House of Cards
Topic: Economics|For the past several years there was always the looming question, “How can people afford all these large houses that are going up everywhere?” The answer always were in the form of a shrug of the shoulders. Now we are finding out the real answer. They couldn’t afford these houses.
When I moved into my current home, the house to my south was owned by a napoleonic fireman and his wife who were very good homeowners. He didn’t care much for living here but was required by his job to live in the city limits. So he found a lot on the fringe of the city and staked his claim. About five years ago he retired and moved away. The next owner was a thirty-something with a wild streak and a girl friend in tow. She apparently didn’t care all that much for his wild streak and left him. It wasn’t long after that he foreclosed on his home and the home lay dormant. Last summer a house speculator, obviously inspired by all those flipping houses shows, bought up the property and put it on the market hoping to make a quick buck. But unfortunately the housing collapse emerged in the middle of his gambit. The house never sold. He brought in contractors to try to inspire buyers but the buyers weren’t inspired. The for-sale-by-owner sign was replaced by a realtor sign which was replaced by a renter sign. A couple weeks ago three twenty-somethings moved in. We know when they are returning from jobs by the boom booms emitting from vehicles. The housing crisis has come home to roost on the edge of my lawn.
Economists say so much can be discerned by the number of new housing starts. These indicators are linked to such things as employment, to retail sales, to the success of large box home improvement chains. The current mortgage disaster is a foreteller of bad things on all counts. The job of government is to protect homeowners from such practices as predatory lending and they have failed dismally. The impact this will have on the future of the US economy may stretch beyond just an ordinary cyclical recession. The unintended consequences of the government not intervening in bad economic policy will be just one more legacy of the Bush Administration. Now I’m forced to live with idiots next door and idiots in the White House.
February 21st, 2008 at 11:54 pm
Let’s be honest with what is going on. America was on the verge of a recession in 2002. Therefore the federal reserve lowered interest rates to the lowest in 50 years. Then people saw that they could get a 3 year adjustable rate mortgage for 2.5%. They then spent an extra 100-200k on a house, which was more then they could afford. Once the mortgage rates adjusted to 7-8% the payments tripled and the buyers had no choice but to foreclose. At no point is this the fault of the government or the lenders. When I shop for a mortgage I do what is best for me? The housing market affects us all. The prices of housing has gone down because the banks take less money for the house.
February 22nd, 2008 at 11:13 am
If you believe the current mortgage crisis is caused by a simple rise in interest rates I have some land to sell you in New Orleans. If that was the case the current interest rates would have solved all the problems. You need to do some research on predatory lending practices. Companies were ignoring and sometimes even adjusting peoples income in order to sell them unfair loans. The government turned a blind eye to these practices. I guarantee if the government would have intervened early on over this matter the results would have had far greater impact on the economy than the silly rebates they are giving us in May. I realize people are responsible for the decisions they make but many of those who were offered these rates already had poor credit scores which showed they didn’t have the financial savvy to comprehend the deals they were making in the first place. This is where the government needs to step in and create parameters. I know you live in a new neighborhood and if you see the deterioration of your subdivision you will find yourself on my side of the fence on this issue.
February 25th, 2008 at 10:38 pm
The government can not keep people from themselves and their bad decisions. Check out the payday loan industry. People are willing to give someone $700 for $500 in return. They then hold your money for only 2 weeks. If people choose to waste their money then that is their choice. Just do not turn to the government for a bailout.
Can you please explain how Hillary or Obama is going to pay for the health care they propose? It sounds great but I don’t won’t to pay higher taxes. Is social healthcare available for all the undocumented workers as well? How much will that cost us in the long run. A hell of a lot more than the IRAQ war. Check out the cost in California. It will only get worse.
February 26th, 2008 at 11:17 pm
But what you don’t understand is the government is going to be forced to bail out not the homeowners but the banks. http://www.time.com/time/business/article/0,8599,1714725,00.html?imw=Y
First off, we need to get out of Iraq as fast as is feasible. That will save us $9 billion a month. Then we need to eliminate Bush’s crazy tax break for the wealthy. Obama’s health care initiative is not government run. I am no expert on the cost of his plan but here is how Obama plans to pay for his healthcare plan:
Q. How much will it cost us taxpayers?
A. The Obama plan will cost between $50-65 billion a year when fully phased in.
Q. How will we pay for the Obama plan?
A. The Obama plan will realize tremendous savings within the health care system to help
finance the plan. The additional revenue needed to fund the up-front investments in
technology and to help people who cannot afford health insurance is more than covered
by allowing the Bush tax cuts to expire for people making more than $250,000 per year,
as they are scheduled to do.
March 1st, 2008 at 3:31 pm
March 10th, 2008 at 3:14 pm
There was an interesting article written by Paul Krugman today in the Times related to the current activity by the Fed in its attempt to control the financial crisis and avoid a meltdown. I believe that it is worth noting when considering the comment above about where the blame and responsibility lies for the mortgage debacle. This quickly rolls into whether it is or isn’t the Govt’s responsibility to protect citizens from themselves. You can certainly take a ” they’ve made their bed, now they can sleep in it” approach , however “they” have just invited 250 million of their closest friends for a night over. Here is a prime example of where dogma meets reality. That being, the Republican mantra of smaller government, less regulation, etc, etc. In Krugmans words “The Fed’s latest plan to break this vicious circle is — as the financial Web site interfluidity.com cruelly but accurately describes it — to turn itself into Wall Street’s pawnbroker. Banks that might have raised cash by selling assets will be encouraged, instead, to borrow money from the Fed, using the assets as collateral. In a worst-case scenario, the Federal Reserve would find itself owning around $200 billion worth of mortgage-backed securities.
Some observers worry that the Fed is taking over the banks’ financial risk. But what worries me more is that the move seems trivial compared with the size of the problem: $200 billion may sound like a lot of money, but when you compare it with the size of the markets that are melting down — there are $11 trillion in U.S. mortgages outstanding — it’s a drop in the bucket”. Anybody that thinks that business and markets will police themselves to the benefit of the average john Q public is kidding themselves. Are we better off now than we were 8-years ago? For millions now, the answer trully is NO! Ask in another 12-months and the rolls will have multiplied.
March 10th, 2008 at 9:29 pm
Well put and well written. The scary thing also is that the trend in prices is making it harder and harder to keep up for lower middle class wage earners. This can only mean more woes in the housing market.
March 11th, 2008 at 12:53 pm
See Jeff, this is what happens when the government uses a laissez faire attitude toward unhealthy market forces:
http://biz.yahoo.com/ap/080311/fed_credit_crisis.html