Snapshot of despair
I think you should watch this video. All of it. It was a bit harder to watch than I expected when I started. This is the real face of the housing markets implosion.
A number of people have pointed out, and I assume it is true, that part of the problem was the federal gov't (Barney Frank is usually presented as the poster boy) that forced lenders to push more and more suspect loans on the economically marginal. Perhaps. But I have now watched or listened to several overviews of cleaning up the debris once homes are foreclosed and the neighborhoods and accouterments are not those of even lower middle class folks. These are people that had some money.
Watch very carefully. One homeowner admits he is paying $31oo a month for his house, and it is now worth $1000 a month. If he is (or was) able to afford house payments of over $37,000 a year, what must he be making per annum?
Any comments would be appreciated. It is a sad and disturbing little piece.
Labels: economics, housing crisis
posted by Clemens @ 12:09 PM
4 comments
4 Comments:
I'll be happy to comment, since I've been bloviating on this mess for a while already. Can't make myself look any dumber than I already do.
(a) Speaking of my bloviations, I remarked a few days ago that the attacks on the government for pushing fair-housing probably have some truth but not enough to explain the entire story. Unlike banks, credits unions appear stable, even though they approve more low-income housing on average. To quote my insightful self: Now we come to the right-wing hysterics. According to virtually all right-wing authors I've read lately, the Community Reinvesment Act amounts to a vast left-wing conspiracy to (a) force otherwise healthy banks like Wachovia to issue subprime mortgages to people without sufficient credit, and (b) enrich left-wing organizations. There is probably some truth to the assertion, but there are two problems with the argument. (a) Aren't a lot of the failing mortgages of the jumbo variety? That is, loans to upper middle-class types who want to buy a house bigger than what they can afford? Isn't this why the government directed Fannie Mae and Freddie Mac to buy more of these types of mortgages back in February? Why did everyone act surprised when the FM's subsequently failed? (b) According to Wikipedia credit unions were exempted from CRA… and I had pointed out in an earlier post that every credit union I've talked to claims not to have any trouble raising capital.
(b) Are you a member of NCSECU? They're one of the CUs I've talked to. Their webpage at one point was boasting, No housing crisis here! and inviting visitors to apply for a mortgage.
(c) I didn't find the video that hard to watch, but I'm a cold-hearted SOB who's never cared much for the upper middle classes and their lifestyle. At heart I'm too much like George Will, who on Wednesday crystallized the entire problem perfectly: [T]he crisis came partly because so many households decided that it would be jolly fun to budget the way government does, hitching outlays to appetites.
I'm probably one of the upper middle classes, speaking strictly in financial terms, but I like to fancy that my lifestyle is radically different. I also like to fancy that religion has mellowed me, since I'm not so vitriolically prone to blaming others for their stupidity, but (1) it's probably age, and (2) I still blame them, but I try to keep it inside rather than verbalize it.
(d) The guy with the $3100/month mortgage doesn't seem worried about whether he can meet his home payments. He seems more concerned that he's spending so much on a house that is worth only a third of the price. I sympathize with him, inasmuch as I worry that my house might have been overpriced when I bought it. Not on that scale, though. One reason I'm paying $1000+/yr more on my house than the lenders require is that I'm hoping not to end up in the red in case the value does go down.
He should be taking down at least $100,000/yr to make a $3100/month mortgage.
(e) On the other hand, he says he bought the house on his accountant's advice. I hope he fired that accountant.
(f) Something this video reminded me of is the fact that the mortgage crisis really is isolated to certain areas of the country (where, alas, the national media tend to live). Other parts of the country are doing just fine. So on the one hand this would be a perfect example of how the federal government should not be involved. Go Federalism! Make those Californians pay for their own stupidity.
Alas, it isn't so simple. Even in California the financial sector consists of national companies; if they lose too much money, then other parts of the country get dragged down, too.
It gets worse: these financial companies are global! This past week we've seen a Belgian bank nearly collapse for the same reasons that Bear Stearns and Lehman Brothers collapsed. So a crisis of the order discussed by our leaders would have worldwide repercussions.
(g) I'd like to see the blame spread a little more, and more thickly. Real estate developers for a long time built giant houses and cooperated with the banks in selling them to people who couldn't afford them. Many suburbs of Washington, DC have been irrevocably damaged by bulldozers that replaced trees with monuments to vanity.
(h) As I said, I'm a cold-hearted SOB, so I wouldn't mind seeing the country have a good, solid spanking—er, recession to shake greedy morons—er, inefficiencies out of the capital markets.—Until, that is, it affected me.
I do feel bad for people who did nothing wrong, were genuinely deceived, or who find themselves in "ghost" neighborhoods where crime can become a problem. I just wish we'd learn our lessons.
I also hope I can stay afloat. Well, whatever comes, God allows to come.
Good post - and I have been following your "bloviations" which usually make more sense than those of people paid a lot more than you are - even when I think you are wrong!
Let's see:
a)yep: agreed.
b)yes, thank God I am a member of NCSECU - they seem to have no problem at all. Since I have systematically ignored all sound advice and kept a huge proportion of my savings in Money Market accounts I am still drawing from 3.25% to 4.25% interest. They just aren't insured by FDIC
c) I find it a bit hard - since I have a knee jerk reaction to blame the fat cats who took advantage of common stupidity to make huge incomes ... and guess who gets bailed out. But until you match Jay Nordlinger's mean spirited remembrance of Paul Newman over on the Corner, you sir are no cold hearted SOB.
d) yeah - I was dumbfounded that a guy would pay that much - and then seem to think he might have to ditch the house because it wasn't worth it. If he is simply seeing it as an investment that went sour, as opposed to a home to live in, hard to feel sorry for him. And I figured if he wasn't making at least $120,000 he was nuts to take on that much debt.
e) And then smacked himself for listening to an accountant.
f) Most of the stories I have heard seem to be from the Washington DC area or California. Around here people were more realistic - they could only afford to buy relatively small homes to live in.
g)I think that it will spread. But fortune never seems to favor the just.
h)There are times when I think the same thing: society needs a good long recession to get serious again. It would certainly rearrange the attitudes of a lot of people. Several times I thank God that I was raised by the folks I was raised by. Smart thrifty people who survived the Great Depression and taught me those lessons without me realizing it. Still - in calmer moments I hope we dodge this.
BTW, your account of the whole mess on your blog was as clear as anything I've read so far.
Thanks.
The thing to remember about clarity is that it's often wrong :-) but thank you for your praise.
If by "money markets" you mean NCSECU's money markets, I called them & they said that that is an NCUA insured account. I found some reassurance of this in their online brocher. I was a little worried because we also have a respectable sum sitting in a MM account.
If you mean a different, uninsured money market, then I salute you for trying to help the economy.
I didn't read Nordlinger's remarks on Newman; I'll have to look them up. I've liked Nordlinger less and less over the years, thanks in no small part to his stubborn defense of the indefensible. (Bush a conservative, Rumsfeld as someone we'll miss, etc.)
I can't believe I misspelled "brochure".
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