May 29, 2011

Egging On The Worst Behavior

Readers suggested a topic based on a quote from a previous post. “From today’s desk clearing thread: ‘…and start moving the government out of the business of egging on the worst behavior.’ Proposed weekend topic: What was it that started the government down the path of egging on the worst behavior to begin with?”

A reply, “My opinion? That oft-repeated notion that homeownership makes people better. As in, their kids do better in school, they’re more engaged in their communities, the birds in their trees sing sweeter tunes, you get my drift.”

To which was said, “I agree that’s how it was sold. But the reason to keep it going was $$$, campaign contributions, tax revenues, etc. Also, of course, those that get in early on a ponzi scheme tend to benefit disproportionately and have an incentive to keep it going.”

“Did anyone ever examine whether one “owning” a house was the cause of all of those supposedly good things or instead merely a symptom of having a stable job with a decent income, enough income to be able to do all of those supposedly good things?”

Another added, “Homeownership was a byproduct of being an upstanding citizen. Back in the days of real down payments, and real credit checks before the banks handed you a couple hundred thousand bucks. Then the marketers/advertisers started promoting the view that you could turn yourself in a upstanding individual by owning a home.”

The first poster replied, “Presumably, before everyone who could breath qualified for a mortgage, owning a nice home, funded by a prudently-underwritten mortgage loan, was an indicator of middle-class stability; the same people who worked hard, had decent jobs, and lived in upscale neighborhoods also were more engaged in their communities, had above-average children, and enjoyed the sounds of the most gifted song birds singing sweet tunes in the canopy of trees above their heads.”

“Fast forward to the subprime lending era: Confused gubmint economists, who thought that home ownership caused desirable social outcomes, lowered the bar to the level where all manner of riffraff and no-account lowlife could qualify for a loan. Suddenly home ownership became a much better indicator for future financial hardship than for desirable social outcomes. Way to go, social engineering flunkies!”

One added, “I would argue that the government was the trailing horse here; turning a blind eye to the depredations of GMAC, GreenPointe, Countrywide and their ilk, who were already in full swing by the time our (stated,) economic policy turned to real estate to bail it out of the tech crash in early 2000.”

“As early as the mid- 90’s, these mortgage lenders had blanketed the country non-stop, day and night with national advertising campaigns offering cheap money to the masses. They proved so popular that opposing them would have meant political suicide. George Bush’s “ownership society” only codified the carnage that was already well underway.”

And lastly, “In my opinion Wall Street saw that the American middle class had accumulated a massive amount of money. They then took over our government through bribery and set themselves to work stripping that wealth. Mission accomplished.”




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65 Comments »

Comment by rms
2011-05-28 11:32:04

And lastly, “In my opinion Wall Street saw that the American middle class had accumulated a massive amount of money. They then took over our government through bribery and set themselves to work stripping that wealth. Mission accomplished.”

+1 Better known as graft and corruption.

It’s terrible to go after the gullible and mentally weak to amass one’s wealth; Roland Arnall was a perfect example. We have laws to protect the feeble from the physically strong, yet the sophisticated investment bankers currently have carte blanche powers to strip mine the tax paying public when their sub prime prey eventually folds. I say dispose of these financial criminals in the same way that Bin Laden was disposed of — no grave site.

Comment by Ben Jones
2011-05-28 12:50:33

‘investment bankers currently have carte blanche powers to strip mine the tax paying public’

Hasn’t it been that way for decades? All this anger about bankers is interesting because what has actually been done about it? For instance, the Tea Party sprung up out of some of that feeling, but listen to posters here go bonkers about them.

My point is there is a key disconnect in the sentence I copied above. ‘carte blanche powers to strip mine the tax paying public’.

Where do these “powers” come from? All this “public” has to do is throw the bums out. Why don’t they?

And back to the original topic; what do we do in the US when things get bad? Why our government “encourages” consumerism. Other countries are adopting austerity measures and we have massive “stimulus”. Got an historic housing bubble? Let’s spend hundreds of billions to get people to buy yet more houses!

Comment by Professor Bear
2011-05-28 14:17:15

“Got an historic housing bubble? Let’s spend hundreds of billions to get people to buy yet more houses!”

Insanity: doing the same thing over and over again and expecting different results.

– Albert Einstein

 
Comment by Professor Bear
2011-05-28 14:22:30

“For instance, the Tea Party sprung up out of some of that feeling, but listen to posters here go bonkers about them.”

The Tea Party movement was hijacked at a nascent stage by self-aggrandizing political hacks.

Comment by CA renter
2011-06-02 01:38:50

Late to the thread…but spot on, PB.

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Comment by bill in Phoenix and Tampa
2011-05-28 14:48:19

Ben, I have seen an epidemic of rants against banks and wall street. Yet I have not been ripped off by any bank or corporation. My net worth in any five year period since I started investing in 1990 has been higher at the end of the five years than at the beginning. I am one of the few who does not urinate in my own beer.

Comment by Ben Jones
2011-05-28 15:05:26

Like going on about how “banks” don’t have the right to foreclose, when it’s mostly the loan servicing arm that handles the foreclosure. The people who are ultimately being delayed in collecting the collateral are regular Joes.

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Comment by SaladSD
2011-05-28 15:05:39

Perhaps it has something to do with our skewed version of “growth.” As long as housing was bubblicous, we had all gain and no pain. Consumers, wall street, banks, the construction industrial complex, state/local/federal government, all got easy money. It was great fun until it wasn’t. Just look at how many states based their economy on population growth. In the old days, this growth was a by-product, not “the” product.

 
Comment by oxide
2011-05-28 17:46:22

because what has actually been done about it?

Short version Ben: The libertarians showed up and said “government needs to stay out of the free market…Don’t tell me how to run my business…I got mine F you…I’m not paying for somebody else’s food/healthcare…Let them all fail because I made it on my own ideas…I want to keep my own money and enjoy the fruits of may labor…union thugs and insane pensions…”

Natural capitalism leads toward greed and to monopoly, and where once one accumulates a critical mass of money, so to speak, it’s far easier to amass more money.

Exhibit A: The rich can buy off Congress, or buy elections with advertising and clever mixtures of lies and guilt trips. e.g. Shenanigans de Koch.

Exhibit B: The rich can effectivly buy careers for their precious children through college and contacts, shutting out the those who are smarter but poorer, effectively creating a new aristocracy of birth and money, exactly what the American Revolution fought against. e.g. Bush Family.

Exhibit C: The rich can play accounting tricks which are open to corporations but not to individuals. e.g. deferred interest, mark-to-fantasy, paying taxes on profit not revenue, discount window, and now, first access to bulk blocks of distressed housing to buy and quick-flip to the little guy.

There are other examples, those are off the top of my head.

It’s so easy to commit quasi-fraud that the court system won’t be able to handle the volume when it finally shakes out.

As for “what has been done:” Republicans repealed the PUHCA act, allowing near-monopilization of utilities. Republicans repealed parts of Glass-Steagall, which allowed too-big-to-fail. Congress tried to raise taxes on outsourcers, Republicans filibustered it. Congress tried to eliminate job-lock on health insurance, Republicans filibustered and watered it down. Dodd-Frank tried to re-regulate banks, it had to be watered down. Yes, a few Dems voted for some of this, but that lock-block that is the other party wants nothing to be done.

Comment by bill in Phoenix and Tampa
2011-05-29 05:34:04

Libertarians showed up at the beginning of the USA. Combined with their love of the free market, they were smart enough to know that a growth economy will prevail with an objective justice system where everyone is on the same level playing field. Oxode and Alpha are slandering the system that helped their American ancestors thrive.

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Comment by oxide
2011-05-29 07:23:42

“slandering the system that helped their American ancestors thrive.”

Yeah, and I’m slandering Mom and Apple Pie and burning the flag too. :roll:

You can’t have a level playing field and laissez-faire at the same time. Even if the field starts off as level — at the beginning of the USA, as you said — it doesn’t stay level. Capitalism, through monopoly and money, constantly strives to tip the field in their favor. Government, through regulation and/or trustbusting, strives to re-level the playing field, which protects the little guys and allow them to grow the economy too.

MY ancestors thrived on a level playing field, not a system of libertarianism.

I notice that those “libertarians” only want government to go away when the field is tipped in their favor, or AFTER they have amassed their pile. When the field tips away, or even stays level,* good lord do they ever wail for mommy to come and bail them out. Ask the banks what TARP, or the quiet billions to AIG, or the discount window, was all about.

———–
*when the field was level, ie no help from buddies like Hanky Panky Paulson, the banks proved quite clearly that they couldn’t control their greed. In a fair fight the banks would have gotten killed, so they didn’t have much incentive to fight fair.

 
Comment by alpha-sloth
2011-05-29 07:34:14

Which was the Libertarian colony?

Oh, I love a free market too. I’m just smart enough to realize that free markets, just like your level playing field, require regulation in order to exist. You ever notice those refs on the playing field? They’re the rule enforcers that allow the game to be played. Imagine the game if there weren’t any.

 
Comment by Professor Bear
2011-05-29 10:50:04

“Capitalism, through monopoly and money, constantly strives to tip the field in their favor. Government, through regulation and/or trustbusting, strives to re-level the playing field, which protects the little guys and allow them to grow the economy too.”

This is where a Rule of Law comes in handy. A capitalistic system dominated by a Mafia-style banking sector is clearly not in the interest of law abiding society; only banksters would find such an arrangement to their liking. Even Adam Smith, the father of capitalism, recognized the need for a Rule of Law in order for a capitalistic system to thrive.

 
Comment by Professor Bear
2011-05-29 10:53:07

“In a fair fight the banks would have gotten killed, so they didn’t have much incentive to fight fair.”

Bingo. We need to restore a system where banks that throw away money into the sea go down with the ship they sank.

 
Comment by Professor Bear
2011-05-29 10:57:20

“Imagine the game if there weren’t any.”

I play racket sports on a regular basis without any refs. My partners and I have to negotiate on occasion to arrive at a call, and hard feelings occasionally result.

But the U.S. financial system is far more complicated than a two-to-four player racket sport. Without a strictly-enforced Rule of Law, there is a natural tendency for systemic criminality to creep in and take over. This is why law-abiding Americans need to muster their collective political strength and demand systemic reform, starting by rooting out those at the top of our financial system who engage in or protect criminal behavior.

 
Comment by Carl Morris
2011-05-29 12:38:31

That brings up something that’s been percolating in my mind for a while. I think libertarianism and most ethical conservatism comes from a small-group mindset. The problem is that system depends on everybody knowing everybody else and therefore reputation trumping short-term gain. It doesn’t scale once things get big enough for people to insulate themselves from the consequences of violating the group norms. I think the conservative solution to that is probably to keep the power at the lowest levels possible to allow small-group dynamics to work. Instead we’ve consolidated power in a way that’s totally incompatible with that.

 
Comment by Professor Bear
2011-05-30 00:03:02

“Which was the Libertarian colony?”

- Hong Kong?

- Singapore?

 
 
Comment by alpha-sloth
2011-05-29 06:19:06

Damn good short version.

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Comment by Professor Bear
2011-05-29 10:45:19

“government needs to stay out of the free market…Don’t tell me how to run my business…”

But did the Libertarians espouse the elimination of a Rule of Law in the banking system? On that point is where my doubts begin…

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Comment by bill in Phoenix and Tampa
2011-05-29 11:15:47

These are theoretical questions for now because there are no libertarians in Congress. The closest are Ron Paul and his son Rand Paul. But they are not libertarians since they are against a woman’s right to her own body.

 
 
Comment by Professor Bear
2011-05-29 14:46:19

“…first access to bulk blocks of distressed housing to buy and quick-flip to the little guy.”

Don’t forget that the Fed loaned out trillions to Megabank, Inc at interest rates in the neighborhood of 0%; these banks can presumably expend these interest-free loans on snapping up housing inventory at fire-sale prices, then selling the homes at a premium to end-users whenever it is convenient to do so, with federally-guaranteed mortgage loans which carry ‘market rates’ of interest.

Where is the downside for Fed-funded too-big-to-fail Megabanks?

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Comment by The_Overdog
2011-05-29 23:56:41

Exhibit C: paying taxes on profit not revenue
————-
nobody pays taxes on revenue. everyone pays taxes on net income, which is revenue minus expenses. net profit is income after taxes.

I think you mean many businesses don’t pay taxes at all, as they can get local tax breaks to build offices and factories, and also rely on international money laundering to minimize their tax bills.

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Comment by CA renter
2011-06-02 01:44:37

No, she means “taxes on revenue.”

Individual taxpayers are taxed on revenue. We do not get to deduct our living expenses before paying taxes.

(At least, I think that’s what she’s trying to say.)

 
 
 
Comment by rms
2011-05-28 21:11:20

“Hasn’t it been that way for decades? All this anger about bankers is interesting because what has actually been done about it? For instance, the Tea Party sprung up out of some of that feeling, but listen to posters here go bonkers about them.”

Usually when these investment bankers get careless they and their share holders get wiped out, and some jail time meted out for the corrupt. We all know this time is different as even the bonuses continue, and share holders have been made whole at par. I’m better at spotting the rotten apples than the gems, so shorting the bubble players would have been my approach were I a player, but the fed ruined those positions. Yes, this time really is different.

 
Comment by Neuromance
2011-05-30 16:11:10

All of these policies focus on short term mitigation of pain.

I think the attitude is, “Long term? Meh. We’ll be long gone by then. And who knows, something might come up and save the day.

image=”Alfred_E_Neuman_What_Me_Worry.jpg”

 
 
Comment by VegasBob
2011-05-29 21:24:07

Perhaps we need a citizens’ posse armed with tractors pulling mobile guillotines moving from city to city to administer frontier-style justice to the bankster criminals.

 
 
Comment by Carl Morris
2011-05-28 14:03:51

Beautiful HBB moment yesterday. Wife took son to day-after-last-day-of-school birthday party. Party house was very nice…newly built in a nice part of Boulder, old house scraped off. Probably a million-ish in total cost. Nice family, confided to my wife that all their money was in the house and they didn’t have enough money to do anything…including finish the house. Some trim missing, that sort of thing. No eating out, no vacations, no nothing…just barely making payments on house and cars. The reason their son was the new kid in my son’s class this year was because all their kids were being pulled out of private school.

They were admiring of my wife’s Mercedes and were curious about our situation. Wife told them we were living the trailer park and paid cash for the car. They about choked. Turns out party mom is SAHM and dad is former-high-flyer real estate agent whose income is down lately. They sounded so nice I can’t laugh too hard, but apparently party wife was mumbling “that’s so smart” under her breath for much of the party…

Comment by SaladSD
2011-05-28 15:08:27

I bet that old house they scraped isn’t looking so bad anymore.

 
Comment by 2banana
2011-05-28 17:13:38

they didn’t have enough money to do anything…including finish the house. Some trim missing, that sort of thing

This kind of stuff is easy to do by yourself - and not that expensive.

Better than living in a 80% completed house…

Comment by Arizona Slim
2011-05-29 13:19:35

This kind of stuff is easy to do by yourself - and not that expensive.

I can speak from personal experience on that one.

When I was in fourth grade, the Slim family moved into an unfinished house. Yours Truly learned a lot about hanging wallpaper, painting the interior and exterior, and laying brick walkways.

It can be done, and it’s a great family bonding experience.

 
 
Comment by Realtors Are Liars
2011-05-28 19:15:11

Beautiful story Carl. Schweet. I forgot your the one that exercised brain cells and got your self a double wide. We did it too for 8 years and banked a pile of money. And I mean a pile.

The party wifes reaction is rich…. For me, this is my vindication. They’re all flash and no cash. Every last one of them.

Peace

 
 
Comment by Professor Bear
2011-05-28 14:15:34

“…turning a blind eye to the depredations of GMAC, GreenPointe, Countrywide and their ilk, who were already in full swing by the time our (stated,) economic policy turned to real estate to bail it out of the tech crash in early 2000.”

Isn’t it the Fed’s job to regulate lending activities, in order to ensure this kind of debacle doesn’t happen?

Which raises the question, why is it that the Obama administration vested even more regulatory authority in the hands of the Fed, in the wake of the systemic collapse of the private mortgage lending industry? Wouldn’t this be a good time to rethink the whole regulatory equation, instead of blindly assuming that more of the same will somehow make things improve?

Comment by ahansen
2011-05-28 23:58:51

Yes.

 
 
Comment by Professor Bear
2011-05-28 14:19:32

Dumb question of the day:

Is there any presidential candidate who is both bright enough and savvy enough to call the Obama administration’s handling of the mortgage debacle into serious question? Or is the politically smart play to pretend it was an Act of God which nobody could have seen coming, and for which no remedy would have worked better than the One’s remedy.

Comment by Ben Jones
2011-05-28 14:27:58

I’m not sure, but I’m not sure but I doubt such a person is going to come from the DC political culture. If a politician simply has their finger in the wind and decides on a position, we’ll get more of the same.

 
Comment by butters
2011-05-28 16:07:14

Ron Paul & Gary Johnson

 
Comment by alpha-sloth
2011-05-29 06:07:36

“Is there any presidential candidate who is both bright enough and savvy enough…”

The Republicans and Libertarians favor even less regulation of Wall Street, so they’re not really in a position to offer a cogent alternative to Obama’s actions. At least not one that most reasonable people will accept.

An opponent from within the Democratic party could challenge Obama on this, but I don’t see much likelihood of that in the next election. The Dems seem overall pretty happy with O.

A third-party progressive candidate like Nader could do it, especially if he threw universal health coverage into the mix, possibly acting as a spoiler just as Nader did in the 2000 election. This is probably an area of concern for the Obama re-election team.

Comment by Ben Jones
2011-05-29 07:44:57

‘Libertarians favor even less regulation of Wall Street’

There’s all kinds of libertarians, including those like myself who don’t belong to the party. You can say they favor this or that, but it doesn’t capture the entire picture. For instance, a big problem with corporations and similar entities is limited liability. I would suggest limited liability is an issue of how the playing field is set up and once eliminated, could cure many of the ills that regulation has difficulty in managing.

What if companies large and small had unlimited liability? Meaning if a big bank messed up the shareholders could be sued for as much as their personal assets, like a sole proprietor or simple partnership. Wouldn’t the shareholders be more diligent in ensuring these companies acted correctly? And wouldn’t the flow of capital be much different; that corporations would never get as large because it would be unmanageable risk wise?

There are lots of problems making this work. For instance if we adopted this in the US, other countries would still have limited liability corporations. Some would cry out that this would put the US in a competitive disadvantage, etc. But still, from a theoretical viewpoint, libertarians would question everything and not just say we have to accept limited liability because it’s been that way for a long time.

And how does the Federal Reserve banking system jive with libertarianism? That system is at the heart of Wall Street after all.

I’m saying that it is overly simplistic to say ‘Libertarians favor even less regulation of Wall Street’ because most would favor less regulation but much more accountability. And WS may not even exist as we know it.

Comment by Professor Bear
2011-05-29 11:02:14

Thank you, Ben, for the independent perspective you maintain. The worst thing about the party system, and other forms of religion, is its tendency to stifle independent thought. I deeply appreciate all who fight this path of least resistance; the survival of our civilization depends on it!

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Comment by Walt
2011-05-30 14:09:32

Why do Libertarians want to move to a completely free-market society? Why can’t they just admit that reasonable regulations work? Glass-Steagall worked until the free-market nuts repealed it.

And where is the evidence that a completely free-market would create a better society than one with reasonable regulations? Libertarians always assume that a free market would result in some type of utopia, but they never provide any evidence of how or why that would happen.

Further, unlimited liability for shareholders is a horrible idea. I would never want to own another stock again if that were the case as I could never know as much as management does. Do you think management is going to tell the shareholders that they are engaged in criminal/fraudulent acts?

And what about environmental regulations? If you repeal those, what’s to stop companies from dumping all kinds of waste products wherever they want? Would you want to drink water from a source that 20 different companies are dumping toxic waste into?

I think the problem is that individuals tend to be over-regulated while companies tend to be under-regulated. It’s easy to get Libertarians fired up when they see an individual suffer due to over-regulation. But just because the activity of individuals tends to be over-regulated is no reason to repeal the regulation of corporate activity.

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Comment by CA renter
2011-06-02 01:49:17

Great post, Walt.

 
 
 
 
 
Comment by bill in Phoenix and Tampa
2011-05-28 15:03:51

People still drink the punch that is branded “homeownership makes people better.” peel back the label and “better” was really covering “slaves.” you are held captive by the property tax. You depend on one community’s job market instead of allow yourself opportunities in another city. If you are not mainstream in the culture of your neighbors, you tend to feel as though you are under a microscope. Homeownership is a personal choice though. No one puts a gun against your head and forces you to buy. Renting makes people freer.

Comment by SanFranciscoBayAreaGal
2011-05-28 15:31:01

“Renting makes people freer.”

Think (think) think (think) think (think)
think (think) think (think) think (think)

You better think (think) think about what you’re trying to do to me
Yeah, think (think, think), let your mind go, let yourself be free

Let’s go back, let’s go back, let’s go way on back when
I didn’t even know you, you came to me and too much you wouldn’t take
I ain’t no psychiatrist, I ain’t no doctor with degree
It don’t take too much high IQ’s to see what you’re doing to me

You better think (think) think about what you’re trying to do to me
Yeah, think (think, think), let your mind go, let yourself be free

Oh freedom (freedom), freedom (freedom), freedom, yeah freedom
Freedom (freedom), freedom (freedom), freedom, ooh freedom

There ain’t nothing you could ask I could answer you but I won’t (I won’t)
I was gonna change, but I’m not, to keep doing things I don’t

You better think (think) think about what you’re trying to do to me
Yeah, think (think, think), let your mind go, let yourself be free

People walking around everyday, playing games that they can score
And I ain’t gonna be the loser my way, ah, be careful you don’t lose yours

You better think (think) think about what you’re trying to do to me
Yeah, think (think, think), let your mind go, let yourself be free

You need me (need me) and I need you (don’t you know)
Without each other there ain’t nothing people can do

Oh freedom (freedom), freedom (freedom), freedom, yeah freedom
Freedom (freedom), freedom (freedom), freedom, ooh freedom…..

You had better stop and think before you think, think!!

Comment by bill in Phoenix and Tampa
2011-05-28 15:44:21

Love it! Was that Aretha?

Comment by SanFranciscoBayAreaGal
2011-05-28 18:37:20

The one and only Aretha

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Comment by Professor Bear
2011-05-28 15:41:59

“Renting makes people freer.”

Bill —

I generally agree with you, though I have a point to add for you or anyone else who argues that homeownership is debt slavery for anyone without the means or interest to pay cash. A well-timed home purchase (i.e. at the bottom of the real estate cycle) can offer similar freedom to renting, provided you don’t overpay. Once you lock in a cyclical low purchase price, and provided you don’t tap your home equity gains for spending money, you can sell at any time and take your home equity gains along for a downpayment on your next home, or for whatever other use you might have for it.

I know all about this — I did it twice already in my young life. You just have to make sure not to buy when everyone else is buying — or better yet, buy when everyone else is saying that real estate is the worst investment.

We’re not there yet, but will be within the span of the next five or so years.

Comment by bill in Phoenix and Tampa
2011-05-28 16:13:38

I can see your way of thinking. The time I am willing to downsize my income is when I will buy. I too think house prices will fall further. I took a drive in the Ahwatukee foothills after missing a usual turn, noticed there really are some nice looking houses around the area. Yet the upper crust ones are still at 2003 levels. I am tired of business travel and I want to get away from section 8 neighbors. Not sure where I would work in Phoenix, but would not need much income. I can do better in Tucson and go back to my former employer, without caring about salary. A Catalina Foothills custom with endless pool and a couple of acres is good enough for me.

Comment by Wizard
2011-05-28 20:52:30

Just checked Catalina Foothills…
You may get away from Sect 8 Bill, but from the street names, illegal gardeners, housemaids, etc, will have no problem finding an address!!
What’s with all these Spanish street names, and in elite neiborhoods? Seems to be the idea these days.

That aside, this is a big $$ area. Just how much will these lose in value. Would say the present asking, is really a wishing price.

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Comment by cactus
2011-05-29 07:21:32

That aside, this is a big $$ area. Just how much will these lose in value. Would say the present asking, is really a wishing price.”

Isn’t it down about 50% ? from the peak

Ahwatukee sure is.

 
Comment by Arizona Slim
2011-05-29 13:24:08

Just checked Catalina Foothills…
You may get away from Sect 8 Bill, but from the street names, illegal gardeners, housemaids, etc, will have no problem finding an address!!

Another thing to beware of about the Foothills: It’s becoming quite the hotbed for grow houses, stash houses, and drop houses.

Why? Because of those big lots with mature vegetation. Which makes it rather difficult to see who’s coming and going.

Not to mention the fact that a lot of Foothills folks don’t have anything to do with their neighbors and couldn’t care less about what they’re up to. It’s a really hard area to make friends with your neighbors, if you’re interested in that sort of thing.

Add to this the fact that a lot of Foothills residents are only in their houses during the winter months, and you have the perfect place to set up shop as a drug trafficker or human smuggler.

 
 
Comment by cactus
2011-05-29 07:31:10

I like your plan Bill.

Ahwatukee Foothills are way down from the peak I’d say 50%

Catalina Foothills I don’t think has gone down as much ?

Anyway both areas are cheap compared to where I live now.

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Comment by bill in Phoenix and Tampa
2011-05-29 11:22:32

AF homes under $300k are down 50 or 60 percent. At 2001 levels. The higher end ones are still at 2003 levels. The Tucson higher end models I looked at on Zillow are at 2005 levels. Lots of insanity out there when you can get a daily ocean breeze at Laguna Niguel for the same price and same square foot.

 
 
 
Comment by Lisa
2011-05-29 11:24:00

“A well-timed real estate purchase (i.e. at the bottom of a real estate cycle) can offer freedom similar to renting…”

My situation in a nutshell. Happily sold in 2004 and have been renting since. That money in the bank got me safely through the recession (I’m self-employed) and now I’m able to pay it back thanks to a steady stream of work.

I choose to live modestly for my income and have full faith the next house will be a cash purchase, not a bad retirement set-up (I’m late 40’s).

No one understood my move back in 2004….what a “humiliation” to go from owning to renting, quite obvious here in Marin County, the land of the wealthy & financially savvy -); It’s a different tune now, as my fellow HBB’ers can imagine.

Comment by Carl Morris
2011-05-29 14:35:16

No one understood my move back in 2004….what a “humiliation” to go from owning to renting

Yeah, I know all about that. And then I bought a double-wide in ‘09 just to complete the trifecta. No regrets so far.

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Comment by GH
2011-05-28 18:25:25

I would agree renting does allow mobility, but at the same time you will be paying rent when you turn 100 where if you bought a home even with a mortgage you would be done by retirement (assuming) you were responsible and took out no HELOC.

I suspect a mortgage better guarantees you will get out of bed on time every day for 30+ years and go to work, so in that sense you are a “better” person.

Comment by Lisa
2011-05-29 11:27:32

But even with no mortgage, you’re not “done”…..

Maintenance
Repairs
Property Taxes
Insurance

 
Comment by bill in Phoenix and Tampa
2011-05-29 11:35:21

I would be earning less than half my current income in Tucson had I stayed salaried and did not go contract engineering. I currently pay a total of $2000 per month rent on two apartments and my legal tax haven I used in seven of the last ten years makes double rent worth it. I have a niche. If they take away my tax loophole, they will make business travel too costly, and force me to economically decide to stay in one place and work at Wal-Mart, driving a Toyota economy car to work and a BMW M5 when not at work. The individual can always win in the tax game. government is so big and bureaucrappic that they will introduce new loopholes when removing old loopholes. Actually the closer I get to sixty the less attractive home ownership looks. Renters can still have fun and dictate to management when maintenance issues occur, at least in apartment complexes owned by large businesses.

 
 
Comment by AL
2011-05-28 19:12:15

“Renting makes people freer.”

Yes and no.

The no - The threat of being forced to move or having to follow landlord rules doesn’t add to freedom. On the flip side, you can always sell if you can undercut the market.

The yes - If you mortgage up so badly you can’t undercut the market, then yup, renting would make you freer.

I think you’re right in about 80% of the time.

 
 
Comment by Anon In DC
2011-05-28 15:40:54

A big part of the homeowner making better people thinking is that if people have a financial state in things (neighborhoods / communities) they are better stewards of them. Hence the idea that homeownership would help eliminate gettos.

Comment by jbunniii
2011-05-28 19:57:45

Someone who puts 0% down and pays interest only has no more financial stake than a renter. This is exactly the sort of “owner” who was enabled by bubble-era lending policies.

 
Comment by Robin
2011-05-28 21:32:50

When I was 19, I took out a car loan, with my savings account as collateral, at a neighborhood bank. At age 35, I bought my first house with amazing credit built up to over 760. At 55, bought a used car on the spot with a credit score (FICO) well over 800. Dealer said 75% or more that come in want to buy a car, but only 25% qualify.

When I bought my first and only house in 1987, I did feel I had worked long and hard to deserve a mortgage based on personal financial responsibility. I expected to be respected as a responsible neighbor, and expected my neighbors to be of equal creditworthiness, implying a bond of stewardship for our collectively-valued community.

Boy was I wrong! It only worked until it didn’t.

 
 
Comment by traderjack
2011-05-28 16:20:08

No object can make a man free, nor less free.

Homeownership was a good thing when buyers had to be able to pay the loans, as it was simply a way to stablize your home cost of living.

My first threer homes I lost money on, and never expected to make money on any of them. I have lived this home for 45 years and do not expect to make money on it!

Real estate, homes, should never be considered to be investments as they are simply consumable goods, the same as you car, or other goods you purchase.

If you are lucky buying a car, you might be able to sell it for a million dollars, but usually, you know the cost of operating it will destroy any possible value.

I remember about 25 years ago the FHA gave away homes somewhere in Kansas for $1 to needy folks, The buyers lost most of them to the tax collector as they could not afford the cost of maintaining the home and paying the taxes and insurance.

buying is not a way to get wealthy, no matter what the real estate people say, unless, that is, you don’t need to get wealthy, and then it is possible that real estate will make you wealthier.

Comment by bill in Phoenix and Tampa
2011-05-29 13:29:36

You make good points. But with all the outsourcing occurring, and the decline in births, to keep your income you have to be super mobile these days. Perhaps a 20-something can find a niche in this mobile world and live internationally and strike it rich by the mid-thirties and then return permanently to the US to watch his foreign investments from afar, live permanently in one commmunity and start a family.

I read in AZ Republic that 45% of middle class jobs are outsourceable. It is no wonder men are not marrying. Having the court take away half of your net worth is bad enough. But your future is unstable from the time you get your diploma. Too unstable to predict you can handle a 30 year mortgage, even a 15 year mortgage.

“I don’t care about pollution. I’m an air conditioned gypsy. That’s my solution. Watch the police and the tax man miss me! I’M MOBILE!”

Comment by In Colorado
2011-05-29 17:20:42

“Perhaps a 20-something can find a niche in this mobile world and live internationally”

That sounds good in principle, except that most countries don’t hand out visas to foreign workers like candy the way the USA does.

 
 
 
Comment by mrktMaven FL
2011-05-29 10:02:31

New construction adds to GDP. Voters use GDP to measure government’s performance. Government uses GDP performance to convince voters to reelect it. Therefore, the government’s incentive is to create positive GDP however possible during the short-run no matter how dire the long-term consequences.

During the housing bubble era — after 9/11 and dotCom era — the government encouraged building more homes than necessary to stimulate GDP. More housing wealth encouraged people to buy cars, boats, and so on.

Today, the government is printing and borrowing money at unsustainable levels to prop up a variety of industries — housing, autos, tech, healthcare, military, education — just to stimulate GDP.

 
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