patrick.net

athena,

The Greek Goddes of not throwing away money foolishly! Bravo!

Google had traffic. Agreed I use GOOG all the time. If they went away tomorrow I'd be inconsolable (for about 10 minutes).

The only cold callers more aggressive than stockbrokers are adv. people. Pit Bulls I tell you. Why? B/c their services are the first to go! I also like the observation about "dancing with those that brung ya" as well.

For what it's worth, reposting the socioeconomic strata stuff from about 6 months ago. If I recall, this was based on 2-3 different references. It includes more about education and social factors which help to explain the differences in strata. This is true regardless of whether you're talking about CA, the Midwest or the Southeast, because it's all relative. It's more about which strata you're in, and how likely you are to stay there.

Note, strata are macro generalizations. Thare are always exceptions and exceptional people (unfortunately, in both directions).

---
[referring to the discussion that was ongoing about if one could move up]

It’s not impossible, just increasingly improbable. My wife and I both succeeded to move up, quite a lot actually (we both grew up pretty damned poor). But that was years ago when education was a great enabler of upwards mobility; it would have been harder much harder today.

I still think there are at least 4 classes, because you’ve left out the abject poor–a frighteningly quickly growing strata. The working-educated who have the ATM-houses aren’t the same as the New Orleans, in-the-projects poor. Of course, there’s no officially agreed upon classification, but most stuff I read tends to divide into these 4(5):

* The poor. Truely no wealth, often little or no secondary education, entirely dependent upon others for economic survival, usually the government. This group has little chance to gain education or skills from formal training due to early childhood neglect and failure to understand the process of education.

This class is growing.

* The working-class. Little or no wealth; any wealth is distressed or at severe risk of loss due to insufficient access to or understanding of insurance. This group lives paycheck-to-paycheck and can be moved down to the Poor by a single event such as a sickness of the primary provider.

This class is not growing or shrinking by some estimates. [Later stuff I've read indicates this class is indeed growing much more rapidly than the authors of the studies I was referring to; most socio-econ studies were from the 80s until recently.]

* The Educated (or educated-working class, or The Skilled Class). This group has some wealth, usually in the form of home equity, which is generally not distressed and is often insured. They are strongly deliniated from the lower classes by an education (University, trade school, etc.) which is generically applicable to many jobs. This group generally has 4-times or more the rate of health care coverage and property insurance. This group has little risk of falling to the Poor, and only slight risk of occassional dips into the working-class. This class can sustain moderate periods of reduced or no income without falling into poverty.

[Again, later studies have shown increased chance that an increasing number of this strata do permanently fall into the working-class]

This class, when summed with the next highest, is not growing.

(The “Rich” classes)
* The near-wealthy/sub-wealthy/”BoBo’s”/neveux rich. This group has often moved up from the Educated Class, usually within the most recent generation. It is a dispute whether this is attributable to quality of education, timing and location, or simply luck. This group has significant, usually growing wealth in the form of assets in addition to their primary home, often in the form of equity ownership, investments, or income-producing assets. Few in this group move up to the “True Rich”, and many consume much of their wealth within 2 generations, their children and grandchildren settling back into the Educated Class. This class can sustain significant periods of loss of income by liquidating assets–often equating to multiple years worth of viability.

This class, when summed with the previous is not growing.

*”True Rich”. Total financial independence. This group requires no income to exist economically. This class leaves long lasting wealth legacy, often esnuring that their families will maintain this level of existence for many generations. It is rare and often spectacular when there is downward mobility out of this strata.

This class is not growing.

I had the pleasure to hear from Andy Rachleff himself as to why Benchmark told Larry and Sergey to get lost. It was an interesting paradox. Benchmark turned their back on Google for all the right fundamental reasons, yet it was ultimately the worst investment decision they made since WebVan. The top reason Andy gave for not investing was that they neither had, nor were particularly interested in developing a revenue model.

Hey Randy,
Well I would wonder where the majority of the younger middle class exsists in this state. I can say that most friends of mine, in the early-30's bracket are educated, make decent salaries, yet fit inbetween the working and educated class, meaning that they cannot afford even the most basic level of equitable financial assets such as a home. This is in stark contrast to the generations before. So the model is flexible and time sensitive. And I still think the above model is vastly diffrent in any other part of the country. A drywall installer in GA can afford a house on a small salary- even by regional standards- VS the highly educated engineer in San Jose who cannot afford the same size of house making 4 times as much income.That same drywall guy wouldn't have a chance in CA, even if he made 3 times as much.

SFWoman,

Like Anna Nicole Smith?

SFWoman,

So true! That is why I tell ALL of my clients that re-marry later in life to make SURE that your children are cared for in the event of their demise. You may love your wife/husband but after you're gone, who are your kids to her/him? How do I know this?

Davis_renter,

I have maintained Ms. Dimartino's findings for at least the last 5-6 years. Boomers will not keep 2+ homes. They won't. Her article concludes that the 55-64 crowd are actually NET SELLERS! I feel so vindicated! Thank you, thank you, thank you! It has been boomer based research that "duped" the 35-44 age group into buying their white elephant.

Hey SF woman,
Well I sort of came from a poor background. I think a lot of people in my family had some resentment towards people that were well off. That said, the people that were well off in our small communuty when I was growing up don't hold a candle to the amount of wealth people have in California, New York, or any other liberal-esqe region. I've been here 7 years and still find myself astounded at the level of extreme wealth I see here.
On the other hand, I can see where being extremly rich can be almost as bad as being very poor.Social conciosness. I have a friend from college. Great guy. He rented a crappy apartment, drove a Ford, and wore old clothes. I found out his dad was worth 100's of millions of dollars and gave him 200k a year just so he could save the money from paying taxes on his appreciation. After college, he played in band gigs, drove around the country.. had a good ole' time while I was basically almost starving and mixing paint for a living. He got married and his dad simply bought them a 3 story brownstone in the heart of NYC. 1.2 million bucks in cold cash. I can't help but feel resentment sometimes that people like that will never have to work for what the rest of us have to bust our asses for 40 years to get. But then again, He had a real problem with being born into an unusually wealthy sitaution. He just wanted to fit in with the rest of the kids.

I guess that’s one advantage I have in coming from a middle class family— nothing to fight over when the parents are gone.

All we'll have to fight over when the parents are gone is which debts need to be attended to and which can be abandoned. My wife's folks have insisted on holding onto many generations of farmland in Ohio and Indiana. In fact, they've taken on more over the years as siblings, cousins, and parents have died or abandoned the farms. The problem is that all this farmland is unprofitable and carries far more debt than its value. And, none of the children want it, having all long since departed that part of the country never to return. They keep working us about emotional obligations to our "roots" on this land, but that entire region is a hopeless poverty sink. It's the kind of place where to be educated is viewed as a sin, everyone's hyper conservative, but ironically quite insistent about the holy righteousness of government farm subsidies and medicare.

Randy,
On both sides of me and my wife's families, even though we are from middle class families, I am a tad worried about a few things. Namely that where my parents lived was in the middle of nowhere, but now that place isn't that far from the epicenter of new developments. So the value has gone up.A lot. I'm not too worried about that, but on the other hand, her folks have some vacation property they bought 40 years ago for nothing that's now worth 2 million. She has a lot of sibblings, so I am dreading the day that this property pops up in the will. It'll probably be nasty.

*”True Rich”. Total financial independence. This group requires no income to exist economically. This class leaves long lasting wealth legacy, often esnuring that their families will maintain this level of existence for many generations. It is rare and often spectacular when there is downward mobility out of this strata.

This to me is a perfect reason to bring back the dreaded so-called "death tax". I don't begrudge anyone the right to make a mint by their own industry, brilliance or luck. But what entitles his/her parasitic children to permanent automatic wealth? People bitch and moan about governement entitlement programs all the time (myself included). What about legacy wealth "entitlement"? After your gone, inheritance hand-outs should be strictly limited, and descendants should have to sink or swim on their own merits --just like everyone else.

(-) your
(+) you're

I thought one of the reasons we originally rebelled against England was we didn't want a permanent generational aristocracy?

End American Aristocracy: Bring back the Death Tax and soak the bastards!!

OT- Pulte is opening their sales information office this weekend for the Altura townhomes near Santana Row. Their 220 units are all at least 2br/2ba. It says the prices start in the mid 400's. That price seems "low". Anyone know if they were initially going to offer these at a higher price?

lunarpark, do you really want to live near santana row? I rather live at Vallco, Condotino. :)

Peter,

LOL, no! I'm just observing the market. I have no intention of buying a condo in Condotino or Satan Row. I'm actually interested in the Los Gatos Mountain area but not for a few years - falling knives and all that.

End American Aristocracy: Bring back the Death Tax and soak the bastards!!

I am all for minimizing income tax for the rich but maximizing the "death tax".

LOL, no! I’m just observing the market. I have no intention of buying a condo in Condotino or Satan Row. I’m actually interested in the Los Gatos Mountain area but not for a few years - falling knives and all that.

LG Mountain? Do you also monitor raw land? There are quite a few plots around there if you want to build.

HARM Says:

"Burn rate” –sweeeet!
A term most us haven’t used since the Dot.bomb days. A term most Specuvestors will come to know well in the months and years to come.

Friggen' astute observation!

Wow! The fricken' match has been lighted. The new burn rate is in play!

Man, this is gonna be just like watching the nasdaq crash!

Wow! The fricken’ match has been lighted. The new burn rate is in play!

With lower prices and higher ARM rates, it is like a two-ended match lighted from both ends. :)

There just still is not enough housing in CA!

http://www.inman.com/inmannews.aspx?ID=50255

"Do you also monitor raw land?"

My husband does. But since he's dying to leave CA I don't think he's making a very good effort!

There just still is not enough housing in CA!

Remember, builders and developers are our friends. They are powerful allies that lobby against zoning regulations in California.

"When you get a chance visit the link for the Condo Open House in San Diego from Ben’s Blog."

OMG, what was Belinda thinking - those pants!

Wow! The fricken’ match has been lighted. The new burn rate is in play!

With lower prices and higher ARM rates, it is like a two-ended match lighted from both ends.

Very cool time to be a bear, indeed ;-). I predict it will play out something like this:

1. The worst, most clueless, hyper-leveraged amatuer specuvestors will fall first when they (a) fail to make the minimum payments following "teaser" rate periods on their upward-adjusting ARMs, and (b) cannot refinance into FRM, due to zero to negative equity.

2. Smaller fly-by-night sub-prime mortgage brokers will begin announcing mass lay-offs, folding or be consumed by the bigger industry players (we're already seeing this happen).

3. Next to go will be the newly minted Realtors and MBs, who will have to go back to their former jobs as waitresses, car wash attendants and day-traders.

4. The next domino will be heavily RE-dependent service and retail sectors, such as construction and Home Despot/Crate 'n Barrel chain stores. They will have to lay-off and consolidate heavily to survive in the bubbliest areas.

5. Gradually, your average "bunker-mode" specuvestors (who either bought early enough to have a little equity to burn, or still have some cash) will begin to capitulate in waves, as their patience, equity, cash (or all of the above) runs out.

6. One or more of the GSEs (Fannie/Freddie/Ginnie) will collapse/enter government receivership, and some big MBS/CMO-heavy pension funds/REITs as well.

7**. With the tide of public opinion turned 180 degrees, Congress is finally able to break the NAR cartel and pushes through SEC-type industry regulations, and forces open-MLS nationwide. May also eliminate the MI tax deduction and capital gains exemption on second homes.

**Not sure on this --more of a hope than a prediction.

I move that “Specuvestor” be inducted into the Housing Crash glossary of terms.

DinOR, actually I took care of that last month:
It's listed as an alternate term for "Speculator/Investor"
/wp/?p=63

They have their own “burn rate” for their inheritence, which is very very fast.

I like the term "half life" better in this case. :)

@SFWoman,

I have added your terms to the Housing Bubble Glossary. Your cultural distinctiveness has been added to our own. Resistance is futile. :-)

DinOR,

I don't dismiss regional differences at all. In fact, folks like you and I are in a unique position to really appreciate those differences. The main thing that irks me is that the definition of "wealth" in the part of the Midwest I'm talking about is based upon the continuation of government subsidization for stuff like farms and health-care. Yet, it's these same people who happily decry the foul of welfare mothers, big city entitlements, and taxes. Who do they think is paying for their farms which are often 250% leveraged with gov't backed subsidized loans and habitually unprofitability? The land itself isn't even valuable in many areas, having lost versus inflation over the past 25 years.

I'm not sure what seperates them from the favorite hated "French Provincial Farmers" besides a lot more churches.

Who do they think is paying for their farms which are often 250% leveraged with gov’t backed subsidized loans and habitually unprofitability?

The aggie business may be strategically important though.

Also, the government will just inflate away to pay for all the entitement programs for the people. So it’s a moot point. Inflation = taxes on people with lots of money.

No, this just shows that future inflation will be mild.

I’m poor, but I’d like to leave the best to my kids. It’s their choice to piss it away.

The best you can give your kids is a good education. Challenge them to surpass you.

If we have anything left we will probably want donate it to good causes, like social or scientific research.

. What the hell are they going to do with it that is any better than my drug addeled child? Build bridges in Alaska? Fight wars in Iraq?

I have to agree, somewhat.

Lower tax is good, but if we have to make a choice, I think we should tax the dead man to death before we tax the living daylight of of the living man.

What the consumer pays in subsidies is made up in the form of affordable food.

Very true.

If it gets bad enough that we have to use corn and soybeans for our plastics and fuel, any ag land is going to be used for people food and for mules, horses, and oxen etc.

I doubt biomass can come close to satisfying our needs. The most promising source is still nuclear.

So, are buyers really leaving the market, or have lending standards improved? Have prices gotten so high that even the most creative loan product won’t finance the greater fool, or have the fools wised up?

I think all are happening. They are actually all interconnected.

I’m poor, but I’d like to leave the best to my kids. It’s their choice to piss it away. I’m loathe to give it to government. What the hell are they going to do with it that is any better than my drug addeled child? Build bridges in Alaska? Fight wars in Iraq?

Fewlesh,

like I said, I'm not against people leaving their kids a reasonable inheritance. This does not mean people like you. I just don't see the benefit to society in allowing billionaires to bequeath their whole fortunes in perpetuity.

How is perpetuating a permanent landed aristocracy good for American society? How does this promote the values of "by your own bootstraps" individualism, self-reliance and class mobility? I go into debt and sacrifice for an education, then work my ass off for XXX years to achieve a modest lifestyle. Meanwhile, Thurston Howell, IV inherits his billions and lives off the interest, while amusing himself by screwing supermodels and doing drugs. Wow, some great "incentive" system we have for rewarding hard work here!

Now, I think you do have a point in handing it all over to Uncle Sam is not the best idea. Perhaps we could give people a choice: whatever's left over after the "reasonable' inheritance allowance (if anything) can be donated to charities of the deceased's choosing. Otherwise, it's fair game for the IRS.

The intereresting thing about the concept of using soybeans for plastics resin is that it has been around a long time. Henry Ford Sr. was friends with George washington Carver and Thomas Edison and had the concept of altenative, renewable resources as fuel in 1914, and even produced a number of engines that would run on the stuff. Project Piquet is simply addressing the problems that Henry Ford saw coming almost 100 years ago.

On the subject of death taxes and "pulling yourself up by the bootstraps", I'd like to point out that to have each generation fight their way forward is very inefficient. The only benefit is "it builds character".

In schools, topics that would once be cutting edge are now routinely learned. Calculus, once limited to those like Leibniz and Newton, has slowly migrated down to the highschool level. Imagine if each student had to devise their own calculus on the theory that what Leibniz spent so many years on should not just be handed to them.

Now, wealth is obviously somewhat different from education, and "it builds character" is actually a pretty strong argument. But, I'd like to make sure that once beyond said character building, my children would be able to pursue their own dreams without having to waste 90% of their lives just to get to a level where that's possible.

(Perhaps a death tax exemption for trusts that meet certain payout requirements, i.e. tuition, market rate living expenses, other approved "dreams" would accomplish this.)

Cheese, ground beef. Maybe we should change our priorities and subsidize fresh fruit and veggies.

And foie gras too!