Still waiting for you post about the value of your house. Am I wrong, or is the standard market doomed to kick its heels up and die a painful death over the next 6 months to a year?
Come on, let’s get real here; you can’t convince me that the downfall of the economy is 100% due to the substandard housing market. How many Americans with “good credit” have seconds and thirds on their homes, lease their vehicles, have no savings whatsoever (including retirement savings) and owe tens of thousands on credit cards? Having worked in the credit card industry, I’ll tell you that very few of those things factor into one’s credit-worthiness. Your average American is digging himself deeper and deeper into the hole.
Maybe I’m wrong, and it was a domino thing; substandard goes, then the housing values fall, then the standard market goes. So how did that cause the failure Lehman Bros, etc?
Was it like this in the 70’s? Is this truly cyclical? Where’s that sandbox-I want to stick my head back in it.
Yeah, I’ve heard people talking about deregulation being the cause of our current economic woes and the downfall of society as we know it (just being dramatic there…)
I know the airlines were deregulated; what else in the past decade (I’m reading up and understanding very little about banking dereg)? How could that have caused the downfall of the housing market and the ecomony as a whole so suddenly?
Also, I hear that the housing market was due for a “correction” much more often than I hear dereg. concerns. And I hear a LOT of yipping and yapping about how people should have 20% to put down on a house like they did in the “good old days”. I’d like to go back and look at the value of money vs. earnings vs. home prices. The 70’s is a good benchmark since the economy today seems to frequently be compared to the economy then. Honestly, saving 20% for a home downpayment seems pretty elitist to me; if you already own a home, fine. But by the time you come up with 20% as a first time buyer, the price is 10% more. And so on and so forth. Save for retirement or save for the down payment? And oh, by the way, saving for the down payment isn’t tax deductible, the retirement account is. So, put it in a retirement account and then take it out as a loan? So how do you fix this without issuing high-risk loans?
I guess I’m just bitching. Probably because I don’t understand most of what’s happening and it’s frustrating. I see the prime going down, but not rates that are offered to consumers. I see the price of oil going down, but not for consumers (of course, that’s a good thing!). I see CEO’s taking home millions of dollars, and your average American takes home a 2%-3% raise, because the business cuts “overhead” first (and yet they can still pay those CEO’s…). But the cost of food is up easily 25% over the cost two years ago. That 2%-3% raise doesn’t cover it.
How do you fix all of this? Yeah, yeah, you’d be a billionaire if you knew.
This American Life does a nice little primer on some of the ins and outs of the housing/credit mess.
Re: Oil Prices… These are the future deliveries of raw material, not finished product. Price drops now will not be felt for another couple of months, if at all. Price drops in steel don’t make cars less expensive.
To solve most of the issues you mention we need to switch to renewable electricity with better battery technology. Put a “Moonshot” program to make a car battery to drive 200 miles on its own, at 60 miles an hour, with a 4 hour charge time, that will last for 15 years. When we’re not making food into burnable fuel, food prices will decrease, diesel for delivery trucks will be less expensive because demand for oil is down and we all have more money to pump into diversified industries and services because we’re not putting $150 per month in our gas tanks.
About oil: I know it takes months to get to the consumer level. I also know that the minute crude oil prices go UP, the gas station owners have their employees out at the sign (literally; I have seen it happen), raising the price because they “anticipate” the increased cost of the next batch. What a load of dung. We SHOULD be seeing the price of gas drop significantly in a few months due to the drop in crude oil prices that occurred over the past few days; it will never happen.
Again, I completely agree we need to get away from an oil-based economy. But check the headlines; most Americans want to open up our coasts for offshore drilling rather than finding ways to use less gas/plastic/oil based products. Given that’s the case, it’s hard to believe we’ll get to the point that an electric vehicle (or alternative) will become available.
Smithers: Ok, seriously-if the value of your home hasn’t descreased through all of this, that says to me that you’re not lower or mid-middle class income. Not trying to piss you off, just pointing out that your viewpoint isn’t going to be the same as the poor schmoe who has lost $20-$40K off the value of his/her home over the past year. They can’t move (because they can’t sell). Likely they were looking to use the value increase they expected to take out a second mortgage and do home upgrades or repairs (like a new roof or siding).
It blows my mind how much of an impact that one factor has on people I know, let alone the failure of Fannie Mae/Freddie Mac, Lehman Bros, AIG, increasing unemployment rates, etc.
This isn’t a recession-this is a depression, pure and simple. It’s a shame there are millions and millions of people like me out there who just didn’t care until it reached the crisis we’re at now. There you go-you can point the finger at me and egg my apartment
Smithers: Ok, seriously-if the value of your home hasn’t descreased through all of this, that says to me that you’re not lower or mid-middle class income.
Stop trying to piss me off Lynne.
Our home value has gone up since we bought the house in 2002. It’s certainly down from it’s high point from the last few years, but still way up from when we bought it.
Currently I would say that I am living at the low end of upper middle class.
If the Fed would come through with my $10 billion bail out I could be living a whole lot better.
Skidsy, I read the article. I suppose I should be infuriated with the mortgage brokers/businesses for taking on risk they absolutely knew was ridiculously unsound.
On the other hand, I’m also sick to death of people trying to shift responsiblity. No one is responsible for their own actions/decisions anymore. All of these “sub-prime” borrowers couldn’t read the very top line of the contract that says their monthly payment was $3000 and see that their paycheck is only $4500 a month (which is a lot of money, folks)?? They knew they couldn’t pay that for even a year, but they took it out anyway. And of course, why should we expect that they would actually read what they were signing which said they earn $150,000 a year (when they knew they only made $22,000)???
It’s as if we now cherish and treasure a lack of morality and ethics. I’m sorry, but I blame the next door neighbor who says they couldn’t understand something so simple a 2nd grader could read it (Income: $150,000 or- Monthly payment: $3,000). It’s not stupidity; it’s fraud and it’s your next door neighbor doing it with full knowledge.
Anyway, are you saying that the sub-prime market took down the investment banks because they were falsely rating the mortgage backed securities based on incorrect data? And that AIG went down because they invested in those highly rated mortgage backed securities? If so, how can any market possibly survive? How much of the portfolios were made up of these mortgage backed securities?
It pains me a little to say, Micheal Moore summed it up best with the title of the first chapter of “Dude, Where is my Country?”…
“Horatio Alger Must Die”
When you are approved by a bank for a mortgage that far exceeds the affordability of your current wage, many people say to themselves “The bank knows I’m smart and will get a raise soon. My boss knows I work the hardest in my department and will be promoted soon. I’m invaluable to the company, there’s no way *I’d* ever get laid off”
Both bank and buyer fool themselves into thinking the other’s watching the bottom line. The bank doesn’t worry too much because home will *always* increase in value. The buyer only sees the first year of their ARM and thinks that they’ll be able to refinance, rates will stay low or they’ll be making more money when the rates reset.
All of us have talked ourselves into financial folly at one time or another. There should be institutions, calculations and restrictions in place to reign in our ‘Merican optimisim.
If we didn’t always think we’ll be better tomorrow than we are today, we wouldn’t do as many stupid things.
AIG’s primary function in the global economy is to insure securities. If it goes down there are many, many investors working without a net and starting to hide their money in mattresses. The world loses even more capital and we cease to be able to “work” our way out of recession.
Lynn I agree with you that it’s more than “Wall Street” . That’s just a convenient scapegoat. 3 or 4 years ago my brother in law was telling us all around the thanksgiving table how we could quit our jobs and start doing real estate deals and make much more than we would otherwise. I’m not looking forward to this thanksgiving, i’ll tell u.
while I agree that the people who took out these ridiculous loans should be held accountable, the same is true for the companies that gave out those loans or bought the securities that those loans were packages into.
the other issue at hand is the precedent of a government reaching into the capitalist free market banking system as thoroughly as the US now has. the US, together with the IMF, has argued for years against these types of actions when other countries have had banking crises.
“…the same is true for the companies that gave out those loans or bought the securities that those loans were packages into.”
I disagree. I think the individuals crying that they didn’t know what they were signing, didn’t know they should have read what they were signing, and didn’t know they were doing anything wrong aren’t being held accountable for their actions. It infuriates me that the state of Minnesota is going after the crooks running these scamming operations, but portraying the people who took out the loans as innocent victims.
Yes, those contracts are dozens of pages long and very complex. But there is one page that summarizes the loan just like any other loan, and it’s required by law to be in plain English. And it is.
I find it very hard to feel any sympathy for them. If you recall the recent scam related to a local suburban development worth millions, there were a number of them who bought several houses at once, millions of dollars worth of property. And when they were caught, they said they didn’t know that they were lying about their income-they didn’t know they were supposed to read what they were signing (some of the applications were altered after the person signed, but a lot of them signed blank papers or signed papers filled out with fake info).
Again, what the hell happened to personal responsiblity??? The loans Skidsy’s article talked about/used as examples were so obviously far beyond the buyers’ means. It’s like cashing a check someone sent you in error made out to someone else, and then saying you didn’t know you couldn’t/shouldn’t cash it (and that happens now, too).
Personal responsibility. You might recall that 20-30 years ago the loans were underwritten much more strictly. Everything was checked. But they always, always still offered you more of a loan than you could afford. People back then figured out what they could afford and didn’t take the $200,000 loan if they knew they could only afford the payment on a $150,000 loan.
Isn’t anyone else angry that this happened-it might even be an acquintance or a family member, you know?
And everything else happening is REALLY bad. I kept pulling up Google news all day for the last couple of days now, and it’s one giant falling after another after another. Don’t people realize what’s going on? I talked to my 403B person today; it’s not an exaggeration to say that what’s happening now is as bad the Great Depression. Check out the article on Google news about the projection that the housing market isn’t likely to start seeing increases/a correction until at least 2012.
This is a personal web site and does not represent the views or policies of my employer. If you come across an item that you happen to find offensive then you have not been reading long enough because there are lots of things that are offensive on this site. Sorry…
18 Responses to “question of the day”
Palin declared May 2007 to be Skin Cancer Awareness Month in Alaska.
Ironic?
Still waiting for you post about the value of your house. Am I wrong, or is the standard market doomed to kick its heels up and die a painful death over the next 6 months to a year?
Come on, let’s get real here; you can’t convince me that the downfall of the economy is 100% due to the substandard housing market. How many Americans with “good credit” have seconds and thirds on their homes, lease their vehicles, have no savings whatsoever (including retirement savings) and owe tens of thousands on credit cards? Having worked in the credit card industry, I’ll tell you that very few of those things factor into one’s credit-worthiness. Your average American is digging himself deeper and deeper into the hole.
Maybe I’m wrong, and it was a domino thing; substandard goes, then the housing values fall, then the standard market goes. So how did that cause the failure Lehman Bros, etc?
Was it like this in the 70’s? Is this truly cyclical? Where’s that sandbox-I want to stick my head back in it.
@Lynne: My house? Value holding firm so far.
Nouriel Roubini is calling it The Worst Financial Crisis Since the Great Depression.
Can you spell De Reg U La Tion ?
Yeah, I’ve heard people talking about deregulation being the cause of our current economic woes and the downfall of society as we know it (just being dramatic there…)
I know the airlines were deregulated; what else in the past decade (I’m reading up and understanding very little about banking dereg)? How could that have caused the downfall of the housing market and the ecomony as a whole so suddenly?
Also, I hear that the housing market was due for a “correction” much more often than I hear dereg. concerns. And I hear a LOT of yipping and yapping about how people should have 20% to put down on a house like they did in the “good old days”. I’d like to go back and look at the value of money vs. earnings vs. home prices. The 70’s is a good benchmark since the economy today seems to frequently be compared to the economy then. Honestly, saving 20% for a home downpayment seems pretty elitist to me; if you already own a home, fine. But by the time you come up with 20% as a first time buyer, the price is 10% more. And so on and so forth. Save for retirement or save for the down payment? And oh, by the way, saving for the down payment isn’t tax deductible, the retirement account is. So, put it in a retirement account and then take it out as a loan? So how do you fix this without issuing high-risk loans?
I guess I’m just bitching. Probably because I don’t understand most of what’s happening and it’s frustrating. I see the prime going down, but not rates that are offered to consumers. I see the price of oil going down, but not for consumers (of course, that’s a good thing!). I see CEO’s taking home millions of dollars, and your average American takes home a 2%-3% raise, because the business cuts “overhead” first (and yet they can still pay those CEO’s…). But the cost of food is up easily 25% over the cost two years ago. That 2%-3% raise doesn’t cover it.
How do you fix all of this? Yeah, yeah, you’d be a billionaire if you knew.
This American Life does a nice little primer on some of the ins and outs of the housing/credit mess.
Re: Oil Prices… These are the future deliveries of raw material, not finished product. Price drops now will not be felt for another couple of months, if at all. Price drops in steel don’t make cars less expensive.
To solve most of the issues you mention we need to switch to renewable electricity with better battery technology. Put a “Moonshot” program to make a car battery to drive 200 miles on its own, at 60 miles an hour, with a 4 hour charge time, that will last for 15 years. When we’re not making food into burnable fuel, food prices will decrease, diesel for delivery trucks will be less expensive because demand for oil is down and we all have more money to pump into diversified industries and services because we’re not putting $150 per month in our gas tanks.
Where’s my Billion?
Whoops…
http://www.thisamericanlife.org/Radio_Episode.aspx ?sched=1242
Yes it is elitist and yes she is a complete joke.
Ok, thanks, I will read the transcript at lunch.
About oil: I know it takes months to get to the consumer level. I also know that the minute crude oil prices go UP, the gas station owners have their employees out at the sign (literally; I have seen it happen), raising the price because they “anticipate” the increased cost of the next batch. What a load of dung. We SHOULD be seeing the price of gas drop significantly in a few months due to the drop in crude oil prices that occurred over the past few days; it will never happen.
Again, I completely agree we need to get away from an oil-based economy. But check the headlines; most Americans want to open up our coasts for offshore drilling rather than finding ways to use less gas/plastic/oil based products. Given that’s the case, it’s hard to believe we’ll get to the point that an electric vehicle (or alternative) will become available.
Smithers: Ok, seriously-if the value of your home hasn’t descreased through all of this, that says to me that you’re not lower or mid-middle class income. Not trying to piss you off, just pointing out that your viewpoint isn’t going to be the same as the poor schmoe who has lost $20-$40K off the value of his/her home over the past year. They can’t move (because they can’t sell). Likely they were looking to use the value increase they expected to take out a second mortgage and do home upgrades or repairs (like a new roof or siding).
It blows my mind how much of an impact that one factor has on people I know, let alone the failure of Fannie Mae/Freddie Mac, Lehman Bros, AIG, increasing unemployment rates, etc.
This isn’t a recession-this is a depression, pure and simple. It’s a shame there are millions and millions of people like me out there who just didn’t care until it reached the crisis we’re at now. There you go-you can point the finger at me and egg my apartment
Smithers: Ok, seriously-if the value of your home hasn’t descreased through all of this, that says to me that you’re not lower or mid-middle class income.
Stop trying to piss me off Lynne.
Our home value has gone up since we bought the house in 2002. It’s certainly down from it’s high point from the last few years, but still way up from when we bought it.
Currently I would say that I am living at the low end of upper middle class.
If the Fed would come through with my $10 billion bail out I could be living a whole lot better.
“Stop trying to piss me off Lynne”
LOL, well- ok.
Skidsy, I read the article. I suppose I should be infuriated with the mortgage brokers/businesses for taking on risk they absolutely knew was ridiculously unsound.
On the other hand, I’m also sick to death of people trying to shift responsiblity. No one is responsible for their own actions/decisions anymore. All of these “sub-prime” borrowers couldn’t read the very top line of the contract that says their monthly payment was $3000 and see that their paycheck is only $4500 a month (which is a lot of money, folks)?? They knew they couldn’t pay that for even a year, but they took it out anyway. And of course, why should we expect that they would actually read what they were signing which said they earn $150,000 a year (when they knew they only made $22,000)???
It’s as if we now cherish and treasure a lack of morality and ethics. I’m sorry, but I blame the next door neighbor who says they couldn’t understand something so simple a 2nd grader could read it (Income: $150,000 or- Monthly payment: $3,000). It’s not stupidity; it’s fraud and it’s your next door neighbor doing it with full knowledge.
Anyway, are you saying that the sub-prime market took down the investment banks because they were falsely rating the mortgage backed securities based on incorrect data? And that AIG went down because they invested in those highly rated mortgage backed securities? If so, how can any market possibly survive? How much of the portfolios were made up of these mortgage backed securities?
It pains me a little to say, Micheal Moore summed it up best with the title of the first chapter of “Dude, Where is my Country?”…
“Horatio Alger Must Die”
When you are approved by a bank for a mortgage that far exceeds the affordability of your current wage, many people say to themselves “The bank knows I’m smart and will get a raise soon. My boss knows I work the hardest in my department and will be promoted soon. I’m invaluable to the company, there’s no way *I’d* ever get laid off”
Both bank and buyer fool themselves into thinking the other’s watching the bottom line. The bank doesn’t worry too much because home will *always* increase in value. The buyer only sees the first year of their ARM and thinks that they’ll be able to refinance, rates will stay low or they’ll be making more money when the rates reset.
All of us have talked ourselves into financial folly at one time or another. There should be institutions, calculations and restrictions in place to reign in our ‘Merican optimisim.
If we didn’t always think we’ll be better tomorrow than we are today, we wouldn’t do as many stupid things.
AIG’s primary function in the global economy is to insure securities. If it goes down there are many, many investors working without a net and starting to hide their money in mattresses. The world loses even more capital and we cease to be able to “work” our way out of recession.
Lynn I agree with you that it’s more than “Wall Street” . That’s just a convenient scapegoat. 3 or 4 years ago my brother in law was telling us all around the thanksgiving table how we could quit our jobs and start doing real estate deals and make much more than we would otherwise. I’m not looking forward to this thanksgiving, i’ll tell u.
@paulm: Why not? Perfect time to tell your brother in law “In your face!”
while I agree that the people who took out these ridiculous loans should be held accountable, the same is true for the companies that gave out those loans or bought the securities that those loans were packages into.
the other issue at hand is the precedent of a government reaching into the capitalist free market banking system as thoroughly as the US now has. the US, together with the IMF, has argued for years against these types of actions when other countries have had banking crises.
our socialist economy is sweet. hooray for W! keep buying up industry!
u.s.s.a!
u.s.s.a!
fuck yeah!
“…the same is true for the companies that gave out those loans or bought the securities that those loans were packages into.”
I disagree. I think the individuals crying that they didn’t know what they were signing, didn’t know they should have read what they were signing, and didn’t know they were doing anything wrong aren’t being held accountable for their actions. It infuriates me that the state of Minnesota is going after the crooks running these scamming operations, but portraying the people who took out the loans as innocent victims.
Yes, those contracts are dozens of pages long and very complex. But there is one page that summarizes the loan just like any other loan, and it’s required by law to be in plain English. And it is.
I find it very hard to feel any sympathy for them. If you recall the recent scam related to a local suburban development worth millions, there were a number of them who bought several houses at once, millions of dollars worth of property. And when they were caught, they said they didn’t know that they were lying about their income-they didn’t know they were supposed to read what they were signing (some of the applications were altered after the person signed, but a lot of them signed blank papers or signed papers filled out with fake info).
Again, what the hell happened to personal responsiblity??? The loans Skidsy’s article talked about/used as examples were so obviously far beyond the buyers’ means. It’s like cashing a check someone sent you in error made out to someone else, and then saying you didn’t know you couldn’t/shouldn’t cash it (and that happens now, too).
Personal responsibility. You might recall that 20-30 years ago the loans were underwritten much more strictly. Everything was checked. But they always, always still offered you more of a loan than you could afford. People back then figured out what they could afford and didn’t take the $200,000 loan if they knew they could only afford the payment on a $150,000 loan.
Isn’t anyone else angry that this happened-it might even be an acquintance or a family member, you know?
And everything else happening is REALLY bad. I kept pulling up Google news all day for the last couple of days now, and it’s one giant falling after another after another. Don’t people realize what’s going on? I talked to my 403B person today; it’s not an exaggeration to say that what’s happening now is as bad the Great Depression. Check out the article on Google news about the projection that the housing market isn’t likely to start seeing increases/a correction until at least 2012.
it’s not an exaggeration to say that what’s happening now is as bad the Great Depression
My office is on the ground floor so when things go sour and I jump out the window I’ll just run away.