Does all this apply to California as a state? There doesn't seem to be that much flyover territory there. Of course you could extend the "move to.." suggestion to "move to another state."

i hate the CRA. it needs to be repealed. social engineering by special interest at the cost of the entire US economy. the world economy really.

And when a bank gets it right, they get hammered for it: "Community bank finds paranoid a smart bet: FDIC begs to differ, tells bank to lend more "

I'm going to have to argue with this a little. I live in 'flyover country' and when my husband and I began househunting 11 years ago, even then, prices were getting crazy. By that I mean 1400 square ft. places going for 6 figures, even if they were old 'fixer uppers' and in so-so neighborhoods. The prices were just not in sinc with middle-class incomes, not even back then. And of course after that they just got crazier and crazier.
We were eventually able to settle on a small place and put down a conventional downpayment and get a fixed-rate mortgage, but it took 4 years to find something we could afford. And since we've lived here, the tax value of our little place (under 1200 sq.ft. in a not-great neighborhood)has shot up from 60k to 140k, which is just *ridiculous.*

Actually houses did become unaffordable (look at the affordability ratios nationwide). That's what happens when central banks keep interest rates below the natural rate for too long ... asset inflation. Of course, the problem is that this money ends up in the hands of the rich who immediately bid up asset prices. By the time the middle and lower class gets its small share of it, the asset is usually out of their price range.

In comes the government with its solution. Subsidize the housing market and create a massive bubble. In all honesty, housing should be unaffordable for many people. If you can't make a sizeable downpayment and need more than 25 years to pay off your loan, you should not get one.

>>In all honesty, housing should be unaffordable for many people.

Because poor people should know their proper place in society, Charles? Because they ought to show greater humility and personal integrity regarding long term finance than all the money managers?

Include upstate New York (the Capital District area anyway) in that mess.

And, goddamn them too, for making those loans to any asshole that wanted to invest in rental property. What it's done to the rental market is atrocious. It seems the landlords who don't have clue 1 are outnumbering the professionals. They sit back and grow rich off collecting rents and are shocked to find out there's actually laws that govern just how rundown you can let a place get, that your tenants might just have legal recourse, if it's not fit for human habitation.

Unfortunately, as they dominate the market, decent apartments get harder and harder to find and, because they're at a premium, more and more expensive and more and more picky in their standards for tenants. Income limits, double security deposits, ever paid a bill late in your freaking life are getting to be more and more the norm here. As I've said before, renting is edging closer and closer to you can't get unless you can qualify for a mortgage and, if I could qualify for a mortgage, there's no way in hell I'd rent.

And, thank you, Jody. Nope, they think -- to paraphrase "It's a Wonderful Life" -- working stiffs should live in their slums and pay the kind of rents they decide.

I do think that banks shouldn't be extending loans to poor risks but I also think that anyone who is honest and lawabiding should make a better living than the working poor do. The minimum wage is a joke. At least in my part of the country, a single person couldn't live decently on that, let alone a family.

The thing is, it shouldn't be if you can afford to buy, it should be how much house you can. I think it's disgusting that so many honest and hardworking people are forced to rent all their lives. It's money down the drain, making someone born luckier than them richer. Renting or owning should be a choice. At least for noncriminals.

I live in a city where our leaders are obsessed with "affordable housing," and it pisses me off. Oh, so you can't afford a condo downtown on your $30,000 dollar-a-year income? That's because it's PRIME real estate. GOD FORBID that someone have to purchase something 5 miles East or South of Sixth Street.

AHW what city is that?

> Because poor people should know
> their proper place in society,
> Charles? Because they ought to
> show greater humility and personal
> integrity regarding long term
> finance than all the money managers?

Jody, your ability to spin out into detailed scenarios of presumption like that is starting to seem like a profound psychological disturbance.

When it happens to you, do you feel it happening or does the keyboard just tap itself?

I mean, this continental lunacy, right?

You're in America now. You don't have to worry that there are these terribly oppressive forces working to keep the little people in their "proper place". This is the one spot on the globe where everyone celebrates when the little guy has a breakthrough. We've written the longest, latest chapters in the book of egalitarianism.

Nor has the "humility and integrity regarding long term finance" been regarded as any sort of gold standard. Again, you're in America: It's not about top-down living, whether times are good or bad. We've had depressions here before. And even in the good times (see Reagan's 80s) we see the financiers for what they're worth.

America!

Rule #1 of lending: When someone has poor credit, there's usually a reason why. Note that we aren't necessarily talking about low-income people here; there are plenty of people who have high incomes but lousy credit. And that's because they spend every dime they make, and lots more.

I'm in one of those flyover-country areas, and even with the recent inflation in the market, it's still quite possible to find perfectly affordable houses, in reasonable neighborhoods. In 1990, I bought an 1100-square-foot house in an edge-of-town development for $65K. My payment was, after taking into account the tax deduction, less than what I was paying to rent a 700-sq-ft apartment. Last I checked, those houses were still under $100K. 10% down, you get a reasonable rate, and the payment is still less than rent on a comparable apartment in the area. Someone who has lousy credit and can't keep up with the payments on that isn't going to be able to find *anything* around here. Or likely anywhere else either, because the reason they are always behind is because they never, ever think about paying a bill until the day it's due.

It's like whining about the impiety on Vatican Hill.

>>Jody, your ability to spin out into detailed scenarios of presumption like that is starting to seem like a profound psychological disturbance.

You mean Dickens was nuts too, Crid?
(Though I guess my comments were a poor paraphrase of Hard Times. You got me there.)

I'm gonna have to disagree w/you heartily, T's Grammy. I live in the exact same area you do, and while Albany rents have shot through the ceiling (particularly in trendy Center Square, where I used to live,) it's still easy to get a decent place in Troy, Schenectady, Watervliet, and the other surrounding towns/cities.

And... what's so bad about renting? Why is homeownership a right?

The 19th century –the fictional one, on another continent– is where your soul lives. And it shows.

The 19th century –the fictional one, on another continent– is where your soul lives.

There is more constancy to human nature than your (self-admitted) limited attention to fiction suggests, Crid.

Getting shirty with the poor when times get tough is nothing new.

Crid: Austin.

>>Crid: Austin.

Actually, ahw, I think you'll find it's spelled "Austen - Jane Austen..."

(Sorry - just my sense of humor...)

Eh, Jane Austen's not my favorite, as far as classic lit goes... and Stephen F. Austin is much more interesting, anyhow. (Austin was called Waterloo before the TX revolution, but we digress.)

Kim, have you checked the rent ads? There's outrageously expensive in Center Square, yes. But there's also much, much, much cheaper than either Troy or Schenectady. Myself, I'm waiting to hear on a median priced one in a nice building. It'll cost about the same as I'm paying in one of those other towns/cities currently.

If you like renting, enjoy. It should be a choice. I'll forgo the long list of what I hate about it and just reiteriate what (I forget who, apologies) someone else said here and point out that someone else has the right to enter your home any time. Oh, and if you think there's nothing to what I said about landlords having to have the law sicced on them before they do minimal maintenance, be my guest and rent from Ploof, Cubello or Hoffman, sometime soon. And those are just Albany's three most notorious slumlords.

I won't even asked if you've ridden a bus lately. It's painfully obvious you haven't. Unless you live in East Greenbush or Clifton Park or Ballston Spa or one of those other Pleasant Valley Sundays where they have buses only for commuters who don't want to wrestle with downtown Albany's parking woes.

And, ownership right? Yes, I do think anyone who is honest and hardworking should be able to buy a house (a house, no one is saying a McMansion in the 'burbs) should at least be able to choose that given their contribution to society. Anyone who's contributing instead of draining (i.e., noncriminal, nonwelfare) should minimally be entitled to a decent home and mode of transportation. Of course, I define decent much differently than your usual American. Small house in the city, car that gets you from point A to point B. Anyone being honest, law-abiding and hardworking ought to at least be able to have at least what Al Bundy does plain and simple. And they don't.

Crid, you are the one who isn't even in the really, real world. Christ, are you totally clueless as to where you would be without the working poor -- or what it's like being born poor. It's very hard to struggle up from. I have with some success to lower middle class only because I got lucky in high schools and because I had the sense to avoid certain pitfalls. Others are not so lucky. Those who have in this country are pennypinching misers who want to pay as little as they can get away and keep anyone else from getting. They do want to keep the poor where they can limit their options and, by so doing, keep them within their control to be exploited by them as they see fit. The well-to-do do rather tend to think of us not-so-well-to-do as human resources, not personnel, to be respected and to have a right to expect decent treatment. Even while they demand superior treatment for themself.

I've been through this on this blog before and you all think that you could survive without the working poor. Wrongo. A few weeks, at most. Me either. At least I know I depend on those who work hard for very little reward. And, if those jobs keep getting less and less rewarding, don't bet you'll keep finding those who do them easily replaceable rather than less and less who are willing to do them.

I'm a Dickens fan too. So I'll just recommend a bit of historical fiction. "A Tale of Two Cities". Read it; think about it.

So, T's and Jody, I get your argument, but what does that have to do with lending money to somebody that has bad credit? For what reason is anyone assuming that it is the best of all possible worlds that people own houses? If you can afford it, great, if not then not. The overarch Q? isn't are we trying to keep the poor down. Helping somebody who doesn't have that much money bolt their leg to an imovable objec t like a house , hardly helps them.

That is an interesting question I have seen a few places. Does the mania of owning a home CAUSE a downward spiral when jobs get tough to find? Owning a hous in normal times is a good thing. But what happens when you get alid off, and can't find a job locally? You have to move, you have to dispose of the hous, you have to find a new place and start the cycle. All those things cost money. If you haven't been in the house long, you are going to lose money on the sale. You are going to have to juggle things to move and... etc. I've done it, and the move and selling the house and so forth cost me pelnty, because I couldn't do it in a planned way.

Then you get your recession, and nobody even wants your house. Then you lose big, maybe all your equity, all the cash you spent years acquiring and so forth.

If you had been renting, you'd lose your damage/security deposit. Which isn't fun... but it allows you to be flexible, to move when needs be.

To go where the jobs are.

"Helping somebody who doesn't have that much money bolt their leg to an imovable objec t like a house , hardly helps them." The hell it doesn't; beats the fucking hell out of being at the mercy of a landlord.

"Then you get your recession, and nobody even wants your house. Then you lose big, maybe all your equity, all the cash you spent years acquiring and so forth. If you had been renting, you'd lose your damage/security deposit." And the rent you paid each and every month whether it was 2 months or 20 years.

I'm not sure how long it takes for a foreclosure to happen when you miss your mortgage payments but if you miss rent payments, they can have you out on the street in 30 days + any court proceedings. If your mortgage is paid up (and since I've been paying rent for 35 years, if I'd been paying a mortgage instead, it would be; or even I'd been paying a mortgage since moving to Denver 23 years ago, at least damned near), it would take until you default on taxes and the county takes it. Precious time wherein you can gain an income or sell.

Look, bottom line, owning is adding to your own wealth; renting, whether by choice or not, is lining someone else's pockets.

It's unfair to Charles to take one statement out of context and attack him for it. Look at the rest of the paragraph.

"In all honesty, housing should be unaffordable for many people. If you can't make a sizeable downpayment and need more than 25 years to pay off your loan, you should not get one."

If you can't make a sizeable downpayment says to me that you are spending all of your income and not able to save much, if any. If you can't afford the payments on a 25 year amortization, you are spending too high a percentage of your income on the house payment.

This puts you so close to the edge, that being laid off for a month or having to pay for a new roof or furnace would put you behind on your payments and start the downward spiral that leads to losing your house.

Isn't giving no down payment, 40 year mortgages one of the reasons we are in this mess?

T's G...

no, renting, is paying to use somebody's stuff.
Having a mortgage is paying a bank to use money that they lent you. Depending on the length of the mortgage, it can be double of what you originally borrowed.

So yeah if you stayed there 30 years, you might own it, and you may have gotten a taxe break on the amount of interest you paid.

But you are still paying for that interest, effectively "lining the pockets" of the bank.

The point I'm making isn't that, the point I'm making is that it doesn't work for everyone. Just like you drive the car you can afford to drive, you have to live in a place you can afford. PLUS. Who replaces the water heater when it goes bad? Or the roof? Who mows the lawn? Who pays the insurance on the dwelling? A renter pays a subset of those through the rent. An owner pays those ON TOP of the mortgage.

It's a fair trade if you can afford it. If you can't... not so much.

And THAT is the point. Making creative loans to people without the money to pay them, DOESN'T HELP THEM.

I can't figure out if you are arguing that it does or not...

Owning is only adding to your own wealth if the value of the house stays at or above what you paid for it. The same applies to paying rent only lining the pockets of the landlord if the value of the property stays at or above what they paid. Otherwise we're talking about cash flow, not wealth. From an owner OR renter's perspective, the cash is still flowing out the door every month.

I know you've done well, given some of your earlier choices T's, but what if you hadn't married that deadbeat and had T's mom when you did? Is it possible you'd have been able to buy that house in Denver 23 years ago?

It seems to me the role of minimum wage jobs is to employ teens and young people going to school, not to support adults and families. I worked full-time and took full-time semesters at night school when I had the energy in my 20's to take me from the "class" in which I grew up to where I'm at today -- which I'll add isn't rich, but comfortable.

>>If you can afford it, great, if not then not.

SwissArmyD,
And that's the golden rule - except when it isn't.

And it isn't the golden rule when a) when houses are steadily increasing in value - so the lovely bank/mortgage lender hand out bridging loans on a silver platter to current owners trading up.

(They can't afford the new homes, they haven't paid off the old, and the bridging loan is available on the basis that future profits on the new home will keep repayments in play...)

And it isn't the golden rule on the trading floor.

And it isn't the golden rule of capitalism.

But when it all turns to shit, suddenly it's time to point fingers at all those stupidly greedy low income folk who got into the paper asset game too late.

Look, I'm far from competent at understanding this mess (as brian can attest, for one!) BUT this "meme" that the mess is somehow all about greedy, poor people who simply should not own homes in the first place (to which Charles - above - referred, seemingly with a straight face) started off a while back as deliberately outrageous satire.

There's a fab youtube I can dig up, if anyone has missed it.

Now it's apparently become a fact some take at face value.

And "let them rent in Detroit" is becoming like the (mythical) "let them eat cake"!

It wasn't just the concept of "affordable housing" that drove relaxed money policies. Interested groups not interested in affordable housing like the National Association of Realtors pushed for relaxed lending standards to keep the gravy train rolling. Much of the housing bubble was fueled by investors who were stung in the tech bubble moving to housing as a safer alternative"

The CRA (the relevant federal act) only applies to FDIC-insured institutions; much of the subprime mess and many of the funny mortgages that helped people get themselves so underwater are due to loans made by unregulated entities. CRA banks are also less likely to resell loans than non-CRA banks.

A much bigger cause of the problem was the poor quality loans, and magical math by which crap loans were resold, sliced up, combined with other crappy loans and "poof" became high-grade paper, the purveyors of which then hedged by taking out unregulated insurance policies from entities who lacked the capital to pay out should their bets go wrong.

> There is more constancy to human
> nature than your (self-admitted)
> limited attention to fiction
> suggests

An automaton –programmed to disgorge inappropriate/unbidden prattle about fictions of class oppression from another continent in a receding century– ought not smirk about the failure of others to appreciate human nature.

The United States, still by far the most productive and enriching nation in the world, recognizes that there's no precious dignity or clarity that comes with poverty. So Amy is rightly embarrassed and annoyed that our political class (especially the lefties) misjudged the thirst of less-capable Americans for real estate ownership, and pumped this responsibility through them as if with a fire hose to the throat.

In some long-ago, faraway land, maybe Switzerland in the 1920's, there's a boarding school that's missing one of their most beloved, if middling, students. Maybe in that context, there'd be something admirable about your concern for people you (so desperately) imagine to be beneath you. But living and working in Hollywood, I see how the comforts of a well-rendered imagination can flatter a viewer (or reader), corrupting their capacity for genuine human connection and thoughtful appraisal. When you actually connect with someone who shouldn't be a home owner, you know better than to force it upon them. A preference for reality isn't something I "self-admit", it's a point of pride.

> Austin.

ahw, for the past twenty years, Austin has been described as one of most attractive cities in the country, at least for her intellectual vigor... Intel has a design facility there or something, and there are a bunch of schools, and there's a sweet little river going through downtown, right? The real estate there might not be entirely typical. But you (and Amy) are correct: The obsession of our political class with manipulation of home values is a very large component of this nightmare.

> I think you'll find it's
> spelled "Austen

See??!?!? See!??!!

> Read it; think about it.

You're a silly person.

> And "let them rent in Detroit"
> is becoming like the (mythical)
> "let them eat cake"!

We've covered this; I don't the think the actual context argues for you as you think it does.

I want very badly to fault Cheezburg's comment, at least in some small detail. But he's right.

Cheezburg -

The CRA was the genesis of the problem, not the whole of it.

The CRA created the bubble by creating the concept of the "sub-prime" mortgage.

If it had stopped with FHA-backed low-interest mortgages and 3% down-payments, we wouldn't be here.

But what happened was agitators like ACORN started suing banks for not giving loans to people who wanted to buy houses far beyond their means.

And the banks, not wanting to be called racist in open court, caved. And the Alt-A mortgage was born.

Add to that the creation of the Fannie/Freddie pair and the implicit federal backing of the mortgages they bought, and the way that THEY financed their mortgage purchasing - which was the bundled MBS and CDO paper, and you start to see where this little snowball started to gain mass.

CRA said to banks "Thou shalt loan money"
Banks said "We don't have the capital to originate these high-risk loans"
Fed creates FMs and says "Don't sweat it, we'll buy those mortgages so you can stay adequately capitalized"
FMs come out with the MBS and CDO, and get them rated AAA+
Everyone and their brother buys them and puts them in their portfolio
Now people want insurance on these assets, and here's AIG to sell them "Credit Default Swaps".

Remember, at this point, everyone thinks that they are dealing with AAA+ paper.

Now, all these loans being given out to anyone with a pulse leads to Realtors bidding up properties, home builders overbuilding, etc. And we end up with a classic oversupply situation combined with a speculative pricing bubble - which is very anti-Econ 101 by the way.

The very predicable outcome was that once these more exotic mortgages adjusted (the technical term for the ass-raping you take when you stop paying just interest on a 3% teaser rate, and get hit with the full payment amount at 7%) people were going to default. That they defaulted at the peak of the bubble compounded the problem. Now there's a glut of foreclosed properties on the market, and values tank.

And this is where the final shoe drops: Massive deleveraging occurs when all the holders of those CDO and MBS papers start wondering just how many of the defaulted mortgages are in their particular portfolio. And when the answer comes back "I don't know", AIG gets hit for more claims than it has cash to pay.

I saw this coming in 2004. I'm an engineer. If I could have seen it in 2004, then economists should have seen it in 2001 or 2002.

All evidence says that they did, they tried to do something about it, and they were stopped by people like Barney Frank and Chris Dodd.

But it's the traders at AIG that are getting the death threats.

>>A preference for reality isn't something I "self-admit", it's a point of pride.

A showy disdain for novels says nothing about one's grasp of reality actually, Crid.

(Dickens wrote about the sort of person you've just pompously described yourself as too, I've just remembered with delight! My god, if I can find the quote... )

Live in your books, darlin'... We'll call you if we need you. We can recommend a TV series to enjoy if you get tired of reading....

>>We'll call you if we need you. We can recommend a TV series to enjoy if you get tired of reading....

I'm not the one getting uptight about The Brady Bunch on the other thread, Crid. I try not to take TV shows too seriously.,,

Crid, if I may be so bold as to do the executive summary: The current crisis wasn't caused by making loans to poor people. The current crisis was caused by making loans to people with bad credit. There's some overlap, but the two groups are by no means the same. Jody, that's the bit that I think you're missing.

Cheezburg, I do want to take issue with one thing: I substantially blame the CRA for the current mess, because it was the CRA specifically that demanded that banks make bad loans. Banks knew better, but once they realized what the new rules of the game were, they decided to play -- after all, trying to go back to the old rules got you sued (and a certain Barack Obama was one of the persecutors) and negative publicity. In fact, it's still happening now: community banks that never got into the sub-prime game are getting leaned on even as we speak by the FDIC for not "doing their share". It's technically true that the banks making lots of CRA-compliant loans were not reselling the loans, but that was because they were insuring the loans instead. Selling that insurance was precisely what got AIG into trouble, and when everyone realized what was going on, Freddy's Fanny tried to cover it up by buying the insurance in the form of derivatives.

Folks, look at it this way. Insurance companies employ actuaries who collect various data that determines what are the odds of me being at fault in an auto accident, or having my house burn down. They use this data to set my insurance rates. And it works; good actuaries can predict with a high degree of accuracy how many claims will come from a given group in a given time period. Credit scores are exactly the same thing -- an evaluation of risk. By definition, if you lend money to a person with a low credit score, there is a high probability that you will not get all of your money back. The federal government cannot hand-wave that reality away with laws, any more than it can make the sun set in the east by passing a law. But in its arrogance, Washington thinks that it can in fact do that. They keep getting proven wrong, over and over. And every time, those of us who were smart enough to not get involved in whatever the racket-of-the-week was, wind up paying the bill to clean the mess up. And we're damn sick and tired of it.

Jody:

Because poor people should know their proper place in society, Charles? Because they ought to show greater humility and personal integrity regarding long term finance than all the money managers?

You know what? The more I thought about this, the more offended I got.

This has nothing to do with "knowing one's station".

It has to do with knowing one's limitations. If you're making $30,000 a year fresh out of college, you really aren't established enough to be making the big purchases.

And you ought not be encouraged to do so.

The practice of actively marketing high interest rate credit cards to college students is a bad thing. Rather than cultivating a healthy respect for delayed gratification, it instead allows for the fulfillment of any indulgence that happens along.

And kids graduate college with not only a hundred grand in student loans to pay, but a credit card with a $10,000 balance and 21%
APR.

Starting out that far in the hole is bad enough, but to then encourage them to buy more home than they need at an inflated price that it simply is not worth?

Madness.

I rented for 11 years before I bought the house I'm in now. One of the reasons I waited so long is because I knew that buying a house put an anchor on me. Once I realized that I wasn't moving cross country to pursue my career, buying became a no-brainer.

Until that time, the rent money was not a loss, but an opportunity cost. I was giving up the future value of owning a house for the potential to pick up and move anywhere I wanted or needed to be at a moment's notice.

People ought not be buying houses until they've established themselves.

Too bad you can't see that through your green-colored glasses.

Yes, Crid, it's a very attractive city, and we've got Lady Bird Lake (aka "Town Lake") just south of downtown, and Lake Austin to the West. We also have plenty of "affordable" housing without interference from the city council; it's just not in the trendy neighborhoods.

And, yes, Intel took tax incentives from the city several years ago, built a shell for a multistory building, and then abandoned the project. The shell was demolished some time last year; they're supposed to be building a federal courthouse in its place.

> The current crisis wasn't caused
> by making loans to poor people.
> The current crisis was caused
> by making loans to people with
> bad credit.

Well, Jody is confused about this, but the two groups are not wholly discrete. As a slowly-greying white guy who wears sportcoats and makes gentle eye contact, I get all sorts of credit from people that poor people don't get. Almost every day there are little just-a-sec I-left-the-wallet-in-the-car moments that people don't worry about because they know I'm good for it.

> I'm not the one getting uptight

It's the same point: People too enamored of fantasy misjudge human nature. When you misjudge human nature, sometimes you'll pay $20 to roll around like a toddler with other adults, and sometimes you'll compel banks to offer risky, federally-guaranteed loans.

See, Jody, the thing about fiction is that people like it. They buy it and bring it into their homes and their lives and their brains not because it's challenging and growth-inducing in a real way, as is dealing with real people. They buy it because it makes them feel good. It's fun to feel like you've been courageous, even if you actually haven't been.

Your first comment in this thread was all about responding to the imaginary ghosts conjured by a man long dead. But the monsters who tortured our economy in recent years weren't authoritarian sadists of Dickensian description.

It does us no harm to take Barney Frank and Barack Obama and Henry Waxman at the word when they say they mean well. (I don't really believe it, but, like, wutevar.) They're still incompetent and maybe flat evil for approaching these matters as they have, and Sowell and Alkon are right. They ought to be ashamed.

>>You know what? The more I thought about this, the more offended I got.

Brian,
I didn't remotely mean to offend you (or Charles). I'm going to read the longer comments here again. And, probably, again until I understand.

>>But the monsters who tortured our economy in recent years weren't authoritarian sadists of Dickensian description.

And I suggest, Crid, you actually read Dickens before you write cute stuff like that which suggests only a passing knowledge of Dickens-via-Masterpiece-Theater.

Well, you dropped the name. But jeez, sorry if I didn't take the right hint: What exactly were you trying to imply here?...

> Because poor people should know
> their proper place in society,
> Charles? Because they ought to
> show greater humility and personal
> integrity regarding long term
> finance than all the money managers?

I think the only thing Charles is guilty of is a bit of self-contradiction. He very correctly points out that government is the root cause of unaffordable housing, and that's a bad thing. Then says housing *should* be unaffordable. By this I believe he means we shouldn't be selling houses to people who can't (yet) afford to buy them, and I agree with that too. But houses would never have become unaffordable without the government's screwy antics pushing up prices.

What exactly were you trying to imply here?...

Crid,
I tried to amplify my thoughts there with my longer comment at 11.13 am.

(That is, a few comments after you wondered out loud whether I had a mental problem, if that helps?)

Very good then.

> when it all turns to shit,
> suddenly it's time to point
> fingers at all those stupidly
> greedy low income folk who got
> into the paper asset game
> too late.

No, too irresponsibly, and under the welcome of men and women who should have been watching out for the ENTIRE community they claim to serve... That's Sowell's argument.

Yeah, I wish the low-income folks had the sense and courage to avoid debt they had no prayer of answering. But this particular blog post rightly faults the people who made it so easy for them.

It's not a 19th-century problem, Jody.

Crid: Austin.

I thought so when you mentioned "east and south of Sixth Street!" I'm from there too.

Small world.

>>It's not a 19th-century problem, Jody.

Problem is, Crid, we (that is - you and I - if I may be so bold) don't seem to agree on what the problem is here.

Maybe I did charge off in a problematic direction with Charles' statement: In all honesty, housing should be unaffordable for many people.

I'm still not sure!

Well, shit, you're perfectly right after all. Home ownership is not for everyone, but in a better society (though I can't name one), there are no homeless. Let's hope Charles misspoke.

Via Drudge.

There probably is a certain kind of strapping young man out there, fast of fist and thick of temperament, who had his humility refined by a single starry summer night under a bridge somewhere along the way. But those guys and those nights aren't the topic here.

So I feel bad for harshing Jody so badly all afternoon.

I suspect the point Charles was making was that if you make housing "affordable" you cause problems for certain values of "affordable".

If by "affordable" you mean "can be purchased with a standard loan" then we're talking about one thing.

If however, we're talking about an affordable that requires exotic purchase arrangements and an implied 50% increase in asset value within ten years...

And there's the rub. In an effort to create "affordable" housing, the busybodies didn't bother to make houses that were actually affordable. They instead tried to game the system so that the houses that cities and towns want built (big, expensive, pretty, high tax value) could look affordable to people who should have been buying more modest homes.

There are a great many towns in my area where you cannot build a house below a certain number of square feet. Period. My house, which was built in 1954 was an enormous 800 square feet. It was extended by a previous owner to its present 1034 square feet. Which is huge for one man and one dog.

But there are houses around here that are 3,000+, and there's only two people living in them. You cannot convince me that all of them bought those houses because they have an actual need or even desire for that much space. I mean, there are certainly those who have large families, or businesses, or whatever, and actually use that space. But I'd reckon that a good number of them would have bought smaller houses if they were being built.

And once again, we see what happens when the government tries to dick around with the market.

heh Brian, what we see is how "affordable Housing" is a term that's like a nuke, or a grenade... it's coverage is rather larger than what you expect.

If you build affordable housing, will it be "nice" enough? If you make the housing existant affordable, will it run down the area? If you make the loans affordable [ie. 40 year mortgages], will you make endentured slaves out of the very people you are trying to help? Actually a 40year fixed wouldn't be so bad, but an ARM that will adjust almost immediately? You'd better know what you are buying..

Actually, T's Grammy, I had to check the rents quite recently--I moved less than a month ago to Lansingburgh, so I know quite well what various places are going for. (Reason for the move? Center Square prices with Arbor Hill neighbors. When your landlady keeps getting dangerous people w/obvious mental problems to rent in your building and one of them tries to burn the place down, it's time to go. So yes, you can effectively give the finger to Albany slumlords if you want to; it's called moving.) There's not a shortage of affordable housing in decent neighborhoods outside of Albany proper; since 75% of Albany's land/bldgs are tax-exempt, the burden gets placed on the remaining properties, which helped w/the skyrocketing rent. And as a matter of fact, I *have* been on a bus within the last week, when my car was in the shop. I'm not exactly sure what you're on about, but it wasn't exactly hell on wheels. (Once upon a time before I owned a car, I took the bus absolutely everywhere, so I'm not entirely unfamiliar w/the plight of the "working poor.") I also understand that home ownership is far from an entitlement; as SwissArmyD said upthread, if you can't afford it, you're not entitled to it. If you rent, you line the landlord's pocket. If you own, you line the bank's pocket--and have to worry about all the repairs/maintenance on the place, too. But no, neither you nor anyone else is "entitled" to own something they can't afford. Sorry, but the pursuit of happiness is your right, but you actually have to catch it yourself.

Kim - good point about the maintenance.

I need to replace the roof on this place. This is a simple, single-story ranch with a garage.

It's going to cost me $3,000 just for the material. Luckily, I have family and friends who are skilled and easily bribed. Otherwise, I'd be looking at another 3-5 grand to have it done.

As I said to my father when I got through pricing the stuff: "I don't wanna buy a house any more."

"Because poor people should know their proper place in society, Charles? Because they ought to show greater humility and personal integrity regarding long term finance than all the money managers?"

No, because the economics simply don't work out for everyone to be able to do this: To earn wealth you must create wealth/value, but the poor usually have low-paying jobs that don't provide the equivalent value of a large home in a decent area. This is just the 'laws of physics' in action, sorry if reality offends your socialist ideals but nobody can bend the laws of physics, not even for a good cause.

Psst DavidJ-- I already beat her up for all that stuff, but she's right, the guy she was going after was way outta line.

@Brian and Cousin Dave:

I haven't been able to find evidence that CRA has led to bad loans at an especially high rate. It's been around for 30 years, and the housing bubble really only got going like it has in the last 10-12 years or so.

The data are that only about 1 in 4 bad subprime loans were made via CRA banks, and that prior to the housing crisis, and that CRA loans have historically been safe and profitable. The bigger abuse in subprime loans came from institutions that were not federally regulated.

Now, there may be an argument that CRA started a slippery slope of lending to people less and less able to pay. However, that's making it the scapegoat for the practices of institutions that were not governmed by it. CRA loans are also resold at a lower rate than other loans, meaning that a lot fewer of them ended up in the CDOs that were the real problem (I think a lot of blame is due the resellers and the ratings companies for lying about the quality of the mortgages underlying those loans).

Just the idea that a lending crisis created from 2004 to 2007 was caused by a 1977 law is silly. But it’s even more ridiculous when you consider that most subprime loans were made by firms that aren’t subject to the CRA. University of Michigan law professor Michael Barr testified back in February before the House Committee on Financial Services that 50% of subprime loans were made by mortgage service companies not subject comprehensive federal supervision and another 30% were made by affiliates of banks or thrifts which are not subject to routine supervision or examinations. As former Fed Governor Ned Gramlich said in an August, 2007, speech shortly before he passed away: “In the subprime market where we badly need supervision, a majority of loans are made with very little supervision. It is like a city with a murder law, but no cops on the beat.”

Not surprisingly given the higher degree of supervision, loans made under the CRA program were made in a more responsible way than other subprime loans. CRA loans carried lower rates than other subprime loans and were less likely to end up securitized into the mortgage-backed securities that have caused so many losses, according to a recent study by the law firm Traiger & Hinckley.

http://www.businessweek.com/investing/insights/blog/archives/2008/09/community_reinv.html

Brian, you're right that this has been forseeable, though. I've lived the last decade in bubble central, and it's been obvious for years that people - with money and without - have been buying under stupid terms and assuming that they could always flip their property to get out of their extravagant mortgages, HELOCs and avoid those high interest rates or balloon payments.

Cheezburg - fine tune your post a little bit.

Who was President 10-12 years ago?

Now, Google that President's name and "Community Reinvestment Act"

There's a nice bit on Wikipedia in the very first link.

And the comments on that Businessweek article (second link) take it down quite effectively I think.

The CRA is the proximate cause of the financial sector meltdown. That it was abused by politicians, bankers, and realtors is irrelevant.

I do, however, thank you for not starting out your comment as people in meatspace have with "Of course you'd blame this on black people". Because I have not once blamed race.

CRA was created to solve a problem that was perceived to be much larger than it really was - which was race-based denial of mortgages. When the real problem - persistent minority economic under-performance - failed to be solved by this band-aid, nobody bothered to try fixing the underlying problem.

> it's been obvious for years
> that people - with money and
> without - have been buying
> under stupid terms

When you say "obvious", do you mean that you've been shorting the market?

Just curious...

> The CRA is the proximate cause
> of the financial sector meltdown.

Reaching. That's like a bullfighter who curses the horns during the ambulance ride.

A whole lot of people had to be doing their worst for this to happen.

Who was President 10-12 years ago?

I'm not sure why that's germane to anything we've been discussing.

When you say "obvious", do you mean that you've been shorting the market?

No, I don't play at that level. I play long and don't fool with individual securities for the most part; my sources aren't that good and the statistics are much better with broad funds. Shorting is fun, but makes me uncomfortable, so I don't do it. We have managed our assets with the likelihood of a downturn in mind and with the exception of retirement funds are mostly sitting on cash right now, having sold pretty much everything in early-mid 2008.

By obvious, I think that everyone knows that markets go up and then they go down, even if the general trend is up over time. The real estate market was due to go down, and take a lot with it, given how overbought and overleveraged it was. Living in California, with family in Manhattan and Florida, I saw what people were spending for stuff, and under what terms. All these ARMs and other dumb loans. We'be been waiting since we moved here for San Francisco real estate prices to get in line with rents. Until they do, buying here doesn't make sense. But these things are not sustainable in the long term.

A whole lot of people had to be doing their worst for this to happen.

My sentiments exactly.

>> Who was President 10-12
>> years ago?

> I'm not sure why that's germane

It's apparent from the Wikipedia article that Clinton was opening the faucet: Robert Rubin, the Assistant to the President for Economic Policy, under President Clinton, explained that this was in line with President Clinton's strategy to "deal with the problems of the inner city and distressed rural communities".

> No, I don't play at
> that level.

"That level" is reality. Either you perceived the "obvious" or you didn't. You failed to protect your own interests by your insight:

> The real estate market was
> due to go down, and take a
> lot with it, given how
> overbought and overleveraged
> it was.

And yet, you let this magnificent, literally once-in-a-lifetime opportunity slip through your fingers!...

...Unless you're bullshitting. I've posted the link twice before, but this article describes the investors who really understood what you pretend to have seen so clearly. Theirs is a wickedly exclusive club. So don't be too ashamed of your cowardice....

But don't kid a kidder, either.

--

Speaking of comedy: As you read about Obama's appearance on Leno last night, please go to this page and look for this number: $104,332.

MR. LENO: Right.

MR. OBAMA: And, you know, the immediate bonuses that went to AIG are a problem. But the larger problem is we've got to get back to an attitude where people know enough is enough, and people have a sense of responsibility and they understand that their actions are going to have an impact on everybody.

Funny, ain't it?

Crid - In cheezburg's defense it's impossible to time a crash. I knew it was coming, but no idea when. And I'm risk-averse, so I wasn't going to risk losing my retirement on a downturn I couldn't pin down. The market has a remarkable ability to stay up as a result of self-delusion on the part of traders.

However, I'm gonna have to spank cheezburg on his unwillingness to read source materials. If he'd bothered to read any of the comments on the BusinessWeek article he linked, or on the Wikipedia article he would have found using my google terms, he would not have had any doubts as to the role of the expanded CRA and William Jefferson Clinton in the current unpleasentness.

Mind this fact well, people: the last two Democratic presidents we've had have totally (and possibly irrevocably) fucked this nation. The present occupant is on course to finish the job. As much as it makes me feel like a tin-foil hat looney, I've gotta say it's starting to look intentional.

>>Psst DavidJ-- I already beat her up for all that stuff, but she's right, the guy she was going after was way outta line.

Crid,
I got horribly distracted yesterday by something unforeseen so I've just seen your comment -above - and the similarly gracious ones immediately before. (Okay, I was out peering at the hoi polloi through my rose-tinted pince nez...)

Your comments were uncommonly gallant. (Though your heat earlier wasn't totally out of line). Anyway, the comments are appreciated.

Of course, there's gonna be a "but" - for Brian.

Brian wrote: >>The CRA is the proximate cause of the financial sector meltdown. That it was abused by politicians, bankers, and realtors is irrelevant.

Brian,
I have a lot of respect for your analysis, if not your ideological conclusions.

I think I'm starting to grasp how Fannie et al (and B. Frank etc) were part of the mess. I think I'm following how a cascade of "gaming the system" then compounded the disaster.

But I don't understand your 'irrelevant...abuse' conclusion?

How is it 'irrelevant' that the investment banks and insurance titans fucked up weighing the short term against the long term?

I don't want to make a dreary pun about false profits/false prophets (but it's a temptation), but in all this mess - surely - they must have seen the inevitable consequences of endlessly trading "new" versions of lousy loans? No?

(I certainly don't exclude realtors - but I can see their part in it was not a departure-in-kind from their usual slick trade.)

Why is it irrelevant? Elementary.

If the CRA had not been passed, then the bad loans would not have been made. Period.

If Fannie and Freddie had not been ordered to buy bad loans, then there would not have been a system to abuse.

If you create a system that invites abuse, then it will be abused.

This is why the engineer's mantra is "simplify".

> In cheezburg's defense it's
> impossible to time a crash.

No defense at all.

> I knew it was coming, but
> no idea when.

Preposterous. There's an earthquake coming, too. When it hits, are you going to claim geological insight? If it doesn't hit until after Amy, I and the other Angelinos on the blog (and our grandchildren) are dead and buried, does that mean we were wrong or wrong to live here?

> And I'm risk-averse, so I
> wasn't going to risk losing my
> retirement

What is it with you guys? Cheezburg said the same thing....

> Shorting is fun, but makes me
> uncomfortable, so I don't do it

There's just no metaphor for this. Um.. It's like a gay guy who likes girls, he really does, but for now he's got this boyfriend who's feeling horny....

When is everything in a market. When I was a little boy, Xerox stock was precious, but today it's not. Wanna buy some? I'll give you a great price! To say "I'm uncomfortable with risk" makes a mockery of any clarity you might claim as an investor.

There was an old joke in a Doonesbury cartoon, When golfing, Zonker used to never hit the ball for than twenty feet: "I find I get better control that way!"

It would be like Lewis Hamilton slowing down to 20 mph for all the turns at Monaco, because it made him more 'comfortable'. If such a man gave you advice on winning races, would you care?

There is no affordable housing shortage in austin. You can buy a 3/2 in pretty decent shape for $65k right now, if you're willing to live east or south.

They tried to make some "affordable housing" in close in an urban redevelopment. The houses (no yards though) cost $140-170K, and for a family of 5 the most you could make was $60k a year. Now, I'm no accountant, but you'd have to have no other debt to be able to afford that scenario.

Austin is a great place to live but I'd have to argue against the "intelectual" part of that justification. Austin went for Obama, after all. And still thinks he's great, in large part. We also have a ridiculously large group of those no-vaccinating, never tell a kid no it hurts their esteem, dumb-ass type parents here.

I rather love this crash. I am one week in on an accepted offer on my east-side house, and am looking at houses in round rock that were waaaay out of my price range 4 years ago. We're movin' on up.....

Brian,
Neat reply!

You are - though - oddly, perversely neutral when you employ the term "invites abuse"!

If I tell my younger, teenage son - be home by 11 pm (for an excellent parental reason), that's a regulation with a pretty obvious intention.

If my son comes home by 11 pm - then goes out again at 11.01 pm & sets fire to the lawn under cover of darkness, am I to be blamed for inviting him to abuse the intention of my regulation?

Or is my son an asshole?

(PS: My teenage son has never set fire to the lawn. If only because it hasn't occurred to him!)

> they must have seen the inevitable
> consequences of endlessly trading
> "new" versions of lousy loans? No?

I think that's perhaps the greated mystery in this. For the fourth time, consider the actions described in this article. Why were the ratings agencies certifying these horrible investments as triple A? And why aren't they in jail for doing so?

(The link within the article is broken, but when you find the defense to Lewis' story, it's basically the petty denial of a psychopath.)

"The point I'm making isn't that, the point I'm making is that it doesn't work for everyone. Just like you drive the car you can afford to drive, you have to live in a place you can afford. PLUS. Who replaces the water heater when it goes bad? Or the roof? Who mows the lawn? Who pays the insurance on the dwelling? A renter pays a subset of those through the rent. An owner pays those ON TOP of the mortgage." Actually this is an argument that really gets my goat. It's a non-argument. Really, really, really? Where are all these charitable landlords operating at a loss out of sympathy for those honest, hardworking poor who need a roof over their heads. Fact is, if you're paying rent, you're paying every damned thing you mentioned plus a little more -- just on a monthly payment plan.

Brian, well said, man. That's exactly why I didn't rush out to take advantage of any of this mess. I wouldn't sign on for a mortgage wherein the payment could jump (perhaps out of my reach).

Rent or own should be a choice. The question is limiting to your means if you do own. As Brian mentions, I wouldn't want all that space either. Too much to heat/clean. Just a little house with a bit of yard. A one-bedroom cottage. Hell, at my age, a one-bedroom condo even maybe. I'd just as soon pay a mortgage as a rent.

I think that's my biggest bitch in the own vs. rent debate. Life is not the Sims. You don't enter adulthood with $20,000 to start adult life on. It's a catch 22 in that you have to save up a downpayment (and, yes, a few thousand besides ideally in case you need a repair) while renting. So getting to turning rent payments into mortgage payments is tricky at best because, yes, you have to pay as you go. Yes, I admit I've avoided Crack Central like the plague but, frankly, I've always sought out and found similiar rents (both in Denver and Albany) in slightly less dangerous places.

Kim: "I *have* been on a bus within the last week, when my car was in the shop. I'm not exactly sure what you're on about, but it wasn't exactly hell on wheels." Yep, but you say you live in Lansingburgh. I was right. One of those Pleasant Valley Sundays with commuter bus services. No way, no how like riding one of the city street routes. Really want to know what the lines that keep CDTA alive (if gasping for breath) are like? Come ride the nightmare that is the 55 at rush hour. Of course, you might run into some of those crazy people you're so scared of in Center Square. Oh, and you may very well have checked rents but not there. As I said, they range in Center Square. Everywhere from slightly over $400 to slightly over $1,000 and, yes, everywhere in between. I pursue and catch happiness just fine, thank you. Just because I speak up about things that aren't fair doesn't mean I don't. I love it. Someone like you doesn't discount their own happiness because they point out what they see wrong in our society but they make anyone who sees it differently from them or who admits life ain't perfect out to be a miserable bitch.

Crid, the feeling is mutual. I find you rather silly. So thanks for the chuckle. I always find it rather amusing when I find out someone thinks of me exactly as I think of them. Oh, and this may surprise you, I don't exactly take you seriously enough to care that you find me silly. You're a twat.

"That level" is reality. Either you perceived the "obvious" or you didn't. You failed to protect your own interests by your insight...

No, that level is the degree to which people are willing to take risks. I'm not a fan of making trades with potentially unlimited downside, so I don't short. I take a long-term, boring, diversified buy-and-hold approach to investments that is consistent with my risk tolerance and is what my reading tells me is the most effective strategy. By selling most securities when my wife and I did, and not going right back in, we haven't seen big losses this year (some in the retirement accounts, but we don't need those for 40+ years, so I'm not sweating those much). I'm not one of the elite few you refer to, but I'd hazard we're in a much better position than the majority of investors. I'm comfortable with that level of performance.

Love that Lewis article. One of the best pieces of writing I encountered last year.

Why were the ratings agencies certifying these horrible investments as triple A?

This is the key question, in my mind. The content at the link below is a bit dense, but it gets into the details of how that sausage gets made.

Structured Finance: Rating the Rating Agencies
GARP Risk Review Issue 22 January/February 2005

http://www.tavakolistructuredfinance.com/garp4.html

Here's a key piece in standard English:

Rating agencies are in business to make money by providing a formal assessment of credit risk. They face constant pressure to earn fees for rating deals, and they are not public service companies. The pressure is applied by frequent issuers or placement agents, such as investment banks, and the heat gets turned up an extra notch when rating agencies are asked to quickly rate complicated deals.

These ratings, unfortunately, are not a good barometer for investors. In addition to enjoying a cozy relationship with structured finance issuers, rating agencies have also made it clear that they do not hold themselves accountable for unearthing fraud

...speaking of ratings agencies, does anyone recall if they were asleep at the wheel in other recent financial scandals?

And why aren't they in jail for doing so?

Yeah. Hell, they haven't even be hauled before Congress for a vigorous posturing by our elected officials!

"I rather love this crash." -M3
Me, too. There are houses in my favorite neighborhoods that are actually in my price range! (Now, they're fixer-ups, but I'd rather do my own renovations, anyway.) Plus, our current house is close enough to UT that it'll be easy to rent out. Anywho, hope everything goes smoothly for you. RR is great for families.

> I'm not a fan of making trades with
> potentially unlimited downside, so
> I don't short

Far too late to feign financial sophistication: You're just not for real.

Cheezburg, thanks for the response. I'll have to go do some Google-research. Some of the numbers that you linked to don't look like numbers I've seen, but it may not be an apples-to-apples comparison.

However, I think the "CRA bank" designation may be a bit of a red herring. I'm pretty sure that there are requirements in the Community Reinvestment Act that apply to all banks -- whether they have "CRA" designation or not. That's what all of the ACORN lawsuits were about: forcing the mainstream banks to make these loans. But yes, once that door opened a crack, a lot of people who weren't the intended beneficiaries got their feet in. As I said before, the people who have been defaulting are not all or mostly poor people, although some of them are.

We keep getting hung up on the word "poor". There's a huge emotional context tied up with that word; it brings up images of ragamuffins in the street begging for coins because both of their parents are too ill to work or take care of them. But there's two groups of poor people. The first consists of people who cannot earn a decent living because of outside circumstances, such as disability. There's a second group who have made a conscious decision to live in poverty, either temporarily or permanatly. Students and some religious/charity workers fall into this category. Then there's a third group who are poor becuase they are irresponsible. I claim that the third group is much larger than the first group. I don't know about the second group, but since that group doesn't generally seek public assistance, they don't matter for purposes of this discussion. I think there is significant overlap between the third group and the serial defaulters who are causing much of the mortgage problem.

> rather silly. So thanks for the
> chuckle. I always find it
> rather amusing

What is it about blog commentary that makes people go nuts with the word "rather"?

>Far too late to feign financial sophistication

Yeah, feign! I'm a babe in the woods.

You're just not for real.

Whatever, dude. How's your portfolio looking these days?

I'm pretty sure that there are requirements in the Community Reinvestment Act that apply to all banks -- whether they have "CRA" designation or not.

My understanding is that it applies to all FDIC-regulated institutions.

I think there is significant overlap between the third group and the serial defaulters who are causing much of the mortgage problem.

This is an empirical question, but I've not been able to find the data to answer it.

There are two huge problems as I see it. One was the ratings agency problems brought up by Crid, that potentially very problematic mortgages were bundled with ones that were very likely to be good, and then sold as though the aggregate were top-grade paper, when a few foreclosures could cast a shadow on the value of the whole thing.

Tied to that is the other major issue, which is that this ability to quickly bundle and resell mortgages of nearly any quality led to a massive disconnect between the incentive to make the loan and the incentive to do due diligence on the people applying for the loans. Because the loan issuers could get rid of the loans so quickly and pass whatever problems in recovering payment on to someone else, they had little incentive to make sure that people understood what they were signing, that they actually could, you know, pay the loan.

It seems to me that critical requirements of good contracts - transparency and responsibility - were disregarded along the entire process. Everyone was playing pretend, acting like the foundations of these transactions were sound. As long as no one looked to carefully, the problems weren't apparent. But a poor foundation always becomes evident given time.

What is it about blog commentary that makes people go all intellecutally snobby and assume they're the final authority on the English language and what words, slangs, and expressions it is all right to use?

Geesh, you are funny, Mr. Word Police.

>>One was the ratings agency problems brought up by Crid, that potentially very problematic mortgages were bundled with ones that were very likely to be good, and then sold as though the aggregate were top-grade paper, when a few foreclosures could cast a shadow on the value of the whole thing.

And in the C.17th, unscrupulous timber exporters glued mahogany plugs into stone-filled hollow crap logs for the merchant appraisers...

Brian: can you point me to research that say that CRA loans had disproportionately high default rates compared to comparable loans made outside of CRA? That would be a key piece of data supporting your assertion that CRA has had a big role in the mortgage mess. What I have found doesn't jibe with that claim.

http://www.consumeraffairs.com/news04/2008/10/subprime_defaults.html

"Fact is, if you're paying rent, you're paying every damned thing you mentioned plus a little more -- just on a monthly payment plan." T's.

YES! This! Is called capitalism. It is the same reason you sell your services to your employer. It's not charity. The landlord takes the risk of owning a building and renting out places. For that risk they receive money. Sometimes a profit, and sometimes a loss. Just like you pay interest on a mortgage. The interest is the fee for making the loan. The bank takes a risk on this based on your ability to pay it back.

You seem to believe this is wrong... Maybe we should let the government rent out apartments, oh, wait, the govt. are us. Are WE a charity? And those govt. apartments. How often do they become Cabrini Green?

Renting or owning IS a choice based on how much money you have. What is it exactly that you are arguing here? If you want to own something, you have to save up until you can afford it. Meanwhile you have to go without, or you have to rent something. Where is the unfairness of that? Is this not true, worldwide? You have some advantages in the US. You get a free education even if you don't own property. You can use that education to do stuff, get a job and BE PAID for your services. You turn around and use that money to pay other people for their services.

If you can get a job in Grand Island, NE. you can get a sweet little house for under $50k, if you want to live in LA, or New York, not so much. Last I checked you don't need travelling papers to move to NE, or permission to leave Chicago. I presume you didn't need anyone to tell you to live here.

I can't think of any place in the world where living has been made fair to everyone, can you? What is fair in the US is that you are not prevented from trying.

Cheezburg, I'm having the same problem: I can't come up with the data I'd need to prove or disprove my thesis.

I totally agree with you that a bunch of people were buying paper whose risks they did not understand. Crid mentioned the ratings agencies. I could be wrong, but it was my understanding that agencies like Moody's actually wouldn't rate this paper, because, like everyone else, they weren't able to come up with the info on which mortgages were included in which bonds. The usual response of financial markets to risk is that they take actions to spread it around, so that any one investor's exposure is minimized. I have a theory that these bonds tended to do the opposite; they concentrated risk. And by doing so, they became a type of risk that is qualitatively different from what most of Wall Street usually deals with. There's only two Wall Street groups who regularly deal with investments where catastrophic loss can occur rapidly: venture capitalists, and penny stock traders. The VC guys have highly sophisticated and proprietary tools and methods for estimating and mitigating their risk, things that even sophisticated investors in other sectors don't have and wouldn't know what to do with if they did. As for the penny stock traders, they're just plain crazy.

> How's your portfolio looking these days?

Pretty good! Especially for a guy who never pretends to know things he doesn't actually know.

Your vanity has a wonderful nickname.

Cousin Dave:

I think you may be onto something with the concentration of these assets in small groups of organizations, who were tightly linked via the default swaps to others in the same spheres. Some agencies did rate them, though, and gave high ratings to lots of these CDOs that contained risky loans. I link to a piece above that talks about some of them, and how it worked (it's a wonky piece, but it's kind of telling that sophisticated people were worried about these things in 2005).

VCs and investment bankers do have incredibly sophisticated tools. I was talking to one I know well about this and apparently, the present situation has broken their models; major assumptions upon which they were assessing risk turned out to be failures and they don't know how to re-parameterize them. This is part of the reason why they're having such a tough time valuing these assets right now.

Crid: You sure pretend to know things about other people! Glad you're doing OK though.

Swiss, I didn't claim it was fair anywhere. And I'm sure if I live in NE, my wages would be likewise lower. Life isn't fair.

What it sounded like you were saying is that the landlords have expenses tenants don't and that's not true because we tenants are actually the ones that pay those expenses. Show me the landlord who won't up the rent if he has a bad year. Whereas if I own and I have to replace the water heater or the roof, I have that major expense one year but not the next. Renting, you pay more this year and next. They raise the rent and keep it up and raise it again.

I know its capitalism. What I'm saying is I'd like to see some balance. Wages in line with needs (needs not want). Right now, things are way more expensive than the average worker can afford (and contrary to popular opinion, there are plenty of adult minimum wage workers). I'd like to see a society where expenses and income aligned at least equitably enough so everyone could afford to save up that downpayment and buy if they wanted to instead of having everything they bring in go out on the bare necessities.

If that's socialist of me, I really don't give a damn. I'm sick of the rich exploiting the poor and refusing to even at least acknowledge that they need the poor to even be rich. Without workers to manufacture the goods they sell or provide services they depend on, they'd be shit out of luck too. As such, I don't think it's out of line for workers to expect a decent -- decent not extravagant -- living in return. I don't really care if Bill Gates or Judge Judy have a huge mansion I can only admire from a distance. Let them enjoy. They've earned it. But, I'd like to have a little one or two bedroom of my own that was mine, not someone else's. I'll have worked for 39 years, when I retire and the only law I've ever broken was interference with visitation rights.

But I will keep the housing prices in cheaper states in mind when I retire! Trust me, I'm already looking at them.

Crid -

I didn't "invest" in real estate futures for a simple reason - you cannot time a market bottom and win. At least not with a normal level of involvement.

But all the signs of a classic bubble were there, even in 2001 and 2002. But the first rule of investing is that the market can stay irrational longer than you can stay solvent.

Cheezburg - two things.

1) I have no data about CRA loan defaults, but that's not germand to the discussion. I did not say that CRA loans caused the problem. I said that the CRA did. The CRA (as amended) removed moral hazard.

2) There are only four ratings agencies, and they are required to rate securities by regulation. And if one won't give the desired rating, there are three others that will.

Again, lack of moral hazard means that the unscrupulous can get away with murder.

Brian,

I mixed up your points with Cousin Dave's. Thought yours was also that the CRA was that it forced banks to make bad loans. Yours is subtler, and I think more in line with the facts. The CRA was one of the shifts that led to the relaxed lending standards that got out of hand.

Well, the modifications to CRA in 1995 certainly DID force banks to make loans. See also the East Bridgewater Savings fiasco.

Had the CRA never been passed, we would not be having the problem we are having today.

There were many many opportunities to prevent the issue from coming to a head. Too many politicians were making money off of it.

Rather than investigating AIG et. al., Barney Frank and Chris Dodd ought to be the ones answering questions.

But Lucy Liu will show up at my house to rape me before that happens.

> you cannot time a
> market bottom and win.

You wanna invest (long or short), have at it. You don't want to invest, don't.

We're all fully conversant, practiced even, in the forms of internet braggadocio: Intellectual pretense, deceptions about physical conditioning and appearance, emotional competence, even plain wealth. But there's nothing more mundane than reading "Well, I knew what was going on out there in the markets, it was plain as the nose on your face, but because of all these trivial yet complex forces, I thoughtfully chose not to prepare for my family's future...."

Listen, arbitrage is the lion pit of lion's pits. The leanest, meanest, smartest of all guys go to Wall Street, because that's where we keep the raw meat. It's more competitive than any other venue. More than Hollywood beauty! More than pop melodies! More than Olympic competition! Maybe more than Washington power play!... (Remember, it was investor Geffen who called Obama to tell him he was going to be president, and not the other way around.)

Before pretending you knew what was going to happen in a cycle like this, you should first try to convince us that you were a shoo-in for Best Supporting Actor last month. It's more likely to be true, and much, much more likely to be believed.

Crid - would you like to ask my mother about it? I can provide you with her phone number.

Unlike you, I'm not sitting on a couple hundred grand to gamble on a long short. Like I said, the market can remain irrational longer than you can remain solvent. I bought my house for below market value when the market was already headed down.

That's MY investment.

Engineers are famously risk averse. I tried playing in the market. I spent so much time panicking every time the stocks I held moved that I decided it was better if I took Cramer's advice and let a professional deal with it. But I never got around to it, so it all sat in cash. Which was good, since I didn't lose 50% of my IRA like everyone else.

I'd rather be lucky than good.

Pretending doesn't get one there

Fine. Believe what you want. I'm not trying to claim some grand insight into the world that others lack. There were investors of some note saying much the same thing. It was kinda obvious.

You can't have housing prices going up 5-10% per year forever. It's just not the way markets work.

And you shouldn't write interest-only loans that people were admitting they couldn't afford if the property failed to appreciate sufficiently and not expect Bad Things.

I mean, really. This was just like the dot-com bubble and the Tulip bubble.

It was always going to pop. The trick was figuring when. As it turns out, I guessed quite wrong, I had it popping in 2005-2006. It managed to get almost a full two years more before it came crashing down. So had I bet, I would have lost big.

And no, it's not like predicting an earthquake or hurricane. I mean, Krugman predicted 14 of the last 3 recessions, after all.

But it was pretty obvious that we were in a real estate bubble. Bubbles tend to last a short while (I dunno, 5 years maybe?).

I'm not pretending. I'm certainly not trying to say I'm Internet Warren Buffet.

I'm simply saying that what was obvious to a simple engineer was probably obvious to all the money men on Wall Street too, but they all figured that they weren't the mark.

> It was kinda obvious.

Then why, for the love of a cocksucking Christ in Hell, didn't you short the market?

Because you're bullshitting.

The freaking Hamilton link didn't work! That HURTS!

Here's another.

And another.

Then why, for the love of a cocksucking Christ in Hell, didn't you short the market?

That was a particularly lyrical string and I just wanted you to know I really enjoyed it.

Alright, whatever .

Why? Let me tell you why, Crid.

BECAUSE AT THE TIME I KNEW IT MY TOTAL FUCKING NET WORTH WAS NEGATIVE TWENTY THOUSAND DOLLARS, ASSHOLE!

They don't let you play the market with fucking monopoly money.

And it's obvious you know jack mother fucking shit about short selling, because you'd know that in order to make money on a short position you need to know better than the people in the market WHEN THE FUCKING BOTTOM IS GOING TO FALL OUT. Which is kind of the point I was making.

I knew the bottom was going to fall out, but had no clue when. I guessed 2005. It lasted until 2007. If I had put together a short position back in 2001 I would have lost everything I put in.

You remember the dot com boom, right? A guy by the name of Phil Kaplan (a.k.a. Pud) put together a site called "FuckedCompany.com" - the dot com deadpool. Everyone (including those in it) knew that most of it was a sham. They knew the bottom had to fall out sooner or later. FC was a game, taking bets on who was gonna fall next. They were trying to peg the end. They missed too.

You have this arrogant presumption that in order for an observation (gee, looks like a bubble to me) to be valid, the observer must be willing to risk his entire net worth betting he knows when it's gonna crash.

Well, I don't play that game. You can take your "Shut up, he explained" and stick it where the sun don't shine.

> MY TOTAL FUCKING NET WORTH
> WAS NEGATIVE

Don't shout at me... I'm not the one defending unexpressed insights.

> They don't let you play
> the market with fucking
> monopoly money.

If only!... Events of the last decade demonstrate that this was not so. The subprime guys were the Monopoly top hat, and the Alt-A guys were the Monopoly race car.

Imagine shorting Lehman Brothers with $2000 in, say, June of 2005. Anybody wanna fire up a pocket calculator and do the math on that through, say, September 17th of 2008? You coulda borrowed it, you coulda sold your car or some of those video games you talked about on your blog, and you'd be farting through silk tonight.... 'Cause the market was due for a correction, right?

> And it's obvious you
> know jack...

An important word, "obvious". You and Cheezy keep tripping over it.

> you need to know better than
> the people in the market WHEN
> THE FUCKING BOTTOM IS GOING
> TO FALL OUT.

Who watches more closely than investors?

> Which is kind of the
> point I was making.

No, that wasn't your argument. Saying 'what goes up must come down' means nothing about how well a Kobe Bryant jump shot will fall in any particular game, or whether any specific airline flight will land on time or a few minutes late. You and Cheez keep chanting "obviously" as if it justified endless caution. But if things were obvious, you'd have no complaint.

> the observer must be willing
> to risk his entire net worth

Don't be grandiose! We just want evidence –any evidence– that your perception was genuine and acute before we admire it.

> and stick it

And don't be mean to me!

Like I said, you've got some kind of mental block that tells you "well, he didn't bet any money on it, so he's making it all up to be an Internet Cool Guy."

Show me one person who could tell you the week that Lehman or Bear was going down five years before it happened.

I can't do that, which is why I'm not an investor.

Although you'll note I did buy a house at the end of 2006 because things were already headed down, and I figured at 20% below the asking price this place was pretty much near bottom.

Well, here we are at the bottom, and I'm not under water on my mortgage.

So there you have it - I've played the market and won.

First of all, the correct name of the caricature is Internet Tough Guy, not cool guy. And tough guys shouldn't whine:

> Show me one person who could
> tell you the week that
> Lehman or Bear was going
> down five years before
> it happened.

That's like an NBA player complaining that it would be an easier game if the basket was nine feet off the court instead of ten.

The stock markets aren't designed to reward the twitching voodoo impulses of needy dart-throwers; They exist to fund their listed enterprises. Investors can do well too so long as they see things clearly, perhaps more clearly than those around them. Investing summons judgment you mock as non-existent, but that speaks more to your fear of risk than to the worthiness of a venture.

I think we want people who see the world clearly to do better than those who believe in witch curses and dumb luck.

> I've played the market
> and won.

If you have no complaint with your financial circumstances, then everyone in blogland is sincerely happy for you. But thou shalt no longer pester thine fellows with argumenta ad misericordiam ("my total fucking net worth" etc.).

> I'm not an investor.

Everyone's an investor. Cash is a position. And as the years spin by, we'll coldly, ruthlessly, unblinkingly compare your strategy with those of other people in the market.

So be in touch, OK? But never, ever say you knew when you didn't, or it was "obvious" when it wasn't. Ditto for Cheezy.

PS- Lehman:

June 1, 2005: 53.185
Sept 17, 2008: 0.13

Imagine! Imagine the "obvious" shorts under that skirt....

Crid -

I know the lingo, but let's face it, there's nothing "tough guy" about money. I make no claim that I can make more money in the market than you or anyone else. I'm just saying that the real estate bubble was visible in 2001. There were those who dismissed it, of course, but it was there, and it was visible.

One thing required to be a successful player in the market is risk tolerance. I don't have that. If I did, then believe me, I would have taken positions to ride the bubble for as long as it seemed viable. Also as I mentioned, I don't have the time to devote to being a day trader, so that's another reason (you'll no doubt say excuse) for me to stay out of the market.

I'd rather do what I do for a living than play with the market. It's more predictable.

> I'm just saying that the real
> estate bubble was visible in 2001.
> There were those who dismissed it,
> of course

And you were one of them. You coulda cleaned up.

...Unless it wasn't so "visible" after all.

How many rounds of this do you want? You're just not for real.

Besides-

> One thing required to be a
> successful player in the market
> is risk tolerance. I don't
> have that.

You (and now Cheezy) often discuss weaknesses as if mentioning them makes them noble. It doesn't. (Didn't we just cover this in the comment above?)

Y'know, when a little kid says he's afraid of the dark, everyone's cool with it. There really are hazards out there in the world that he can't understand, and it's sensible for children to trust parents for protection from mysterious things.

But if a child were afraid of broad daylight –including things that were "obvious" and "visible"– no one would be patient.

Only an idiot considers risk-aversion to be a weakness.

Risk aversion is the core of modern engineering, and you owe your life to it.

You're just a bitter old asshole who can't understand why the market went sideways, that the going sideways was predictable, that people predicted it, and that most of them were intelligent enough to stay the fuck away.

How much did you lose when Toll Brothers went in the dumper?

I've got more important things to do than play any more of this stupid game with you. Like eat a burger.

I love this shit. Amy's blog condenses everything I hate about human nature into a small number of readily-pummeled personalities.

For next time.

Please understand this: The modern financial services industry is very flexible! It wants to serve! If you have even a sliver of insight, there are people who can help you make money on it! You only have to know one thing: That the price of something is wrong. It doesn't matter if the price is too high or too low. As long as you really know that the price is going to change, you're equipped to make money! This is a great time to be alive.

But if you don't know, you don't know.