we need.

As far as E. Warren’s premise, here’s another spin on it: The good schools are more in demand where their incidence rate is low or when the other options are more vastly inferior or when your child would do bettter w/a program that only certain schools have. So again the choice options may be different depending on the specifics of your particular area. The school I went to as a young’in was considered one of the best in the area. But there were several other towns in the surrounding area you could have gone that would have been just as good. So I don’t think people were falling all over themselves to get into any one in particular. I always thought it would have been cool to go to Hampton, NH’s HS. They could probably smell the ocean at football practice.

The problem where I live is the entire county is one school district. No choice there. We do have schools of choice, but there’s no guarantee you’ll get your top pick or even No. 2, or No. 3…

I understand Muggy’s points on 2 incomes, but I totally disagree with the thought that it can’t be done.

I purposefully did it by moving out to an exurb, I work 11 hour days, including a 2.25 hour round trip commute. My wife is SAH. My girls high school was listed as top 6% in the nation (top 1250 schools) last year.

Timing of the purchase is a hugh component, but just simply avoiding waste on things like full priced movies, expensive annual vacations, a ski boat, etc., etc. makes a difference and can indeed make it possible.

I recommend looking up that survey of high schools and seeing if there isn’t a solution within a reasonable distance. Not wanting to live in podunk isn’t an acceptable excuse IMHO for not doing what’s best for your kids.

Bingo.

Schools are going to be closed. Classroom sizes will be going up. The benefits of the higher income areas may not be there forever. A certain minimum level of classroom instruction may remain, but the extras are just that, extras.

Or the kids in the eliminated districts will be bussed out to the more modern schools. If you were on a school board and had to decide between keeping a 10 year old school open (prewired for computers, etc.) and a 70 year old school open (past the replace date on its second boiler and the roof leaks), which would you pick?

“If you were on a school board and had to decide between keeping a 10 year old school open (prewired for computers, etc.) and a 70 year old school open (past the replace date on its second boiler and the roof leaks), which would you pick?”

This is a very interesting problem, and one that I am familiar with. It actually has to do more with poulation density and what the value of the property is to the school board. Many of the newest schools are in areas that I would call, “unproven exurbs,” and may actually be better off being abandoned in the future because they are too far from population centers.

A new school, and I mean brand spanking new, could be worth much less to the school board than an old block building in a high-density area near a beach.

There is way more at play than the guts of the building, and wiring up an old, crusty building isn’t all that bad in some cases.

This is a very interesting problem, and one that I am familiar with. It actually has to do more with poulation density and what the value of the property is to the school board.

Don’t forget about replacement costs, either. In Chicago, there are plenty of big ol’ grand dame school buildings that stay up because the replacement cost of suitable land (if there is any to be found in that district) + construction is likely much higher than retrofitting an existing facility. Our city is willing to buy, sell, or re-purpose parcels of land on a regular basis, but the schools stay fairly constant, at least in relation to other changes seen over the decades.

Good point, but there was a reason I stated 10 years old rather than brand new. The ones built for kids in subdivisions that never sold at all (do they build the schools before the families even arrive?) are not viable.

I do know that the really old intermediate school in my home town (near the older zoning with smaller lots so the population density was much higher) was the one that closed. The location didn’t matter when there was 10 inches of water in the basement every other year and people started to make noises about unencapsulated asbestos on low hanging pipes. Having no chance at being made handicapped accessible was also an issue.

The much newer junior high school which was way out in the middle of nowhere as far as population was concerned (near the dump, excuse me, sanitary landfill) with the shop and home ec rooms, ramps, fire doors, science labs, planetarium, library, resource rooms for the mainstreamed kids and a few other goodies was kept open.

Polly,

OT…but would you be familiar at all w/the status of Westwood, MA’s HS facilities? I was in there once and it really stuck w/me how one of the better school districts in MA had such a deteriorating facility. This was circa 1998. I’ve always wondered if they got the building upgrade I felt they deserved….mostly because I feared for the kids safety. (I remember they did contract to purchase but did not end up receiving an Olympic size pool….yeah, I was still there for that fiasco)

Sorry. Not familiar with that one. I don’t think we ever had math team meets or drama competitions in Westwood.

I’m thinking that there is a grey area between willing and unwilling. If business can convince an adequate portion of the population to spend in a certain way (ie take on 50 year mortgages), then everyone else who wishes to compete (for houses) has to consider doing the same. Ultimately you may sign on the dotted line, but the scenario was created where it’s either take the long mortgage or don’t buy.

How else would one make money, if not off others?

The question becomes are you giving value, in exchange, for other people’s money? If not, it’s just a pyramid scheme.

I’m thinking that there is a grey area between willing and unwilling. If business can convince an adequate portion of the population to spend in a certain way (ie take on 50 year mortgages), then everyone else who wishes to compete (for houses) has to consider doing the same. Ultimately you may sign on the dotted line, but the scenario was created where it’s either take the long mortgage or don’t buy.

Dozen’s of HBBers who wisely held off and rented when prices went through the roof would beg to differ. No one was forced to buy.

The question becomes are you giving value, in exchange, for other people’s money? If not, it’s just a pyramid scheme.

Only if fraud is involved.

If you’re not getting value for your money, it may be due to one of two reasons:
1. Poor decision on your part
2. Fraud on the part of the seller

In the former case - it’s your bad - learn from your mistake and don’t do it again. The seller did nothing morally wrong.

In the latter case, the seller committed a moral wrong, and is thus liable. Which is why fraud is illegal.

Of course - “fraud” is often in the eye of the beholder. Sometimes it’s obvious and clear-cut (Madoff ponzi scheme), sometimes not so much (Ratings agency MBS behavior). Either way though - the principle I stated above remains intact.

If business can convince an adequate portion of the population to spend in a certain way (ie take on 50 year mortgages), then everyone else who wishes to compete (for houses) has to consider doing the same.

This has already happened with credit cards. We all complain about how “our grandparents never used credit, they saved up.” Well, our gp’s didn’t use credit because they didn’t have credit. Few people had credit, so the market had to cater to those with cash. Low prices were all the cash market could bear. Nowadays, the enough people have credit to support the higher-price market, and so higher prices it is.

“Dozen’s of HBBers who wisely held off and rented when prices went through the roof would beg to differ.”\

HBB Original Gangsta

Your textbook definition of competition doesn’t apply so well when the rate of increase of supply cannot match the rate of increase of demand.

So then oxide, given the situation - which is more moral?:

- Providing the limited supply of ice to those who can pay the most?
- Providing the limited supply of ice to those that get to the store the quickest (presumably those that live the closest), and/or those that carry a gun to the store?

From your statement it seems you would prefer the latter. Why is that more moral than the former?

The absolute amount of morality didn’t change — the immorality simply transferred from the gouging seller to the gun-toting buyer. Or those who live close were just lucky. It’s never going to be perfect in a situation like that.

That was an extreme example. I was thinking more along the lines of higher pricing for necessary goods in general.

oxide, you are ignoring the utility/efficiency provided by those increased prices that you call “gouging”.

Consider this example: would you prefer that the last block of ice available during a long outage go into the freezer that is holding $1K worth of meat, or the fridge that is holding only ketchup, mustard, and beer?

The high prices help route the limited resource to the location where it provides better utility. If the price is kept at $1/bag, people will do stupid things with a limited resource.

How can it be immoral to allow the free market to express that utility?

Your textbook definition of competition doesn’t apply so well when the rate of increase of supply cannot match the rate of increase of demand.

Huh? Supply and demand are by definition in equilibrium when the price is allowed to float. Only when there is price-fixing can there be an imbalance.

This is turning into a far more complex example than I intended.

What if the meat guy spent his last $1K on meat, while the beer/mustard guy put his last $1K in the bank? Now the guy who needs the ice most can least afford it, and vice versa. How does the market solve that?

Or, another answer: Are you saying that the guy who could afford the $1000 of meat “deserved” the ice more than a Budweiser slacker who would just waste the ice? On the face of it it would seem so. But you just tipped the playing field in order to include past actions into the current crisis situation. The immorality now transfers to the rich guy who bought the $1K of meat and didn’t give half to the slacker, irrespective of the power. Yes, I know this is an ant/grasshopper commie example, which is a debate in itself. But the point is that all things would have been equal before the power went out. In that case, your ice question would be moot because the ice would be equally deserved by both — which doesn’t answer the original question as to whether or not the ice seller is gouging.

Or another argument. Say the ice seller has plenty of ice for everybody, but he knows people are desperate, so he allows people to assume there isn’t enough to go around, and charges accordingly. Isn’t that gouging? (hmmmm, sounds like the NAR)…

Say the ice seller has plenty of ice for everybody, but he knows people are desperate, so he allows people to assume there isn’t enough to go around, and charges accordingly. Isn’t that gouging?

Sounds like an ice seller that will be out of business when the power goes on.

Unless he gets a bailout, of course.

Huh? Supply and demand are by definition in equilibrium when the price is allowed to float. Only when there is price-fixing can there be an imbalance.

Textbooks love to give definitions and equations about what happens at equilibrium, as any budding engineer will tell you. But equilibrium does not always happen instantaneously, as any experienced engineer will tell you. There is generally a ramp-up. So, how long would it take for “vendors to bring more goods to an area?” Say, one day? The price gougers will have a lock on low supply and high demand, even if only for a day. There will only be one day of price gouging, but it’s still there. By then the power is back on anyway, unless you’re in Haiti or New Orleans.

And the central question still remains: is it moral to allow the price to “float” during such a ramp up? After all, ice is a necessary good, and we have not yet reached equilibrium. During this period, your free market isn’t free yet.

[of course, there's far more to this equation. Vendors may choose not to bring ice because they know the power will go on before they get there. Or, the power will go on before people get desperate for ice. I'm trying to leave those types of complications out of this example.]

oxide - question - why is it considered price gouging? Isn’t it because something’s being sold for more than it’s “worth”?

But worth is a relative thing. In a power outage - ice is worth a lot more than during normal power. Thus it’s not actually being sold for more than it’s worth. As we’ve testified time and again here on HBB - “worth” is what someone’s willing to pay for something.

I think the main problem people see is that it’s being sold for a lot more than the business owner paid for it. But why is it immoral to do such a thing? If excess profits are immoral - then wouldn’t Apple be immoral for making such a profit on iPods, Girl Scouts be immoral for making such a profit on cookies, etc.?

By the same token then - shouldn’t it be immoral for someone to buy something from someone for less than what the seller paid for it? Say - for houses that have gone down in value, below what the seller paid?

Penalizing someone for making excess profit just means they’ll work a lot less to provide that benefit. Probably ice sellers wouldn’t keep as large of a supply on hand. This in the end hurts the community, because then they don’t have as much ice when the power goes out.

Price gouging is usually defined as taking advantage of a captured market (disaster, major accidents, competition leaving, etc) and marking the price up over what is the usual, historical, regional norm.

“…Not at all. High prices encourage vendors to bring goods into an area of shortage…”

Not at all LehighValleyGuy. What happens in reality is that vendors try to artificially support the shortage to keep the prices higher than historical norms.

That’s what it really encourages. Period. (ask me how many hurricanes I’ve been through)

This is more a humanitarian issue than a simple supply demand curve.

During a power outage, ice is a necessary item, like electricity. In fact during a power outage, ice becomes electricity, if you will. It becomes very necessary. The price gouger is taking advantage of human frailty, like someone dangling food in front of starving people. All for a damn buck. Isn’t ice profitable enough at normal prices?

Of course, the price gouger would scream bloody murder if he were the one stuck paying high ice prices.

I know one insurance company that’s bringing IT jobs back to US from India. They had hundreds of people in development and infrastructure in India. Suddenly it’s not looking too good over there. Most of the jobs are coming back. FWIW.

I agree. I’ve dealt with Indian programmers, and that was enough to convince me of the merit of hiring Americans instead.

Why? Because Indians don’t have the same sense of time urgency as we do. It took days to get very simple things done.

Ditto for the language. They speak something that resembles English, but the comprehension just isn’t there.

And don’t get me started on the quality of the coding.

Similarly - things aren’t looking too hot in China these days, either.

Why is it “not looking too good”? Low-quality? Or is Indian outsourcing becoming too expensive?

Too expensive. Guess how much one department was paying for a team of 4 in j2ee infrastructure support?

$300,000. 75K per person. That’s more or less the salary for mid level FTE in similar capacity here.

Since they already are, do you want them to be unregulated as well? Because unless new regulation breaks them up, they are going to remain that way.

I never said I wanted anybody unregulated.

Oh, and yes, their assets should be recovered and divided amoungst those who were swindled. the money should not go to the “state” as fines and forfeitures.

The only way to make sure the regulators do their job is to make them personally liable for damages if there’s reasonable cause to conclude that they should have seen malfeasance and fraud, but failed to do so. The CEOs and upper management of all the credit ratings agencies should be facing criminal and civil penalties that correspond to their gross negligence and dereliction of duty, if not witting collusion with the banks and insurers they were supposed to be rating.

i could write a list of charges……..misfeasance, malfeasance, non-feasance, failure to disclose, fraud, dishonest dealing, scheme to defraud, false promises, rackeetering, embezzlement, conversion of clients funds, concealment, and a host of other similar “legal” charges, and I am not an attorney, nor do i play one on t.v.
I am sure a competent lawyer could find a holy host of other charges to bring all these crooks into court for trial and RECOVERY from their personal assets to pay back the defrauded investors.
The shenanigans of AIG writing insurance with money it didn’t have in cahoots with Goldman-Suchs, should put all these folks in Federal Prison forever, right next to Bernie Madoff.
Where are the prosecutions?

“…make them personally liable for damages if there’s reasonable cause to conclude that they should have seen malfeasance and fraud, but failed to do so.”

What regulator has trillions of $s worth of spare change to cover the damage to the economy due to a meltdown like the one we are currently experiencing?

Sarbanes Oxley was made almost worthless by the repeal of the Glass/Steagall Act.

Let me rephrase that:

Without the Glass/Steagall Act still in place, Sarbanes Oxley was nothing but a gesture, so to speak.

You do know that Sarbanes Oxley applies to all public companies, not just financial ones - right?

Lots of small and medium companies would very much beg to differ that it was nothing but a gesture. Compliance is not cheap, as the quite-stunning drop in IPO’s since 2001 attests.

Exactly, PB. To paraphrase Karen De Coster, the Fed’s investigators are on the case. You know, that talented and dedicated team of ex-Goldman Sachs executives who pass through the revolving doors from Wall Street to the back door of Pennsylvania Avenue via the Treasury Department, so they can grab enough power to centrally plan the economy and engineer the bailout of failed and corrupt financial giants to keep their pals in power and in control of the financial system that does the BOHICA Dance (Bend Over, Here It Comes Again) on the backs [more like the much-abused backsides] of the middle class.

Yes, we need a “blue ribbon panel”, like the Warren Commission, to investigate the crimes and declare to the nation what when wrong……….then SEAL the records for 75 years, so that all responsible will be long dead before their grandchildren figure out what really happened.
Of course by then, no one will care, and if someone does, the Supreme Court will probably put a gag order on any discussion over the proceeds.

Yes. Yes they were. Deliberately.

eco - you seem like an intelligent person, so it still stuns me to see that you think that more regulation = less government corporate ties. Still see the government as our “protector”, eh?

Ding ding ding! We have a winner! Exactly the reason…

Naw. The “straws” were really from Tiffany’s.

Good enough for me.

How are you planning to implement your solution?

Agree

No more TBTF is the best solution.
No more so powerfull you control gov institutions like GS.
When there are a lot of players with similar power you get a better system and gov.

How are you planning to implement your solution?

Hey, I’m only in charge of ideas. Implementation is another department.

I can give you their number though - it’s 1-800-F***-O**.

(At least that’s what they gave me)

“Implementation is another department.”

I’m an idea guy, too. Maybe we need more implementers and fewer ideanators?

Sounds like a plan.

But who’s going to implement it?

“But who’s going to implement it?”

Thanks to the excess supply of planners and the shortage of implementers, my guess would be that it ain’t gonna happen.

You can take that to the bank!

I do live further inland, and I’m seeing signs of the second wave down. Sales are slipping significantly YOY now, so if this continues into the summer there will be another crash in the making.

Potentially. We are beginning to see additional business activity though. If this results in job creation, I would be surprised if a significant second leg down materializes.