Friday, August 21, 2009

Same as it Ever Was

One thing that has angered me so much about the housing bubble was how something as basic and necessary as a home was now treated like an investment and a cash machine. This change in attitude towards such a basic need was, of course, all just one small part of an unfortunate transition towards a society where jobs are transitory, where people likely face having more than one "career", lost pension plans, layoffs, outsourcing, bankrupt social security and Medicare, and all the rest. In response we became a nation of self-proclaimed investors and traders. We allowed ourselves to be convinced that 401Ks, IRAs, ROTHs, stocks, bonds, REITs, etc. and, oh of course, houses were viable proxies for retirement savings. There was (almost) no risk because we were so willing to believe what we wanted to believe: it was "different this time", it was a "new era", stock market valuations no longer mattered, debt no longer mattered, the development of "wealth creation technology", "almost all if not all of those gains are here to stay", "Fifteen percent is pretty much in the bag", "buy now or be priced out [of the housing market] forever", etc, etc, etc. And it had the added benefit (some might say delusion) that we could "live it up" and spend 100% of our earnings since our houses and Wall Street were saving for us.

I have absolutely no problem with people who choose to invest or trade. But I think there are some things that are just too important to people, our communities, and society to risk being treated as an investment (and therefore prone to becoming a bubble or speculative mania) and housing is definately one of them.

You see, the problem with investing is that sometimes you lose. It has to be so; there are always two sides of a trade; someone wins and someone loses. We seem to have forgotten that inconvenient fact or, rather, we no longer take personal responsibility for that fact -- we are entitled to a profit don'tchyaknow. We seem to have allowed ourselves to believe all the hype and garbage that bankers, realtors, Wall Streeters, Fedsters, and everyone else with a vested interest, would like us to believe... that we can all be winners if only we bring "a bucket of money and a box of stupid" to the bargaining table. And what's worse is that The System has become so dependent on debt and investment dollars, the transition from a nation that produces to one that consumes has been so complete, that losses can no longer be tolerated and certain businesses are believed to be "too big to fail". Hence, massive bailouts of the very people and institutions that got us in to the current economic mess and a recession that has been called the "worst since [the] Great Depression".

Which (finally) leads me to my point (if I even have one): you would think that now, finally, we would understand the folly of our ways and, you know, try and fix things at least as far as housing is concerned. But you would be wrong. You see, the debt-based consumption economy in combination with the "too big to fail"/bailout mentality means that reckless risk-taking is officially encouraged by even the highest echelon of government. We are content to just pretend that everything is now fixed, everything is ok, and while no one is looking, conduct business as usual but just disguise it a bit and pretend it is a fix because, after all, if it blows up we can just bailout the system with taxpayer dollars and burden future generations with more of our debt... they won't mind:
Much to their dismay, Americans learned last year that they “owned” Fannie Mae and Freddie Mac. Well, meet their cousin, Ginnie Mae or the Government National Mortgage Association, which will soon join them as a trillion-dollar packager of subprime mortgages. American taxpayers own Ginnie too...

Herein lies the problem. The FHA’s standard insurance program today is notoriously lax. It backs low downpayment loans, to buyers who often have below-average to poor credit ratings, and with almost no oversight to protect against fraud. Sound familiar? This is called subprime lending—the same financial roulette that busted Fannie, Freddie and large mortgage houses like Countrywide Financial...

On June 18, HUD’s Inspector General issued a scathing report on the FHA’s lax insurance practices... The FHA’s reserve fund was found to have fallen in half, to 3% from 6.4% in 2007—meaning it now has a 33 to 1 leverage ratio, which is into Bear Stearns territory. The IG says the FHA may need a “Congressional appropriation intervention to make up the shortfall.” the FHA, the [mortgage] down payment requirement remains a mere 3.5%. Other policies—such as allowing the buyer to finance closing costs and use the homebuyer tax credit to cover costs—can drive the down payment to below 2%.

Then there is the booming refinancing program that Congress has approved to move into the FHA hundreds of thousands of borrowers who can’t pay their mortgage, including many with subprime and other exotic loans...This program is intended to reduce foreclosures, but someone has to pick up the multibillion-dollar cost of the 30% loan forgiveness. That will be taxpayers.

In some cases, these owners are so overdue in their payments, and housing prices have fallen so dramatically, that the borrowers have a negative 25% equity in the home and they are still eligible for an FHA refi.

A few weeks ago a House committee approved legislation to keep the FHA’s loan limit in high-income states like California at $729,750. We wonder how many first-time home buyers purchase a $725,000 home. The Members must have missed the IG’s warning that higher loan limits may mean “much greater losses by FHA” and will make fraudsters “much more attracted to the product.”

...Is anyone on Capitol Hill or the White House paying attention? Evidently not, because on both sides of Pennsylvania Avenue policy makers are busy giving the FHA even more business while easing its already loosy-goosy underwriting standards.

When does We the People get fed up? Or are we just a nation of hypocrites who will tolerate any wrong as long as we think we can profit by it?


Blogger Cher said...

Wow, I read your post with my mouth open, not because you said anything I didn't agree with but because you must be a mind reader!!! I am on the same page, singing the same song, any other metaphor you may want to add. At this point the government is so screwed up (and this crosses party lines and generations)and the economy of the US is so broken it will take generations to recover. I just hope we can remain an autonomous nation of independent thinkers, inventors, and innovators, though this seems to be slipping away too. Thank you for your post and have a great weekend!

Aug 21, 2009, 7:20:00 PM  
Blogger Grandis said...

"The Mortgage Bankers Association said its latest survey, released Thursday, showed that 13.2% of mortgages on homes with one to four units were at least a month overdue or in the foreclosure process in the April-to-June period, up from 12.1% in the first quarter and 9% a year earlier."

-The Wall Street Journal

I don't think there is a snowballs chance in hell where going to get a return on investment at Fannie and Freddie. I don't want to sound like the typical pitchfork wielding inbred hillbilly at the healthcare town hall meetings but, “de took our jobs, socialist sombitchs, wall street fat cat bastards!”

But maybe the hillbillies and/or rednecks are on to something. See below.

“Up to 280 million guns are estimated to be in private hands and the arsenal is growing year by year. On a guns-per-capita basis, the United States (90 guns per 100 residents) is way ahead of second-ranked Yemen (61 per 100), according to the authoritative Small Arms Survey issued by the Graduate Institute of International Studies in Geneva.”

What they lack in eloquence they might make up in uncanny foresight. Maybe their collective visions point towards a Mad Max style Thunder Dome where investing and one upping your neighbor no longer reign supreme. Maybe our country is falling into a post apocalyptical Obama Dome whereby grunting, eating “squirt cheese,” and solving your results with a duel is how it’s going to be. Oh how I wish the Mountain Dew and hypnotic flapping of Bill O’Reilly’s gizzard hadn’t rotted out the speech and thought parts of your brains. I have so much to learn from you (I think). But alas I’m resolved to sit in my Marin hot tub and drinking wine (without an ice cube) and dreaming of a better time.

If you thought the divisions in this country were bad during the W. years. Just wait. Poor god fearing gun owning types where his constituents (and that whole middle part of the country is majority W. country…still). These people are often the first to lose their jobs. Job loss + money woes + gun ownership = high crime = Obama is going to have a way harder 2nd term election because he’ll be blamed for it = welcome back Palin = good god I’m getting the hell out of this stupid country 4 years down the line if I’m right.

So Marinite I agree with your predictions. I just took it one step further.

Aug 22, 2009, 8:23:00 AM  
Blogger Lance said...

"You see, the problem with investing is that sometimes you lose. It has to be so; there are always two sides of a trade; someone wins and someone loses."

If you really believe this assumption, then I can understand why you would look around you and think everyone's lost their way. It's an untrue assumption because it's not 'a zero sum' game out there. When people reach a deal, they only do so because it is mutually beneficial to both. and NOT because 'someone wins and someone loses.' It's actually a situation where both sides win. That is the essence of commerce and of all 'life' even including one's real estate transactions.

If your assumption were correct, we'd still be in the stone age since one's person's gain would have been another's loss. There would have been no advancement in living standards over the thousands of years since human kind first came out of its caves. But there has been, and it's occurred in very much the manner you've witnessed over the last decade. Human greed coupled with the 'need to win' has resulted instead in the building and 'more' building of that which we call our human civilization ... and in the end, we've all been winners. Even the least fortunate among us live far better today than even the royalty of only a few centuries ago. There's nothing wrong with what has occurred, it's just the way it works.

Just don't go on believing there are winners and there are losers to every transaction. Think about this: if you really believe that whenever one person wins another loses, how will you ever engage in any transaction since doing so leaves you with only the possibilities of either being a filthy opportunist or a not-too-capable victim? Either way, you're misunderstanding human nature and human possibilities.

Aug 22, 2009, 2:58:00 PM  
Blogger Holland said...

The problem facing this country is our standard of living is decreasing at a rapid pace. The country is in serious debt and the jobs are lost to other countries. If this is mutual beneficial, why is the middle class is shrinking? Please open your eyes, look around and think ahead, what kind of society are our children going to face? The public education is being sacrificed, the public service is being cut and the unemployment rate is rising sharply. Without these basic support and foundation, we are not talking about the better future.

Aug 22, 2009, 11:45:00 PM  
Blogger marinite2 said...


Regarding whether "someone always loses and someone always wins" in a trade... maybe so. That was not the point and I think you know it. The point is that when it comes to investing and trading, sometimes you lose. Sometimes you lose big. This nation has moved so far towards investment as a form of savings that we have become intolerant of loss. We have developed a sense of entitlement to only gains IMHO. That was the point.

On a separate note: I drove out to Pt. Reyes the other day and I noticed that the "boat garage" is still for sale. So that is going on 4 years + of "days on market". Not surprising in the least of course but a great example of someone who stubbornly refuses to admit defeat and would rather take a loss month after month in the hopes of one day selling for what they think they deserve. Or so it seems to me.

Aug 23, 2009, 12:04:00 PM  
Blogger Marinite said...

Lance, I have struck out the offending material as it was not needed.

Aug 23, 2009, 2:42:00 PM  
Blogger Marinite said...

Lol. I went and looked up the current info for The Boat Garage that I mentioned previously. It is worthy of its own blog post. Here is a snippet from the write up:

This is an extremely rare opportunity to own PRIME BAY FRONT REAL ESTATE!! Priced for a quick sale!!!

Priced for a quick sale? You don't say. Then why has the price not changed for three years and it has effectively been on the market for four years?

Aug 23, 2009, 2:56:00 PM  
Blogger Lance said...

Marinite, I didn't see the 'offending material' ... just as well. As for that Boat Garage property ... I think what you're saying proves that people can only fool themselves. If 'others' don't see anything mutually beneficial in the trade, then it won't happen. It's okay with me that this guy isn't selling. He's only hurting himself. And if I read your post correctly, it's okay with you too that he's just hurting himself. Don't we all have the right to hurt ourselves ... if that's what it takes for us to learn 'the hard way'? What's wrong with that? Isn't that better than people feeling obligated to taking someone else's (e.g.. yours or mine) opionion on 'the best way of doing something'?

I guess what I'm trying to say is that everything rights itself in the end. There's really no need to worry or feel that we're going to hell in a handbasket. Even what Holland said can be put in a better light if he/she raises their head and looks at things at a higher level. We've had 'busts' before many times, and usually they've resulted in people finding one door shut and 2 opening in its place. For example, the many European immigrants we had coming to this country at the start of the 20th century. Had they not had doors shut for them in 'the old country', they'd have never had the opportunity of fullfilling the many doors that opened for them in this country ... Again, my advice for Holland would be that they just look at the broader, bigger picture and understand that 'change' isn't usually to be dreaded or feared, but instead to be viewed as simply 'opportunity'.

Aug 23, 2009, 7:47:00 PM  
Blogger Matthew said...

Regarding wins and losses in finance and the housing market, according to my calcs, it's Wall Street 14,000,000,000 and my (our) kids 0. That was the amount the Fed has subsidized the banks in this country to buy their toxic crap. Oh yes, through in a few more trillion on top of the 14T listed as I forgot to include all the hoards of money the thiefs and thugs made on the front side on their win-win trades on housing. So, it's really more like $18,000,000,000 to 0.

It's all Bullshit.. all of it... house of fricken cards, and we were played like a bunch of tools by the selected masters and kings of this country down there on Wall Street.... I'd send the whole lot of them to Antartica for life if I had my way with Greenspan serving scullery duty along the way...

You watch those fricken crooks at Goldman squirm and squirm and posture and squirm as they make hoards and hoards of money the next few years... I can't wait for the backlash as unemploymnent continues to climb..

Aug 24, 2009, 10:35:00 PM  
Blogger Lisa said...

"'s all Bullshit.. all of it... house of fricken cards, and we were played like a bunch of tools."

Matthew, I couldn't agree with you more. But the US economy can't go far without the consumer, and we all know the shape J6P is in.

IMHO, the saddest part about the bubble was it masked how the middle class has been fleeced for the last decade. Lower wages. Stingier benefits. Pensions going by the wayside. Jobs being shipped overseas. But hey, it was all less noticeable with the new plasma TV in the living room and the granite countertops.

Well, now the bill has come due. Personally, I think we're looking at Phase 2 of this debacle. I don't believe for a second that any kind of sustainable recovery is anywhere near.

Aug 25, 2009, 7:18:00 PM  
Blogger marinite2 said...

I don't believe for a second that any kind of sustainable recovery is anywhere near.

I agree with that for sure.

The system is flooded with liquidity and\or bribes (8k for first-time house buyers, "cash for klunkers" and the like removing future demand). If you want to call that a fix, if it helps you sleep better at night, by all means do. But the fundamental problems have not been addressed and all the liquidity is doing is masking those unaddressed problems IMHAUPO*. A "house of cards" indeed.

*In My Humble And UnProfessional Opinion

Aug 26, 2009, 5:21:00 PM  

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