Saturday, May 12, 2007

"Middle Class Needs to Wake Up" Says One Marin Resident

From the Letters-to-the-Editor in today's Marin IJ:
Middle class needs to wake up

Marie Antoinette is reputed to have said, "Let them eat cake" as the people starved. Two hundred years later, the cry from the present indifferent rich is, "Let them eat crumbs."

The latest obscenity is the golden parachute given to the retiring president of AT&T. He will receive$161.6 million and he will make $1 million a year as a consultant plus other benefits.

However, there was some good news for his less fortunate retirees of AT&T. In the spirit of brotherly love, his board granted a 6.2 percent increase in monthly benefits - but only to those oldest and poorest retirees who have a pension of $1,200 or less per month. How can anyone fault such generosity? What a class act! And they say the rich have no heart.

The line between the rich and the poor is rapidly growing wider as the middle class gradually sinks into genteel poverty. Gas prices go up, food prices go up, housing prices go up, but "hosanna" the 6.2 pension increase has delivered the poorest of the poor. In gratitude for the crumbs they receive, they should bow and touch their forelocks as they thank the benevolent rich for their good fortune.

When will the middle class rise up in protest? Illegal immigrants protest, gay/lesbians protest, bikers protest but the middle class goes dumbly down the ladder to poverty. Gas companies report record profits every quarter, food stores modernize and raise the prices, jobs move overseas, legislators are bought and sold, young people die overseas and the middle class goes dumbly down the ladder to poverty.

It is the middle class that built this country, it is the middle class that earns the money for the rich and it is the middle class that can once again assert its strength but only by taking back its government.

Harry Schriebman, Corte Madera


Blogger Matthew said...

Here, here Marinite.. (although I think we'll soon see a major correction that sqeezes the wealthiest amongst us as well)..

Speaking of the middle class becoming the new lower class, here is a very interesting article found on another blog dealing with debt securitization in this new (unregulated) lending environment...

"New geometry of debt securitization

The mortgage sector before the age of securitization was shaped like a cylinder in which risk was evenly spread throughout the entire sector, thus all mortgages share the aggregate cost of default. This even spread of risk premium is viewed as market inefficiency.

Securitization through collateralized debt obligations (CDO) permits the unbundling of generalized risk embedded in all debt instruments into tranches of escalating risk levels with compensatory higher returns, and in the process squeezes additional value out of the same mortgage pool by maximizing risk/return efficiency.

The geometry of CDO securitization transforms the cylinder shape of the mortgage sector to a pyramid shape, with the least risky tranches at the top and the more risky tranches with commensurate premiums toward the bottom, so that a greater aggregate risk premium can be squeezed out by the security packagers and investors as profit. This extra value, when siphoned off repeatedly from the overall mortgage pool, requires an ever larger base of subprime mortgages in the new pyramid shape, thus increasing the systemic risk further.

Subprime borrowers are no longer just low-income borrowers. They include high-income borrowers whose incomes and collateral value do not provide sufficient reserve for sudden changes in market conditions. A subprime borrower is one who over-borrows beyond prudent standards. The extra risk-premium value thus taken out of the mortgage sector contributes to the increase in liquidity to feed the debt market further, pushing the low credit standard of subprime lending further down. Once prime-credit customers have borrowed to their full credit limits, growth can only come from lowering credit standards, turning more prime borrowers into subprime borrowers.

This is the structural unsustainability of CDO securitization, irrespective of the state of the economy, since risk of default is shifted from the state of the market to the direction of the market. Any slight turn in market direction will set off a downward-spiral crisis. The initial upward phase of this cycle is euphoric, like any addiction, but the pain will come as surely as the sun will set in the downward phase.

Not many economists or regulators have yet focused on this structural defect of CDO securitization. The recent congressional hearings on subprime mortgages completely missed this obvious structural flaw."

Very interesting.. esp the author's comment on the risk in the market is now based on "direction" of the market as opposed to the "state" of the market..


May 12, 2007, 1:12:00 PM  
Blogger Matthew said...

Of course, none of this debt securitization stuff applies to Marin.... Yea, right.. we'll just have to see about that..

Just imagine the pain and rate of price drops should a stiff recession set in, which, IMO, is just a matter of time given the enormous amount of consumer debt building up in this country right now.

Consumer debt will keep a stranglehold on this economy for the next generation.... as it probably should..


May 12, 2007, 1:31:00 PM  
Blogger mountainwatcher said...

Great reference Matt.

Another pyramid scheme.

This time supported and fueled by the media, the RE machine, the mortgage industry and the fed.

Yes, Marinite, the middle folks are being thumped.
This is a very bad situation.

What can we do?

May 13, 2007, 1:26:00 AM  
Blogger Matthew said...


I'm surprised this subject has not yielded more discussion on this blog, because it will be the #1 political topic in years to come IMO; especially due to the cost of living in America now thanks in large part to this ridiculous housing bubble.

I'm not sure exactly where I stand on the whole free trade debate. In some cases, I see it as a necessary evil just to keep the cost of living in check, but the job losses here in America will be extremely painful for many. I guess I'm probably more of a projectionist than free trade guy just for this reason and because manufacturing and American ingenuity was what made this country great; certainly not high finance and real estate. We'd never know that today however.

I do this as a landmark issue / global issue, much like global warming will be soon enough whether we like it or not.

It's a tough time to be a kid IMO, as the boomer generation really lost the big picture here over the last 20 years. My advice to my kids is to consider their career paths very carefully in terms of the career's long-term health and it's potential for deployability overseas.

An interesting article on this subject for everyone's info..


May 13, 2007, 10:34:00 AM  
Blogger Matthew said...

Oh yes, for that lurker / imposter who used my name a few times on this blog, just to be clear to you and yours, I still see a..

35-40% price cut here in Marin ..
50-60% price cut elsewhere..

Bank on it..


May 13, 2007, 10:55:00 AM  
Blogger Matthew said...

Sorry.. should have posted this first..

Happy Mothers Day to all you moms regardless of your affiliation (or not) to all this housing stuff.

In times like this, it is very important to remember what's really important.


May 13, 2007, 11:10:00 AM  
Blogger Holland said...

I found the following article written by Paul Krugmant is worth reading.

This is the quote from that article:

"Rising inequality isn't new. The gap between rich and poor started growing before Ronald Reagan took office, and it continued to widen through the Clinton years. But what is happening under Bush is something entirely unprecedented: For the first time in our history, so much growth is being siphoned off to a small, wealthy minority that most Americans are failing to gain ground even during a time of economic growth -- and they know it."

May 13, 2007, 11:59:00 AM  
Blogger Holland said...

Jim Rogers, the famous investor, has made comments about the diminishing role of the US economy and currency. Instead, the Chinese economy and currency will replace the ones of the US and become the world power. The rising middle class in China and India have become so strong that it is hard to ignore.

This shift in power and trend is going to have profound impact on us. Will one day when we wake up and find out the US dollar collapses and our value of assets just lost 30-50%? This could happen and it is happening. Some people are even calling the collapse of the US due to its massive debt and diminishing world power.

May 13, 2007, 12:17:00 PM  
Blogger Marinite said...

I'm surprised this subject has not yielded more discussion on this blog

I've raised the issue before on this blog, but I don't often talk about it as it is not directly related to housing (although a legitimate argument could be made that pretty much everything financial/economic involves housing in one way or another).

Why don't more people make a stink about this? I dunno. Maybe they are too busy being glued to the TV or distracted by such frivolities as who is the runner-up in American Idol or whatever. Or maybe as long as they can still buy that flat screen plasma TV, a BMW, etc (more than likely on credit) they still feel prosperous and so the issue seems remote. Or maybe they are just plain too comfortable now to worry about tomorrow.

But it is obviously happening. Maybe people are too cynical and want to wait until they can be sure...wait until the evidence is in. But by the time the evidence is in, it is far too late. Take global warming as an example: people have been raising the alarm about it for the last 30 years (that alarm got louder and louder each year), but nothing ever got done (hardly even any lip service until most recently) because there was too much uncertainty, not enough evidence to convince the skeptics. Then people were being side-tracked by the non-issue of whether global warming was a natural phenomena or caused by humans (like it really matters). Well, now that evidence is in and we are already way past the point of no return. We could have stopped it in its tracks but now the best we can hope for is to limit the damage.

People -- if you don't take a stand and make yourselves heard, then you will slowly, day by day, year by year, abdicate more and more pieces of your prosperity and freedom. If you always just sit around waiting for that one piece of undeniable evidence, it will be too late to do anything about it. If you make decisions based on what the consensus is among your friends and relatives, then it is too late. Me? I blog. I write letters. I vote. But I'm just one voice. Everyone needs to get together and speak with one voice if you are going to be heard.

May 13, 2007, 4:15:00 PM  
Blogger Matthew said...

Got to get an early start today, but thought I'd share this article as it addresses this subject to a "tee"..

May 14, 2007, 3:45:00 AM  
Blogger Matthew said...

Marinite et al,

Let me add this thought on this subject..

The Middle Class are speaking now thanks in large part to people like YOU and Ben Jones. Please don't you forget about that!

The #1 expense on a middle class household is housing, so, through the works of your blog and others, the Middle Class are having a voice on this issue anyhow. You have helped reverse market psychology and sentiment in this ugliest of all markets in this country. So, again, I say THANK YOU !!

The RE Machine and their hyped word is getting trounced on all fronts, as it should. It’s a bunch of baloney built on hype, fear and greed. And although everyone is responsible for their own decisions and investments etc, the RE Machine has contributed significantly(!!!) to the debt in this country and the resulting squeeze on the middle class.

So, I intend on continuing to do my part in this battle with the machine to help ensure a resounding victory to the pragmatic savers amongst us. I sure as hell know my kids need me to stay engaged.


May 14, 2007, 4:04:00 AM  
Blogger bob said...

When people talk of the great American middle class, they're talking about the shortest lived middle class in world history.

The middle class as we knew it existed en force from around 1945-1964 and mainly because of a series of incredible advantageous circumstances: WW2 ends, the war-torn world needed consumer goods, and the undamaged US manufacturing machine was off to a jump with unprecedented strength.The US needed a healthy middle class to supplement those manufactured goods.

Add in that the US government passed the G.I. bill, with immediate access to zero percent home loans, college tuition, funds for business upstarts, and you had the perfect environment to breed an incredibly robust middle class. At the same time, home builders that had been contracted to build factory housing during the war had perfected the art of the manufactured home: Poured slab foundation, 2x4 pre-formed walls, and smaller yards all built on a grid. So the art of building the affordable home made a home for every family entirely possible.

What went wrong? Again- that brief time period of circumstance meant a burst of high-power middle class influence. The subsequent generations were bolstered by their trade-up value from their little houses into bigger ones, where their children would buy their little suburban homes while mom and dad moved into the bigger 2 story variety. That advantage is now over.The cycle is done.

As far as I can see, the middle class is done in CA, most of the Northeast, the Midwest ( manufacturing moved away) and some of the places Californians moved to en mass( AZ, OR, WA, etc)

The last remaining option in my opinion for anyone wanting to have a chance at middle class living without crushing debt is simple: Save up your 6 figure Bubble-land salary and move to an area that is vastly cheaper, of which there still are. Give it another 5 years and those places might well as be as overpriced as it is here in comparison.

Plan, save, and choose wisely.

May 14, 2007, 11:00:00 AM  
Blogger bob said...

By the way- to reinforce what I just mentioned above, NBC news at 11:00 has a report on this very thing: families moving to more affordable areas. They sent a camera with one family. Should be an interesting story.

May 15, 2007, 7:25:00 AM  

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