I have been off the Ben Stein beat for quite some times, since it is ably covered by Felix Salmon and I don’t want to encourage Stein by giving him undue attention. But this week’s offering is such a doozy that I had to say something.
Now remember, his column is titled, “Everybody’s Business.” So how does he begin a column presumably addressed to a broad swathe of Americans?
Not long ago, a woman in California called me for advice. She is divorced, with two children, and has a series of interlocking financial problems.
She lives in a lovely home in a stylish inland enclave. It has an interest-only mortgage of about $2.2 million that requires a payment of $12,000 a month, very roughly. It was last appraised at $2.7 million, but who knows if it’s now worth anything remotely close to that price.
The woman, whom I’ve known since she was a teenager, has no job or other remunerative employment. She has a former husband, an entrepreneur whose business has suffered recently. He pays her $20,000 a month, of which roughly half is alimony and half child support. The alimony is scheduled to stop this summer….
She has no savings and has refinanced her home repeatedly, always adding to indebtedness and then putting the money into a shop she owns that has never come close to earning a dime. Now she is up all night worrying about money. “Terrified,” as she put it. She wanted me to tell her what to do.
What could I say? I did the best I could, but I had to tell her that she was on very thin ice.
Ever since, I’ve been thinking of the troubles of this sweet woman, consumed with worry about money.
Is that story going to elicit one iota of sympathy from anyone? The bimbo woman knew when her meal ticket was due to run out well in advance. And she clearly took zero steps to prepare: no job, no plan to get a job, no downsizing of expenses so she had a buffer when the checks quit coming, merely throwing money at a “shop” that given its lack of earnings, the IRS would see as a hobby rather than a business (note to readers: it isn’t uncommon for wealthy women to have marginally profitable decorating or clothing businesses so they can buy at wholesale and have good conversational fodder). Indeed, given the fact that she kept refinancing her house, she was clearly spending more than what her ex was paying her.
Reading between the lines, her plan A was to snag another well-off man, and she had no Plan B.
And I snipped this tidbit for separate delectation:
She has a wealthy beau who pays her credit card bills and other incidentals, but she is thinking of telling him she is through with him.
Maybe she has decided to ditch “wealthy beau” because he won’t execute on Plan A. However, it is another sign of her generally lousy judgment that she wants to dump her only source of incremental cash now. Yes, it may feel like prostitution to stick with him, but prostitution at that level looks vastly better than any of her alternatives (and I know women who turned tricks due to lack of better income options when their money ran out. This is NOT a theoretical issue).
But later in the story we learn why he highlighted this paragon of irresponsibilty: he needs to make his pampered son look better:
…. my handsome son, age 21, a student, has just married a lovely young woman, 20. You may have seen on television the pudgy, aging face of their sole means of support….
I wish I could teach that work ethic to those close to me. I wish I could teach them that money is a scarce good, worth fighting for and protecting. But I very much fear that my son, more up-to-date than I am in almost every way, is more of a modern-day American than I am. To hustle and scuffle for a deal is something he cannot even imagine. To not be able to eat at any restaurant he feels like eating at is just not on his wavelength. Of course, that’s my fault. (I have learned that everything bad that happens anywhere is my fault.) And I hope to be able to leave him well enough provided for to ease his eventual transition into some form of self-sufficiency.
But I keep thinking of my friend in California, and what a perfect specimen of what we have become that she has become. I keep lecturing my son, as Pop lectured me, to learn prudence. I keep lecturing myself to learn it; I am far from a small player in the extravagance game.
Maybe, upon second thought, I did not learn well about prudence. Then I think that maybe it’s too late for far too many of us. The age when money was a free good, available in unlimited quantities just for signing a note, may well be over. What the heck will we do when we have to start acting like mature adults? How will we cope with limits? With reality?
Yes, Americans did not just get drunk on debt, but also drove while intoxicated and managed to plow their SUVs into crowds of innocents.
There are plenty of people who came to ruin who took far more defensible gambles than Miss Big House, Big Debts, No More Alimony. For instance, new graduates who racked up education debts and can’t find the sort of jobs that were on offer when they embarked on that path, businessmen who borrowed to keep their entreprises going (one buddy maxed out on his credit cards at least three times over 15 years to keep his firm afloat. And he sold it before the wheels came off the economy, so that sort of gamble isn’t always imprudent). Risk taking is part of life. Even crossing the street involves risk. Some risks are patently stupid, and some are reasonable, but even in normal times, a certain percentage of reasonable risks do not pan out. Many of the people who are coming to bad ends were reckless, but it is important to recall that some did make good decisions (in the sense that the risks looked reasonable at the time) but still had bad outcomes.
But the collateral damage is big and getting bigger with every day, and engulfing plenty of people who didn’t go to the leverage party. The list is long: cascading job losses, implosion of home values and investment portfolios, cutbacks in state and local services.
Do we learn anything by being shown two cartoon figure who for much of their lives never had to worry about money? (t appears that Stein’s son is likely never to need to worry about money either, although he will probably not be able to dine as well as he’d like). Stein is trying to give us a morality tale of sorts, but his object lesson isso far removed from the most common manifestations of the debt disease that it sheds no light on the issue. And while Stein’s son might have been the sort who would have gotten him in over his head with credit, he perversely will be saved by the crunch now upon us.
Update 3:05 AM: Not surprisingly, Frank Rich offers a much better zeitgeist piece.
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I love reading the Ben Stein beat. But I will say that there has not been enough written about the irresponsibly overleveraged, why they should be object lessons, and why it happening on the ground.
I think it is easy to beat up on the bimbos, but their pain is real, and they do represent the volatile core of our crisis.
You wrote in the past that that bankruptcy was very painful and isolating. I don’t want to excuse or tolerate drunk driving into crowds, but I think there is value in understanding it.
Instead of “lecturing” his son, why doesn’t Stein just cut his allowance? Problem solved.
As for his friend, imagine having to survive on only 10k/month! It’s just heartbreaking…
i feel sorry for 30-something people who took out 80%+ mortgages to buy their first family home at the height of the boom, and now face job losses and negative equity. plenty of people have walked into that trap, and i don’t think it’s fair to accuse them of irresponsibility. i mean, what is irresponsible for wanting to own a run-of-the-mill house in the suburbs for your new family to grow up in?
and i feel sorry for anyone who thought their house + equity-invested pension fund would cover their retirement. again, a perfectly reasonable expectation two years ago, even if you allowed for a “correction” in the property market. now they are being hit by a double-whammy of collapsed asset prices and a collapsed yield curve. poverty among the retiring baby boom generation is going to become a very big issue in the coming decade.
Reading Stein’s column, I didn’t get the impression that he was trying to illicit sympathy for the people he uses as examples. It seemed to me more of a lament on the economic downfall of America. If anything Stein is getting all Old Testament on us. He is not the least bit optimistic about the prospects for his financial “sinners” and if anything hints darkly about a coming retribution by the economic God who cannot be happy with the extravagant behaviour of the inhabitants of the new Sodom and Gomorrah—the United States (and the other countries that have followed her lead). The portion of Stein’s column where he reflects on his own failings seems to be his personal search for fifty (ultimately reduced to ten) righteous inhabitants of Sodom (that were the condition for its salvation from destruction) and finding that even he, who should know better due to his past experiences, comes up wanting.
Deep down Stein realizes that the God of economics is no kind and loving god. No, this God demands sacrifices and the puny inhabitants of the new Sodom and Gomorrah, with their lust for overconsumption fuelled by all sorts of unnatural credit, surely displease him. Stein’s column is a wake up call for America’s elite, and for once in his life he is correct. His overall tone is pessimistic, he insinuates that there is no way the corrupt and pampered economic deviants of his country are ever going to change their ways voluntarily. Only an economic catastrophe of Biblical proportions will instil the work ethic and savings that Stein now rather belatedly sees as crucial to a sound economy.
In Exodus, the Old Testament God explains the reason that Sodom was destroyed: “She [Sodom] and her daughters were arrogant, overfed and unconcerned; they did not help the poor and needy. They were haughty and did detestable things before me.” Stein is betting the economic God will use somewhat similar criteria in the near future on his own country.
“…but it is important to recall that some did make good decisions…”
Well, decisions made based on patently false information/ propaganda provided by MSM and/or others who themselves are too brain-dead to think independently or realize the truth (99% of society today) cannot be called good decisions. I used to part of that 99% and I KNOW that no “good” or even “reasonable” decisions are possible when you are living your life in “the bubble”.
«But the collateral damage is big and getting bigger with every day, and engulfing plenty of people who didn’t go to the leverage party. The list is long: cascading job losses, implosion of home values and investment portfolios, cutbacks in state and local services.»
«i feel sorry for 30-something people who took out 80%+ mortgages to buy their first family home at the height of the boom, and now face job losses and negative equity. plenty of people have walked into that trap, and i don’t think it’s fair to accuse them of irresponsibility.»
We feel their pain, but in Real America there are few winners and many losers, and staying out of the leverage party, or being in it but buying at the top of a market marks losers.
In Real America losers get what they deserve. Winners like Mozillo or Thain win, losers like those described above lose. Real Americans don’t worry or care about losers, they celebrate winners like ONeill, Cayne, Fuld, who have retired rich after making a lot of money.
«i mean, what is irresponsible for wanting to own a run-of-the-mill house in the suburbs for your new family to grow up in?»
This is a pretty disgusting sense of entitlement.
What about renting? What about buying a smaller house or a flat?
What about being realistic and realizing that buying houses with a price 6-8 times yearly income is stupid?
Unless of course the real story was not having a nice suburban house with white picket fences, but to use cheap credit to buy an ever-rising price asset and cash in tax free later, and then being to able to say “F*ck you! I am fully vested” to the suckers that did not play the leverage game.
And his dad was pretty smart! How did he get that column. Son will be divorced by age 25.
“Heeere’s to youuuuuu, Muhissssss Aa-MMERRRRRRRRR-I-CCA . . . !”
The friend of Ben the Shill may well be a perfectly nice person who understands nothing of money besides how to spend it. I may say and despite that possibility that she does still, by Ben’s report, have an income of $120,000 per annum in child support, which is three times my annual gross tho’ she does have two mouths to feed, yessir. I shed few tears.
I know folks who are turning tricks right now; they like the work, have the right clientele, and are damned good at their job. Exceptions in the industry, p’rhaps, but they are exceptional people. And thus, I would not advise Ex-Mrs. Trophy to enter that profession: she’d be lousy at it, since she hasn’t had to do a thing she hasn’t wanted to do for years, can’t market, and cannot evidently keep the customer satisfied.
On the subject of Ben’s Childe, of course he learned no prudence at his pater’s meniscus; Ben’s a sell-side guy. A sense of entitlement and of limitless impending wealth are mandatory for the clientele whom Ben services. But I do have a piece of substantive advice for The Happy Man re: his courtin’ son: Buy him a pair of diapers so that his attire is age appropriate. You’re twenty years late in raising him Ben, but good luck on the do-over.
So bena gyerek, in principle I would like to agree with you regarding the lack of culpability of those upside down and downsized 30-somethings in the suburbs. I surely agree with you that they are poached if not screwed . . . But those home prices were ri-dic-u-lous. I know, I know, everyone told them that housing only goes up. And, well, they didn’t want to wait for a reasonable market since they had families to house, and the good life to get on with, and all. So they either a) didn’t educate themselves, b) took a sucker bet knowing it as such, or c) believed that others would lose and they would win. I even *gulp* know some of those 30-somethings in just that position. Yes, going along with the crowd. . . . Lemmings and cattle go over the brink doing the same, too.
Unlike those 30-somethings with a funny debt contract and a split-level, _I_ didn’t buy a house or a condo, my friend. Because the idjits had priced anything and everything out of reach by any sane margin. That is the price I have paid for their stupidity and inflated confidence. I don’t mind at all if they pay their own price now that the piper has his cap out. Their kids will be smarter, or hungrier, and likely both. And those are likely good things. Fortune skips a generation, p’rhaps.
. . . No one with their head screwed on straight should have bought a house in the last five years unless it was an exceptional circumstance or they were unshakeably wealthy. It was a sucker’s bet. And they lost, every one of them, ‘cept for a few who sold at the top and got out with the cash: Them’s the smart money. Being stupid leads to remedial classes in the School of Hard Knocks.
I do agree with you, however, that the impoverishment of the Baby Boom just at retirement age is going to become a major political issue. Because we are about to witness this, you and I agree. I suspect that we will get a more generous and streamlined national pension out of it, and universal health care. May take five to eight years, but I think it is coming. The only way to pay for that is with much higher tax rates, of course. Which I think are coming, too.
I have long thought that Ben has been doing sexual favors for the NY Times editors. What else could explain why he is allowed to continue writing an economic advice column after being horribly wrong for years about everything related to the economy. I know what hustling is, but what sort of sexual favor is scuffling?
@ Kevin de Bruxelles
Love the analogy. In fact reading about Sodom on wikipedia I felt as if the description had been written precisely for the present day US. Take this excerpt:
“Now, about this time the Sodomites, overwhelmingly proud of their numbers and the extent of their wealth, showed themselves insolent to men and impious to the divinity, insomuch that they no more remembered the benefits that they had received from him, hated foreigners and avoided any contact with others”
As a foreigner who used to live in the USA, 90% of people I spoke with had some sense of “US is the biggest, richest, most powerful nation on earth and we don’t give a s**t about you or wherever the hell you are from.” Or take the impunity with which US is killing innocent millions in Iraq and elsewhere. Or for example, especially if you are a colored foreigner, the harassment and insults meted out at immigration counters even if you have all the right papers.
Here is another excerpt:
“Now this country is then so sadly burnt up, that nobody cares to come to it…”. A US citizenship, a green card or even a work visa is a highly desirable commodity for a lot of people in the world today, as evidenced by the large no. of people in the “queue”. After this economic devastation has played out in the full – and I think it’s going to be a LOT worse than even the most enlightened commentators expect – NOBODY is going to want to come or live here. In fact people will be fleeing it. It has already started happening. Take alook at this post on my blog: http://geekdomexperiments.blogspot.com/2008/12/americas-immigration-problems-solved.html
Of course I don’t feel sorry for the bimbo but I do think that some take too hard a line with people who bought at the peak. Most people were not speculators. They just happened to come to family raising age near the peak of the bubble. Our culture is one is which owning a home is more a right of passage into adulthood than an economic choice. My own mother and other family members pressured me so much to buy a house. “Stop throwing away your money and built some equity” and other clitches. Fortunately, I am a critical thinker. Most people, alas, are not. That will always be the case. So many people bought because they saw prices getting ever higher and thought that if they didn’t buy now, they would never be able to afford a house. They saw their chance of having a normal family life slipping away and got scared. So I don’t blame them too much. Normal people are not experts on financial history and have understanding of economics. Amazingly, even most economists got it wrong so how can you blame the average citizen?
To summarize:
1) Ben Stein asks us to feel sorry for a woman who should have a sturdy set of kneepads at the top of her Amazon wish list–on the grounds that his own parenting skills are weak.
2) Frank Rich asks us to be prepared to grant President Obama an unlimited call on our time and money–on the grounds that somehow the very meaning of citizenship needs to change.
3) As columnists for the NYT, both commentators have been living off the revenue from ads for diamond-studded dog collars, $30M co-ops, etc. etc. When the inevitably and deservedly lose their gigs, there are a few potholes near me that are more than shovel-ready.
Viva new media! Viva Naked Capitalism!
“Obama’s opening salutation — “My fellow citizens,” not “fellow Americans””: it’s probably because he knows that everyone supposes that he’s a citizen – of somewhere – but not everyone believes that he’s an American.
«Most people were not speculators. They just happened to come to family raising age near the peak of the bubble.»
Or perhaps they wanted to become wealthy and have a cushy retirement building equity in an always up and up market!
«Our culture is one is which owning a home is more a right of passage into adulthood than an economic choice.»
Sure it is, for people who can afford to pay $300k plus home prices and have a safe job.
What about those who can’t? Well, forget about them — they are losers.
«My own mother and other family members pressured me so much to buy a house. “Stop throwing away your money and built some equity” and other clitches.»
That’s called speculation. Unless “built some equity” comes with the warning that house prices may go down as well as up.
«Fortunately, I am a critical thinker. Most people, alas, are not. That will always be the case.»
Winners and losers. Real Americans celebrate with particular admiration those who win by speculating, and couldn’t care less about those who lose.
«So many people bought because they saw prices getting ever higher and thought that if they didn’t buy now, they would never be able to afford a house. They saw their chance of having a normal family life slipping away and got scared.»
A normal family life can be enjoyed in a smaller home or on a rented home.
If someone on $50,000/y bought a $300,000 house, they could have bought a $150,000 flat instead, and live in less splendid accomodation, or could have rented the $300,000 house, as rents did not bubble like prices.
Why didn’t they? But of course “to build some equity”, to put down $10,000 on the $300,000 and then have a nice 10x return on that as they sold the house for $400,000 in a couple of years, a 10x return, tax free. To be WINNERS.
Did these 30-somethings buy with 30% down, a home at most 3x their income, with a non-resetting mortgage?
Or did they buy with 3% down, 6x their income, with a mortgage that would reset after 2-3 years, counting on ever rising house prices to cash in and MAKE MONEY FAST tax free?
Ben Stein and his one dimensional ilk can only be popular in a booming up market because their message of “no regulation”, “no government intervention”, “the market is always right” only sounds good to people on the way up. That very same message is revealed as completely heartless and Darwinian on the way down, because in that direction the message can be read as “You are getting what you deserve”, and “The Market doesn’t care about you, the government doesn’t care about you, and neither do I.”
I think the people who took advantage of the responsibility-free ride up should suffer on the way down. I think Stein’s friend should lose her home and business, and you know the old saying – Wealth never survives three generations. Stein obviously spent his life grubbing for wealth and fame and passed on no values to his son. His son has no values or real skills to pass to his children. And Mr. Market has his revenge.
Good riddance Stein.
The point I took from today’s column was not to feel sorry for this obviously irresponsible woman – because I don’t have any sympathy for her at all (maybe for her children, but not for her). She is a person who very few people can relate to, certainly in scope. The very valuable message that was delivered to me was that many of us have not transferred to our children the behaviors that our parents taught us (excellence, work ethic, self-sufficiency), which allowed us to achieve many of the things we have – both individually and, in the aggregate, as a society. If we are really honest with ourselves about the underlying reasons for today’s economic crisis – the desire to achieve great wealth with minimal “societal value add” through exchange of financial instruments (the “money changers”) – would be right up there. Although not an initial supporter – I think that transferring the President’s message of going back to basics: self sacrifice, excellence, work ethic and looking out for the greater good, would be a positive first step to get our actions back in alignment with our long term success.
Ben Stein. I can’t believe anyone would listen to him for financial advice in the first place. I saw him about a year ago, perhaps, on Larry King or some program talking about a friend of his who is elderly, and has lost everything in the market: Ben Stein was his financial advisor. Looks to me like Stein’s “handsome” son will end up being a lazy, good-for-nothing, spoiled adult, because Stein was his father. Why would anyone listen to Ben Stein?
YS:
I read the Stein piece and didn’t think much of it except it is another nail in California’s coffin. I do tax returns for female “realtors” among other people. Only about 10% of them make any money at it. The other 90% have a “hobby” which each’s husband approves of. Why? It keeps each of them out of hubby’s hair.
It’s priceless that Stein’s kid is such a parasite.
One would think Ben Stein would leave his son out of this. After all, Ben has publicly stated his son is an addict. Naturally, Ben doesn’t disclose this fact when humiliating his own boy. Of course he also said his son is the world’s laziest person who still has a pulse.
What a truly horrible human being.
thanks to david @ 9.15 with some very sensible comments.
to me the key points are these:
– very few people are as financially savvy as contributors to this blog and had no conception that such a property crash was coming or even a possibility. in securities markets, unsophisticated investors are by law issued with a detailed health-warning before they are allowed to buy, and for good reason (1929). this does not happen in the housing market. there needs to be a much bigger fiduciary obligation on mortgage lenders to assess borrowers' capacity in a stress-case scenario.
– any hard-working person in the usa (or the uk where i live) should feel entitled to the right to buy an average (2-3 bedroom) house for an average size family at a price that is affordable (<50% of net household income) over a 10-15 year period. there are enough houses to go round. an economy / housing market that does not deliver this is disfunctional, and that is the fault of policy-makers and not individual homebuyers. saying a 35-year-old should live with his children in a small flat or should postpone having children, on account of a crazy property bubble is unreasonable and not the sign of a healthy economy or society.
– most people who bought a family home were driven by fear of being left out – i.e. "if i don't buy now when i can just about afford it, i will never be able to buy". i don't think many were driven by greed. this is in contrast to buy-to-let landlords and other leveraged speculative property buyers, who imo were the biggest drivers of the bubble. renting is not the same as buying. it does not give the the same level of security that buying does, particularly in the uk (and i suspect also the usa) where landlords' rights are well protected. i think the aspiration to own property is quite legitimate quite apart from "investment" considerations.
Ever since, I’ve been thinking of the troubles of this sweet woman, consumed with worry about money.
Oh this sweet woman, how will any of us ever sleep tonight! GMAB – give me a break!
Hey Miss Big House,
Don’t you think that is how Mr Stein ought to address her? And why did Miss Big House reach out to Mr Stein in the first place? Do you think Miss Big House could have ulterior motives and Mr. Stein is too blind to see his own feelings being manipulated here.
What puke, and if he isn’t that blind, he is more pukeworthy than Miss Big House!
«any hard-working person in the usa (or the uk where i live) should feel entitled to the right to buy an average (2-3 bedroom) house for an average size family at a price that is affordable (<50% of net household income) over a 10-15 year period.»
And a pony! Never forget the pony.
Or, as Janis Joplin said, a Mercedes Benz.
«very few people are as financially savvy as contributors to this blog and had no conception that such a property crash was coming or even a possibility.»
Ever heard of “buyer beware”? That a housing crash like 1990s one in the UK happens regularly is not exactly something that has fallen out of living memory.
Again, if a speculator assumes that prices will only ever go up (and why would one assume that), too bad for them.
If they assume that they don’t know, then stay out of the market and rent, or buy only as much as you can afford to lose.
Hey, petty speculators have been buying homes in flood plains that do regularly get flooded, and then ask for bailouts with “who could have known” faces…
There are sheep, and there are wolves. Both exist for a reason, and each support the other. The sheep breed, and supply food for the wolves. The wolves feed on the weak sheep, and help keep the population in balance. Too many sheep, and the world collapses from overgrazing. Too many wolves, and all the sheep die ( along with the wolves ). Predators keep the balance.
Now, what happens when the system becomes unbalanced? When the sheep are dancing in front of the wolves, rubbing barbaque sauce on their haunches and making come-hither gestures? Well, can the wolves be blamed for eating all the sheep, and starving to death in the aftermath?
This is no excuse for the wolf or sheep, but rather an evolutionary call for something new. Wolves and sheep will never see eye to eye here, so the new thing is another predator to prey on wolves. Such predators are evolving now, you can find them in parts of south america where the wealthy need armoured SUVs and a phalanx of bodyguards to go out on the town for dinner. Coming soon to your community, perhaps sooner than you think…
blissex,
the point is that buying a house is not simply an investment decision. it’s not like buying stocks. most people buy a house because they want to provide for their nascent family, not because they want to make an easy buck.
saying that these people should have rented or lived more modestly is side-stepping the issue. the issue is they were presented with a choice in the last 5 years that they should never have been presented with: i.e. having to leverage up to their eyeballs in order to afford a fairly modest house for their family, similar to the one their parents bought before them and that they grew up in.
yes people were stupid to take out 90+% mortgages. yes most people should have lowered their aspirations given where prices were. but people who only aspired to own a modest home for their family and didn’t want to risk waiting and discovering that prices were never going to come down to affordable levels again, do not deserve the level of punishment that is now being meted out by the market.
if the property speculators funded by cheap money, and the bankers and other uberwealthy funded by grotesque pay packages, had not been splashing out on their second homes and thereby forcing prices up so much, the current situation would not have arisen. to my mind, it is these people who deserve to be financially wiped out for their greed, and not the unsophisticated homebuyer.
no doubt even without the “hot money” on the property market, homebuyers would still have made bad decisions, borrowing more than they could afford (hence imo the need for greater fiduciary obligation on mortgage lenders). but if you take out of the mix all the leveraged speculation and undeserved income skew, then the bubble would have been much smaller and the consequence of a bad decision by a homebuyer far less catastrophic as it has turned out to be.
I like what my daughter just said:
“Can’t she just find another rich schmuck to marry? Or is she now considered too old for a trophy wife?”
Terry C, No More Gitmo!
Hey! I know that woman! Her name is Bunny Lebowski.
The simple fact that some people here write about “price of their house going down” makes it clear that the house is being viewed as an investment, not a consumption good (as it should).
One’s main house should be a consumption good (to live in, instead of paying rent), not an investment. If you look at it as an consumption good, then, once bought, the price is irrelevant. Especially in US, where you can fix the payments for the whole life of the mortgage. At that time, you’d be quite well positioned to make a decision whether the payment (be it in a lump sum, or future payments) is affordable to you or not, and what are the risks.
If you make a purchase which is clearly unaffordable, or runs a low buffer zone (i.e. high risk purchase), you’re a speculator in my view. Or an idiot, who should not be allowed, for their own good, to make any financial decisions.
And yes, I realise that people might have to (as opposed want to) move, but that’s one of those risks I wrote (along with losing one’s job etc..), which is why buying a house should involve a reasonable equity.
Or you can rent, and then you can move with much smaller penalty. No-one’s forcing you to buy, except yourself.
So, I will repeat again – primary housing is not an investment, it’s consumption!
Financial Crisis TARP Bailouts and Dow Jones Index Manipulation
http://marketoracle.co.uk/ Articl…rticle8450.html
An aggregator bank (the so-called “bad bank”) is going to happen. So, for what it’s worth, let me make a few suggestions. Banks that are technically insolvent and which will need to put taxpayer money at risk should just be “put down.” The shareholders and bond holders need to be wiped out before taxpayer money is spent. And the banks should be put back in strong private hands as soon as feasibly possible. We do NOT want government agencies subject to political manipulation making decisions about lending. But deals should be structured which give taxpayers a real chance to get their investments back.
And please, no more deals that are not on the same terms that Warren Buffett or other private investors get. That was simply embarrassing for Paulson and team, or should have been.
In closing, let me quote two paragraphs from Bridgewater Associates that I think sum up the problem in a rather brilliant and clear way, and which I wholeheartedly agree with:
“The root problem is that debts that were incurred to finance assets at high price levels remain in place at their original amounts even though the assets that they financed are now worth far less. Debt that was incurred to finance extrapolated high incomes remains in place at its original amount even though incomes are now much lower. And, debts that were incurred to finance loans remain in place at their original values even though the loans that were made cannot be repaid. Until the debts are brought in line with the assets and the income, there is no moving forward no matter how much liquidity is provided or how eloquent the speech. And, until this happens, the self-reinforcing nature of the debt squeeze will only reduce incomes and asset values further.
“There is no easy way out of a debt restructuring. Someone will have to bear the cost of prior bad decisions. The people who should bear the cost are those who made the bad decisions to make the loans or those who financed the people who made the loans. They intended to profit and would have profited if they were right. But they were wrong, so they should lose. The government needs to allow the losers to lose and focus their actions on minimizing the knock-on effects of their failure on people who didn’t do anything wrong (to minimize systemic risk). They should then take action to minimize the future exposure of the innocent to the future dumb decisions of the small minority, because no amount of regulation will ever eliminate dumb decisions, so you have to plan for them (through much lower bank leverage limits to cushion losses, bank size limits and non-bank entities playing bank-like roles to improve diversification, safety nets to prevent losers from poisoning the whole system, etc.).”
To coin a phrase, “The world needs ditch diggers, too!”
One of the advantages of living out in my neck of the woods is that we have a magic billboard. Whatever manner of making money is advertised on it magically peaks and collapses within a year. It had the tech market bubble and the more recent real estate bubble perfectly timed.
vlade,
i agree with you that a house should be thought of more as a consumption good, except that (i) your caveat about people having to move out of necessity is not a small caveat (e.g. like when someone has to move out of detroit to find a job), (ii) you forgot the risk that someone loses their job and cannot keep up with the payments, which tends to be correlated with falling house prices, (iii) renting is not an easy risk-free option because of the loss of control over your place of dwelling (i am not aware that the usa has a well developed market for guaranteed 30-year leases on family homes – the uk certainly does not), (iv) the investment aspect becomes pretty important as people come up for retirement.
any hard-working person in the usa (or the uk where i live) should feel entitled to the right to buy an average (2-3 bedroom) house for an average size family at a price that is affordable (<50% of net household income) over a 10-15 year period
Since you live in the UK, you most likely do not understand the number one factor in determining house prices: school districts. There have been numerous studies on this. The desire for parents to get their children into high profile public schools has been perhaps the greatest factor in the rise of housing costs. It is also a lot what has lead to the economic segregation of this country.
There is plenty of land for everyone to buy a house, yes. But good luck on getting it in a desirable school district, or even a safe neighborhood for that matter.
I chose to rent in the housing bubble collapse and avoided all these losses when the Ponzi scheme collapsed. Many other posters here did too.
Likewise, I choose (present tense) to rent in the American Woman bubble too. divorced & never married Single Moms aren't so wonderful- The majority are undisciplined unproductive personal & financial wrecks. Wrecks like this woman are quite common….
As a 37 yo bachelor this is the typical dating option you see. High liability delusional women behaving like prostitutes and trying to get you to execute on Plan A.
If you have reservations about stepping into this beartrap- You will be called a LOSER. Yeaaah its funny. Note the liability of the ex-wife dwarfs the house.
American women much more enjoyable to rent than marry. The foreign ones of all colors tend to be much better for marriage. Lots of my pals can attest to that.
My prediction for 09: That Princess will be turning tricks. many more like her will too. Prices will come down.
This Stein douche gets $50,000 for corporate speechmaking.
Two years ago, he picked up a check for that very amount from my company to tell the assembled crowd that there was no basis for the housing market crash and subsequent vaporization of home values.
Any claim that he is an economist is flat out absurd. He is a typical GOP know-nothing shill and an asshat.
I see nothing new here at all: some women only know the republican way of sex for shelter, and the spawn of the well to-do have been sitting on their asses waiting for their inheritance to keep them in lattes since the dawn of civilization.
Fortunately, the womens’ rights movement of the past 40 years has giving woman opportunities beyond republican-style prostitution or being a librarian (even though misogyny and discrimination remain rampant in the US), and good parenting has always been the solution to avoiding the age old problem of decadent, useless young adults. Stein is 100% correct that the debacle of his son is Stein’s fault – 100%.
I disagree Yves – I usually loathe Ben Stein – his appearances on Fox Business(NOT!) segment, his column but I dunno – his column today looked like he’s had his “come to Jesus” moment – the money quote would be :
Then I think that maybe it’s too late for far too many of us. The age when money was a free good, available in unlimited quantities just for signing a note, may well be over. What the heck will we do when we have to start acting like mature adults? How will we cope with limits? With reality?
America, a nation of free-spending Peter Pans. Where are our moms and dads when we need them? It’s their fault.
How long will this last ? That man is quite a gadfly so I won’t hold my breath – but the column was one to savor.
-K
@bene
That (the rental problem) could well be one of the things that US (and UK) govt should be solving. Germany has a market where most of the renting is long term – to the point that people buy their own kitchen and move it between houses, because they know they will be in the house for 10 years.
your (ii) is covered in the “think about risks” scenario. There are scenarios where, for better or worse, you run losing your job, etc. You’d at least have an idea what would you do then, as it’s not an impossibility – it’s a risk. If you never thought about it and what you’d do/what impact it would have, well, what can I say?
re (iv) – past performance is no indication of future performance, and all investments can go up and down.
Either house is an investment, and they you run an investment risk, or it’s an consumption good (which, in a good case can be passed on to your descendants – but so can other consumption goods), and you don’t look at it as your personal ATM.
The problem is that putting down the roots (by buying a house) has its costs, but people discount them. They should be encouraged to think about them, and act accordingly. I think that buying a house (primary residence) with less than 25% down payment is irresponsible (both as buyer and seller) or plain stupid. There’s just too much risk in the world. Unfortunately, our govt’s like to pretend that they removed the risks, as that’s what gets them re-elected, which then leads to the increase of irresponsible behaviour until the bubble bursts.
I liked the last part of your post, on “defensible risks”. Those of us who took on high education debts are, in my opinion, a category apart from those whose pain stems simply from a lack of self-discipline.
I am very disciplined, I have always lived lean, the only time I use a credit card is for Christmas, and my FICO dances between “Excellent” and “Above Average”.
I got to my current position (going from a working class background to a high pedigree MBA, and a budding career at a high-profile firm) after a lot of hard work, several miserable setbacks, and with little assistance of any kind (Though what was given is surely appreciated). I would seem to be the poster boy for the “boostraps” character I keep hearing conservatives mythologize about.
Unfortunately, I’m wondering if it was worth it all, as to get here I had to take on an immense amount of educational debt, which precludes me from moving forward with what is really important in life: family.
I knew I was taking on a big risk, but I think it should be noted, that social investment and reform has receded in the past two decades, precisely because the expressed goal of politicians, policy makers, and media influencers was for us to take high risks…
…remember? If we cut back on social support, it will encourage people to take greater risks, and high risks were supposed to drive the economy…
…perhaps this notion should be re-evaluated. I think some people will not take risks, regardless whether support is high or low. For the rest (great majority) of us, the current system leads to results where the terms “success” and “failure” seem to be increasingly indistinguishable from the other.
The first thing that came to my mind when reading the Ben Stein piece was an old Rousseau quote:
“Whether strength of body or of mind, or wisdom, or virtue,
are found in proportion to the power or wealth of a man is
a question fit perhaps to be discussed by slaves in the
hearing of their masters, but highly unbecoming to
reasonable and free men in search of the truth.”
The second thing that came to mind was an old Motorhead lyric:
“C’mon baby, eat the rich
Put the bite on that son of a bitch”
I knew that poor Ben Stein had lost his mind when he announced his support for Al Franken’s candidacy.
Does Stein think these two examples are at any way typical of the problems typical Americans are faced with.
Married college students solely supported by wealthy dads, divorced women living in 2million dollar houses?
These people are emblematic of the problems facing America? I don’t think so.
They are emblematic of how removed from reality people like Ben Stein are.
He thinks his son is spoiled yet doesn’t see the simple solution of telling him “You’re married now, time to support your own family.” And letting the kid go get a job.
I wasn’t aware Ben Stein knew any of the stars of “The Real Housewives Of Orange County” ….
Let’s see …
Sell out Ben Stein — who collaborated in taking a vanilla greed Scamerican Ponzi scheme to a neocon elite, greed on roids, intentional perpetual war, two tier ruler and ruled world Ponzi scheme — now sits back and agitates the marks as we drift into the perpetual war phase.
Ponzi died in poverty.
My guess is that when the true story unfolds a lot of these sell out collaborators like Stein will be shot.
There will be no place to hide.
i on the ball patriot
Wow. I used to like Ben Stein.
When I was newly married and 21, I remember choosing between a broom and having meat that week. I ate leftovers with mashed potatoes on top and called it a casserole.
My couch was hand-me-down plastic patio furniture with a blanket on top.
I’m not some little old lady either. I’m 32. Seriously people, when are you going to let the kids grow up?! I thought I was pampered…
This may be the ‘let them eat cake’ moment of our new age. 10k a month in child support and alimony? Do the initials FU mean anything to you?
I think I hear Dr. Smith in the background…”the pain…oh the pain”.
Plenty of minimum wage jobs out there if you’re willing to compete against the Mexicans. Get used to it.
LOL.
Enjoy.
Hey, Anonymous – the anon who said that the women’s movement allowed women to be something beyond librarians – true, but don’t knock librarians! Besides, we are now *ahem* information scientists. My last few classes were indistinguishable from computer programming. (I have every intention of being the next Charles Darwin of archival theory.)
Okay, all ribbing aside, to the other anon who made the astute observation that Stein’s kid is a parasite: has Ben Stein really been anything but a parasite and a hangers-on, himself? Daddy got him his Nixon speechwriting job; Stein admits that he didn’t have the best grades at either Columbia or Yale; he’s been milking his one-hit “Buehler” for decades; his books are all about his narcissistic self, meaning, naturally, that they’re wildly contradictory. Is this a man who thinks he has something to say, or a man desperately in search of something to believe? And what’s with all the young girls? (Woody Allen syndrome?)
I don’t know whether to join the chorus of “throw alimony-addled bimbo out on the street” or to be relieved that creepy Stein actually knows any woman older than 29. No, I don’t feel sorry for her. I waitressed through my college years at a threadbare inner-ring suburban hotel (which made me severly allergic to older men who “like” young girls. Ick). What I don’t understand is why he gave enough details to essentially identify this twit and splash her problems all over the internet. If her lover didn’t know she’s thinking of dumping him, he does now!
There are a lot of experts out there in this world. Ben Stein looks real smart but he ain’t one of them.
I am tired of hearing about the misfortunes of those that were living beyiond their means. many forgotten Americans did everything right, saved lived below ones means to save up a downpayment for a house but our sell out corrupt politicians can’t bend over backwards to reward stupidity and greed and selfishness.
Lets let those that made prudent responsible decisions be rewarded.
Stop trying to hold up inflated house prices with our tax money or by loading the country up with debt.
It is time to start pointing the blame where it squarely belongs with the unehtical realtors, mtg brokers, appraisors , builders, bankers, lenders and Wall Strret den of thieves.
Where are the arrests ? Round up all these thugs and confisacte the ill gotten commissions and gains siphened from our country.
Wow. Stein’s column reminded me of a story from the Onion a few years back, “Housewife charged in sex-for-security scam.”
http://www.theonion.com/content/node/39495
“Area resident Helen Crandall, 44, was arrested by Akron police Sunday, charged with conducting an elaborate “sex for security” scam in which she allegedly defrauded husband Russell Crandall out of nearly $230,000 in cash, food, clothing and housing over the past 19 years using periodic offers of sexual intercourse…..”
Some time late in the 20’s a young man in prep school went home to Manhattan and learned that the money had run out. Charged with helping support his family, he decided that with his limited skill set–various sports, and some mucking about in boats–he could make quick money by shipping out on a tanker. When he found that the dirty work in the engine room paid better, he became an oiler.
After a few trips, an old friend suggested that he could make just as much money without the oil as a photographer’s model. One of the subjects in the studio told him of theatre work as a walk-on and assistant stage manager, so he tried that. His name was Robert Montgomery.
His story isn’t really that exceptional, then or now. Adversity doesn’t build character, it only reveals it. Stein the Younger may well reveal that he’s more of a man than his father gives him credit for being, or can imagine himself being. I do hope so.
As for Ms California, her case seems so much like Michael Tolkin’s reimaging of “The House of Mirth” that it’s hard to take seriously, other than way-we-live-now satire.
Oh well, could be worse. We could be debating a Robert Kiyosaki piece.
Living for the day is always filled with an upside, a better day, and a downside, the current economy.
Funny, I got the feeling that we really weren’t supposed to be any pity for any of these folks, except to say that “I should make sure that isn’t me.” In the words of David Byrne (of Talking Heads) .. “How did I get here ?” .. really doesn’t cut it as they should have asked that question a long time ago. Living today and expecting tomorrow to be a better day, only leaves you with a downside.
Remember .. a pessimist can only be pleasantly surprised.
NIce to see that Stein is so sympathetic to unemployed prostitutes – and their children.