September 27, 2013

Weekend Topic Suggestions

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Comment by Taxpayers
2013-09-27 03:46:03

report on your county
fairfax va - inventory still low- lots of INwesters buying around me.
one chopped down all the trees- a feng shui move I guess.

Comment by Combotechie
2013-09-27 05:12:05

“… one chopped down all the trees.”

Reminds me of something I read about years ago:

A guy bought an acre-or-so of land mostly due to the promotion of buying into an outstanding view of a large forest.

Then the forest, the forest that offered him the view, was clear-cutted by a lumber company.

Comment by Housing Analyst
2013-09-27 05:32:15

Another piss poor reason to pay inflated prices for essentially worthless dirt.

If you’re paying more than $500 to $1000 an acre, you’re getting ripped off.

Comment by Ol'Bubba
2013-09-28 05:10:51

A timber company will replant the land with new saplings.

Comment by (Still) Waiting for the Fall
2013-09-27 06:03:23

Volusia County, FL

529 properties owned by Federal NMA
443 currently owned by major banks: Deutsche, Suntrust, B of A, Wells, Fifth Third, among others.

437 sheriff’s sales scheduled for October.

Same old shacks for sale that were listed two years ago. Some fell off the radar during the summer, but most will show back up again when the snowbirds arrive. Private equity seems to be sapping up everything that doesn’t already have granite and stainless.

Comment by polly
2013-09-27 05:44:01

How did poverty influence the housing bubble?

Comment by polly
2013-09-27 05:52:34

Being poor changes your thinking about everything (article is an interview):

Sendhil Mullainathan: We’re really trying to do two things. As you know, I’ve been interested in poverty for a long time. This book is an outgrowth of me simply trying to understand U.S. poverty, poverty in the developing world, and another form of poverty, which we don’t really call “poverty” but you might want to call just “financial distress,” which many Americans are actually feeling because of this recession.

As our introduction discusses, there’s been a left turn in my thinking. That left turn was the realization one day that, maybe, when I’ve been looking at poverty, I’ve been looking at it too narrowly. Maybe poverty is a special case of something else. That something else is scarcity, and anyone who has the experience of “having very little” experiences the same psychology.


To take another example, consider the big financial recession we just had. Here we really saw individuals’ behavior and choices meet up with the macroeconomy. Here are people sitting on houses that might or might not be foreclosed. They must take loan modifications. They have to make decisions. They must do all of this under conditions of financial distress.

Some people examine the situation solely in terms of interest rates and bailouts. Yes, these matter, but so does the behavior of these millions of homeowners. It’s very hard to reach people when they are in conditions of financial distress. That is a fundamental problem. I think it is something that we’ll face again and again.


There is a lot more. And there is something in the New York Times about this book too. It may be a while before I find it and post it.

Comment by Carl Morris
2013-09-27 08:38:17

When this article came out, the part I liked the most was how they also talked about how it applies to loneliness. We’ve all seen how sometimes being lonely causes people to make poor decisions that makes them much more likely to stay lonely, but I’d never seen it outlined in that way before.

Comment by polly
2013-09-27 06:38:25

Escaping the Cycle of Scarcity

“Scarcity” is a new book that does something that I didn’t think possible: it says something new about why people are poor — and what to do about it.

Here’s what’s not new: Poor people have more self-destructive habits than middle-class people. The poor don’t plan for the future as much. Compared to middle-class people, the poor have less self-control and are quicker to turn to instant gratification. These habits perpetuate a cycle of poverty.

This is proven. The controversy is why it is the case. For conservatives, roughly speaking, these behaviors cause poverty. For liberals, also roughly speaking, poverty in many ways causes these behaviors. It is easy to see how the stresses of poverty weigh in. With eating habits, for example: fruit and vegetables cost more that many unhealthier foods, and might not be available in a poor neighborhood.

But there are behaviors the liberal view struggles to explain. Even when healthy foods are available and made cheap, for example, poor people take advantage of them far less.

Now Sendhil Mullainathan, a Harvard economist, and Eldar Shafir, a psychologist at Princeton, propose a way to explain why the poor are less future-oriented than those with more money. According to these authors, one explanation for bad decisions is scarcity — not of money, but of what the authors call bandwidth: the portion of our mental capacity that we can employ to make decisions.

Worrying about money when it is tight captures our brains. It reduces our cognitive capacity — especially our abstract intelligence, which we use for problem-solving. It also reduces our executive control, which governs planning, impulses and willpower. The bad decisions of the poor, say the authors, are not a product of bad character or low native intelligence. They are a product of poverty itself. Your natural capability doesn’t decrease when you experience scarcity. But less of that capacity is available for use. If you put a middle-class person into a situation of scarcity, she will behave like a poor person.

The authors and two colleagues had a team of researchers approach shoppers at a mall in New Jersey. People were asked about their income and then classified (without their knowledge) as either poor or rich. Then they were asked a question: your car needs a repair that will cost you $150. You can take a loan, pay in full, or postpone service. How do you go about making this decision? After they answered, the subjects took tests that measured fluid intelligence and cognitive control.

Poor and rich people did equally well on the test.

But then the researchers changed one thing: instead of needing $150 for the repair, they would need $1,500. The rich subjects did as well on the intelligence and willpower tests as they had before. The poor group did not.

Their scores dropped the equivalent of losing 13 or 14 IQ points — larger than the drop experienced by people who had just stayed up all night. Thinking about how to come up with $150 didn’t affect them. But thinking about coming up with $1,500 eroded their intelligence more than if they had been seriously sleep-deprived.

This result isn’t particular to New Jersey. The same team studied sugar cane farmers in India, testing their intelligence just after the harvest, when they were flush with cash, and before it, when they were poor. The same farmers got 25 percent more questions right on the intelligence test when they were rich, and made 15 percent more errors on the executive control test when they were poor.

Isn’t this just stress? We know how harmful stress can be. But Mullainathan and Shafir argue that the effects of scarcity go further. Its capture of our brains leads people into a tunnel; your only focus is solving the emergency of the moment. If the rent is due, you use money that would have gone to the car payment. The fact that this will end in getting your car repossessed, and therefore losing your job, doesn’t really register. You take very little notice of what’s outside the tunnel.

In this way, scarcity creates a vicious circle. Tunneling leads people to borrow to deal with the emergency expense. For the poor, borrowing is very costly. They take high-interest payday loans, buy on installment, pay large credit-card fees and interest. They “borrow” by paying bills late, which means they pay a substantial portion of their income in late fees and reconnection fees. These consequences, however, lie outside the tunnel — until paying those bills becomes the new emergency.

The authors designed complicated games to simulate conditions of scarcity. One was a version of the TV game show “Family Feud,” played by Princeton students assigned at random to either have a lot of time to answer questions or just a little. When researchers allowed players to borrow time from their future rounds at high rates of interest, the time-poor players borrowed profligately, and their scores plummeted. When the loans could be rolled over — simulating real-world debt traps — the time-poor did even worse.

Mullainathan and Shafir write that the same mentality of scarcity that applies to the cash-poor also applies to people who are overly busy and those who are dieting.

People short of time also tunnel, borrowing time by postponing projects that are tomorrow’s emergency but not today’s. And being hungry captures the mind in a way similar to being poor. People who are on strict diets spend a lot of their bandwidth thinking about food.

The scarcity phenomenon is good news because to a certain extent, we can design our way around it. Awareness of the psychology of scarcity and the behavioral challenges it yields “can go some way toward improving the modest returns of anti-poverty interventions,” Mullainathan and Shafir write.

Here are some examples:

Automate good decisions. Since we can’t be counted on to make good choices when we’re in the tunnel, we can make them automatic. One decision to automate your choices will eliminate all those future opportunities to screw up. One way is to switch the default. For example, instead of making enrolling in a 401(k) savings plan voluntary, make not enrolling voluntary. This simple change has produced spectacular increases in usage of 401(k)s, organ donation and AIDS testing. It can be used for many outside-the-tunnel decisions, like building savings: sign up to have part of your paycheck automatically deposited into a savings account. You can still get at it, but you have to take steps to do so.

Provide better options for borrowing. Employers of minimum wage workers often complain that these workers are unprepared for their jobs, unfriendly to customers and distracted. Part of the reason may be that they are devoting little bandwidth to their jobs because they are worrying about how to live on their wages.

The theories in “Scarcity” support the idea that paying them a living wage would increase productivity. But since some employers may balk at this, the book proposes a smaller step: remove some of the penalties that come with borrowing.

Since poor people often have an urgent need for small sums, they take a lot of payday loans. These loans, some of which have interest rates of more than 300 percent, cost workers hundreds of dollars in fees. They are a scam designed to trap people in cycles of debt — 85 percent of payday loans go to people who take seven or more loans each year. (See this report (pdf) for a thorough explanation of their horrors, and this column by Tom Edsall.)

One solution is to spread credit unions. Another is to expand workplace-based financial counseling and services, like Neighborhood Trust‘s innovative Employer Solution.

Employers can help by paying weekly instead of bi-weekly, and by offering loans themselves with reasonable interest rates. Better yet, a portion of the repayment could go automatically into a savings account for each worker, so they could eventually borrow from themselves.

Internationally, we now know that microcredit loans are often used to cover personal emergencies, not to start businesses. They are not well-suited to this, as they are usually too large and take too much time to get. (This is why even people with access to microcredit continue to go to pawn brokers and loan sharks.) Dhanei KGFS, a financial services provider in Orissa, India, pioneered a successful new product: small, low-interest emergency loans that clients of their bank had pre-qualified for and could get at any time of day or night, nearly instantly.

Design services for the poor to take up less bandwidth. We know the poor are short of cash; we design for that (most of the time). But we don’t think about their scarcity of bandwidth, and that should influence services as well. One good model is Single Stop, which operates more than 90 sites around the country where low-income people can apply for benefits, do their taxes and get legal and financial advice.

Structure incentives to put them inside the tunnel. Since scarcity forces us to tunnel, and concentrate only on what’s inside that tunnel, incentives and penalties will work best when they can be inside, too. This means very short deadlines and quick rewards — perhaps in several installments.

Telling people they can be on welfare for only five years isn’t effective. That deadline might not become part of the tunnel until they hit four years and 11 months — too late to start looking for a job. Mullainathan and Shafir call this the worst of both worlds: “it penalizes but fails to motivate,” they write.

The same phenomenon explains why the death penalty, the three-strikes law and other harsh punishments fail to deter criminals. No matter how harsh they are, they are far enough away to lie outside the tunnel.

These design shifts — the authors and others propose more of them on the behavioral economics site — are a small solution to a very big problem. But the theory is a new one. It needs more study — but part of that exploration will be trying out different models of antipoverty services that take bandwidth scarcity into account. It is far from the only reason people are poor, of course, but what’s particularly useful about the idea of scarcity is that it is overarching; ease that burden, and people will be better able to deal with all the rest.

Comment by Housing Analyst
2013-09-27 06:55:15

Poor and poverty is what happens when you buy a house…….. Houses make you poor.

Comment by Combotechie
2013-09-27 07:23:17

A lesson I learned while living the life of a grunt after I joined the military:

We were all paid the same meager amount of money twice a month, we all had our chow hall meals given to us for free, we all lived in the barracks for free. In short, the playing field was leveled, the stress - the scarcity - we endured was the same for all.

The result? Some of us always had money, some were flat broke the day after payday.

Comment by Combotechie
2013-09-27 07:38:05

Often the flat-broke-the-day-after-payday guys would borrow from others at the rate of I’ll-pay-you-back-six-bucks-if-you-will-loan-me-five. This was often done one day before payday.

And it never ended. The same guys did the same stupid things with their money over-and-over-again. With them there was no learning curve whatsoever.

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Comment by AbsoluteBeginner
2013-09-27 07:41:33
Comment by Carl Morris
2013-09-27 08:39:50

Often the flat-broke-the-day-after-payday guys would borrow from others at the rate of I’ll-pay-you-back-six-bucks-if-you-will-loan-me-five. This was often done one day before payday.

I bought some nice things in the barracks from guys like that. I had no interest in being the payday loan guy or the barracks pawnshop owner, but I was willing to buy things.

Comment by shendi
2013-09-28 07:30:50

That was the instant gratification part I think. I would understand this article if the poor went and spent all the money on the things they needed such as food, clothes and medicine. However, if the poor are going out and getting the designer outfits, shoes and bling then it is a question of discipline.

I have a hard time understanding that the “thinking about money” the poor will go out and buy the most expensive shoes just to make them feel good.

Comment by shendi
2013-09-28 07:34:35

I recently read a story about an organization that decided to simply give money to the poor in Kenya (here or somewhere else - I don’t remember). The results were a bit different, apparently a majority of the poor made good choices: replacing the thatched roofs with metal roofs etc.

Comment by In Colorado
2013-09-27 07:50:16

The result? Some of us always had money, some were flat broke the day after payday.

I’m guessing that the flat broke guys spent their meager pay on women and booze.

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Comment by Combotechie
2013-09-27 08:04:30

Here’s one incident:

It was in the mid-Sixties and James Bond was the rage.

One of the flat-brokers who lived in my barracks took his money and went to town and right off the bat he happened to spot a small, portable two-transistor-or-so tape recorder for sale for twenty bucks. Twenty bucks was a lot of money during the mid-Sixties - especially for a low grade military guy who got paid maybe seventy bucks a month.

But he just HAD TO HAVE that tape recorder so he could BECOME James Bond.

So he bought it, played with it for a little while - a couple of hours - then got tired of it and sold it to another guy for five bucks.


Comment by Combotechie
2013-09-27 08:09:40

To clarify a bit, if he had the tape recorder then he could secretly record our conversations (which he did) and then play them back just as James Bond might have done.

What was disappointing to him was we really didn’t have much to say that was worth recording.

Comment by tresho
2013-09-27 08:57:47

I’m guessing that the flat broke guys spent their meager pay on women and booze.
And the rest was just wasted.

Comment by cactus
2013-09-27 10:53:40

The result? Some of us always had money, some were flat broke the day after payday.”

I gave my daughter a car free and clear a Honda Accord with ~100K what did she do? traded it in for a brand new car Toyota Scion which after 5 years years of payments got reposed.

Oh well …

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Comment by Neuromance
2013-09-27 14:07:05

Probably a combination of factors. People have different personality types. And they grow up in different environments. The personality type will remain the same, but perhaps the environment can be optimized, i.e. they can receive better education, learn about different career paths, receive life skills like the importance of deferred gratification and impulse control.

I don’t anticipate education will equalize the outcomes because people are different, for better and worse. But it might reduce the level and severity of well-known poor decisions.

Comment by cactus
2013-09-27 10:37:37

What do you think is this true ?

“One of the world’s largest investment firms believes the financial system is overly leveraged.
“We are in the middle of an epic credit bubble, in my opinion, the likes of which I haven’t seen in my career in private equity,” Joseph Baratta, The Blackstone Group (BX)’s global head of private equity, said Thursday night at the Dow Jones Private Equity Analyst Conference in New York City. “The cost of a high yield bond on an absolute coupon basis is as low as it’s ever been.”
(Read more: 17 years until Earth runs dry? )
Baratta said Blackstone is “bullish” on the U.S. economy, but the “valuations we have to pay relative to the growth prospects are out of whack right now.”
Baratta said the U.S. still has “clear headwinds” and is “range bound” between 1 percent and 3 percent economic growth.
(Read more: Stocks for the end of the world )
Blackstone, which manages $53 billion in private equity assets and $230 billion overall, is pursuing select investment opportunities in energy, transportation infrastructure, consumer finance, housing and construction, according to Baratta.
“We’re not just levering up U.S. GDP into multiples today,” Baratta said. “I do expect mean reversion to happen at some point om interest rates, on credit spreads, on the cost of some investment grade corporate credit.”
The high valuation of many companies today makes it harder for them to grow. “The biggest risk to returns of this vintage is that exit multiples are depressed,” Baratta said.

Comment by George P
2013-09-27 19:37:52

Uh-oh. Bad news for the Canadian housing market?

Check out the top line in the latest total household credit numbers from the Bank of Canada. The rate of increase in the total household credit numbers is really starting to slow down.

Comment by GetStucco
2013-09-27 22:27:53

Will a govt shutdown usher in the next leg down in U.S. housing?

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