patrick.net

Notice that in the end, the use of money — any type of money — in exchange is a social convention: everyone values money, fiat, commodity backed or direct commodity, because they expect everyone else to also value it.

Very true. Purchasing power is nothing but a belief system, which is inherently fiat.

"Hell NO am I going to reward those fat bastards for screwing things up if it comes down all ugly."

I totally agree. America cannot afford to bail these guys and set up a gargantuan moral hazard for decades to come.

Rat_Patrol,

SJMN doesn't have my choice.

No, not worried and can't wait to see the Bay Area housing price drop by half at least.

athena peter p, astrid,

unfortunately bailing out these fat bastards is a must, either by the state or by the fed. We cannot afford to have the house of cards brought down, do you want to see massive bank failure? How can FDIC foot its promise of paying up to $100K per account when there is a massive bank failure? Do you want to see desperate gun owners ending up on the street? We good savers will have to chip in more or less, either through inflation brought by liquidity injection, or through lower purchasing power of USD going forward.

Although I hate the idea of paying for these bastards and minimize my exposure to asset classes that are likely to get taxed in bastard-saving effort, I am still for saving their asses from a social stability point of view.

This from todays Santa Barbara newspress

"over 70% of the loans made are neg-am adjustables"

I truly hope they drop the soap.

An ideal end to the housing bubble....

To hear the weeping of the spouses and children as the agents and brokers are executed in public, their organs harvested to supply the middle class of India with hearts, lungs and kidneys.

Another ideal end to the housing bubble...

The Geico Gekko is sitting in a cozy chair saying, "you see mate, told you it wasn't a good idea to be spendin' 1/2 of your hard earned bread on housing. Shoulda rented and spent it on car insurance with Geico. Money well spent. Chin up then. How's yer mum?"

Home buyers won't be bailed out, mortgage lenders, banks, or whatever American entities holding the subprime bags will be bailed out.

If a FB just borrowed to the hilt for a McMansion and at the end of the day cannot pay his bill, he will either need to file for bankruptcy or better still, carry on that debt obligation till inflation makes his debt burden lighter.

Our government doesn't give a damn about the individual home buyers or home debtors, it cares about businesses, especially big businesses. So anyone who borrowed more than they could afford in the last 2-3 years will end up royally screwed. Sadly enough, these little bagholders are usually the insecure trolls on the blog, not the big player on the MBS food chain or the big banks or builders.

I like athena more every time I read her.

We shall see how true those making repeated "free market" claims are to their ideals when the shit hits the fan. Sarcasm aside, this is the crux of my repeated droning that one must beware of "free-market-fundamentalists" in free-marketer clothing. They are quick to cry "hands off the market" until they end up on the wrong side.

I fear that Athena's wish will go unrealized unless we see such a severe collapse that it finally breaks the political lock the NAR lobby holds over Congress. Perhaps then we'll see an appropriate level of regulation and standards applied to this enormous, strategically critical industry.

What I wish is not really that Realtors(tm) become anathema. Rather I wish to see them disparaged for a while, then reformed. I envision a new licensing regime which drives about 98.9% of existing real-estate-sales-drones out of the business, mainly because it's just too hard to pass. I picture them studying up on their linear algebra and industry standards so that when they make forward-looking statements which will critically determine the future wealth of almost every one of their clients, they are credible enough to have earned that great responsibility.

I wish to see them and their industry do what's in their clients' best interest not only because that's what they have to do regulatorily, but because when they don't they lose business for having earned the reputation of being sleazy. There will always be "Payday Loans", which operate at the edge of the law, and desperate, uneducated people who patronize them. But I'd like to see the same stratification happen in real-estate with agents, brokers and creditors.

As it stands now, there is absolutely no difference between realtors(tm) akin to the difference between Vanguard, Bank of America, and Check-to-Cash; all the realtors(tm), brokers and mortgage types are just Gary Coleman in a leased Lexus.

Owneroccupier,

I know we have to bail out the banks and lenders to some degree (in exchange for more supervision and tighter lending practices) to avoid system failure. But do we really need to bail out irresponsible realtors and home-debtors? I don't want them to think that Uncle Sam is gonna bail them out every time they make a bad decision.

There has to be a punititive way to go about this so that they're taught a lesson, the kind of lesson the Great Depression taught people about abusing credit and living above their means. I want to see suicides, I want to see people publicly disgraced, I want to see the ringleaders locked up behind bars, I want to see the MLS monopoly broken up. I want there to be severe consequences so that no one even dreams about government bailout as a plausible exit strategy for many years to come.

I know that sounds harsh, but I really think a quick and severe economic lesson is the only way America will learn and then get on with retooling the system.

SQT, LOL!

I've seen a lot of that kind of stuff lately. On a brighter note, I just saw the first hedge-fund advertising for an analyst to do a fund play on the coming downturn (in commercial, not residential, though).

As for the big players. I want them in government receivership. I want their executives locked up and humiliated, I want their shareholders to get nothing. I know I will pay to keep the overall financial system afloat, but I want the individuals responsible to be hurt badly and made an example to the rest of the population.

SQT,

I approved my own moderated comment. Hope you don't mind.

hate to rent,

I'm not sure I'd go so far as to wish a depression. A depression will probably wipe out whatever is left of America's middle class, many of whom are now teetering on the edge. Also, America's past record for climbing out of depressions isn't too good. I guess I just most a maximum of sound and fiery to scare Americans into economic and political sanity, while not overly damaging the functional part of the underlying structure.

FDR's New Deal era programs may have laid the foundation for post war prosperity, but it was WWII that really took America out of the Great Depression. I know the stats show that America was showing signs of recovery by 1939 or 1940, but by that time, the Axis powers were already positioning themselves for war.

Well, I'm hoping for a scenario where the perception of awfulness is sufficient to bring changes to people's behaviors and to improve the overall system. I don't know if that's likely, but that's my hope. I'm resting my hopes in the power of shame, on a massive scale, to force people to behave better.

I wish we had a resident behavioral scientist.

Well, we can all blame my boyfriend if the world goes to hell in a hand basket.

I told him to get cracking on cold fusion four years ago. But no, he'd rather spend his spare time on rotisserie baseball. :)

wow, i'm agreeing and disagreeing with folks all over the place

Frank,
Please correct me if I’m wrong but the bad social situations of the Great Depression was not due to excess government interventions. The 1920s was known to be an era of laisse faire government.

yes, it was due pretty much to wild'n'crazy speculation and capitalist boom/bust cycles. pretty similar to dot com bust and housing now.

but i agree with frank about critiquing the 'local maxima' theory, and the wild'n'crazy places irrational markets will go. i wouldn't necessarily trust the 'theorising' of any business school in particular, a la postmodernism: 'incredulity toward metanarratives' etc.

in fact, a friend (colleague?) of mine here, frank stilwell, set up the 'political economy' school at sydney university rather than a school of economics, selecting the name to differentiate from neoclassical 'dry' economics schools...

just a question of perspective - but randy's contributions and analysis background are second to none on this site...

astrid:
I wish we had a resident behavioral scientist.

ahem.

does my degree in psychology, sociology and anthropology help? but don't expect quantitative number crunching on every topic...

Wow, lot's of good discussion to catch up on from the weekend!

Here's a question: for those of you who believe in a bubble-burst scenario any more severe than a "soft landing," do any of you think this scenario will be enough to wake the American masses out of the credit card debt-carrying, Walmart-shopping, GWBush-tolerating stupor that most of this country is living? If not, what will? We surely need it either way.

Jeffolie,

Thanks for the info on OC tax payments. This is the kind of hard data we need.

On the topic, I have no idea when or where we will de-orbit. I surely don't pretend to know what's the best for us. I'll leave that to the geniuses who aspire to control a command economy somewhere. Totalitarian economies are great as long as the five year plan is heading in the right direction. But even the smartest dictators are often wrong. None of us is as smart as all of us.

I understand that a pure free market is just as mythical as pure communism. They are only theoretical constructs, like points or lines in geometry, they occupy no space. Just imaginary ideas.

In reality, a free market exists only when and as far as the sovereign says. On the imaginary island where people trade their goods freely, someone has to decide the inevitable and constant disputes.

Someone has to step in and decide, for example, whether the monopolist has gamed the market, broken the rules, or even just stolen the goods. Monopolies are not always inherently evil, but jealous purchasers often think so. If mad enough, they'll take action. Then, the sovereign steps in to resolve the dispute, by force of arms if needed.

In America the sovereign is a constitional republic, governed not only by written rules but also by customs of constitutional interpretation like England. We are obviously not a pure free market because there's no such thing. But we do value the concept of the free market. In reality, it is a useful tool because it allows the masses to help steer the economy. None of us is as smart as all of us.

America succeeds in practice because we cherish the role of the individual. Yankee individualism. The democratic ideal.

Goober,
The middle class already are. It scares me actually. My folks, who live in Knoxville tell me stories every time I call. Knoxville for the entire time I lived in the state was a sleepy, sort of 1930's time capsule where nobody went downtown, or really cared about the city. In the year since I have been, several companies have been building large luxory condos, revitalizing the downtown area, and building more buildings. The occupancy rate is now higher than it was in 1937. With it are coming higher prices. It is getting more common to see homes and places around knoxville go for 300+k, which might sound like peanuts to Californians, but pricey for the locals. I know I'm blatently going against my own anti- NIMBYism, but I don't want any more of these people- the kind of people who jack prices- moving to the south. If they dirtied their own water, then they can just sit in it and not dirty ours.

To me the whole housing boom has seemingly redefined the terms middle class, upper class, and lower class several times over. Middle class to me means you comfortable own a home, 2 cars, a decent yard, and have access to decent public institutions like good public schools, parks, and so forth. I think people in the Bay Area misinterpret upper class for what the former definition of middle class meant. Lawyers, Doctors, and engineers now live in medium sized homes which were former homes of the working poor and lower middle class. Perfect example is when I ride my bicycle to the store and pass by a number of the more recent homes that sold in the past few years. You'll see a 2 bedroom, single story, plain-jane home with a new bimmer parked out front. How ironic. As a person impossibly priced out of the market making an above middle class wage, I can't help but feel that the people who own a home- any home at all, must be loaded.
The ideal ending to this fiasco would be a return to normalcy, where ordinary people- interesting people like plumbers, shoe salesmen, artists, writers, weird people, and so forth can just as easily afford to live next door to all the lawyers and upper execs. This area is turning into a place that has the feeling of stiff starched shirt collars- All lilly white and squeaky clean with the people that made the area what it is leaving the picture with throngs of rich people who play make-believe in the little towns they are taking over.

Ps,
sorry about the lawyer statement. What I meant to say was that as a given, lawyers make bank compared to people like me, hence if the prices are too high for anyone not making lawyer level salaries, then california would turn into a place where only lawyers and execs live. I wouldn't want to live in an area that only had plumbers either. Same thing. Guess I meant to clarify the topic a bit more above by making the statement that as of now, Lawyers can now only afford former factory worker and school teacher dwellings, hence it would be nice if that equation was reversed and the folks those homes were built for could afford them once again. sorry bout' that!

nomadtoons,
Your observation is true, from what I know. Here's an example. Our friends live in a traditionally very middle-class town in the BA. Wife is a lawyer, husband is in tech, so together make around probably 1.5 HaHa's. They bought a stucco box for 5HaHa's in 2003. Their neighbors: next door is a guy who works for a utility (field worker), a contractor with like 6 different ATV's he keeps parked up and down the street, and a bunch of really old people who clearly bought their homes when the development was built in the 50's. Of course, most of the neighbors are really nice and all, but my friends are the most recent purchasers on the street, and they honestly have very little in common with their neighbors socioeconomically. Their "mistake" was buying at a price they could manage with a full 20% down payment and an old-school fixed mortgage.
Imagine that!

Skibum,

I would add that this housing bubble squeezes young middle class people from both ends. You got both the rich yuppies and the migrant workers packed 20 to a house. Those are the only types who can buy the house at current BA prices.

Where are we heading? Where should we go?

I don't know. But I do know that you don't either. Here's a great example of a crucial global issue where the best and the brightest could be heading 180 degrees in the wrong direction:

http://www.telegraph.co.uk/opinion/main.jhtml?xml=/opinion/2006/04/09/do0907.xml&sSheet=/news/2006/04/09/ixworld

DS,

I'll remember your expertise and call on it in the future.

Soooo... what's your social theory poison? :)

Garth Farkley,

I know that's from the Telegraph, but it's an op-ed piece of one man's opinion. If we're doing duels of op-eds, I can probably find ten times as many articles that say just the opposite. (and I have access to lexis-nexis, so it's hella easier to do) Point me towards something a bit more peer reviewed if you want me to follow your train of thought.

Actually, I'm gonna skip all that and say Day After Tomorrow said giant cyclones of incredibly cold temperatures are coming in from the upper atmosphere, leading to a new ice age. That's totally gonna happen! I saw pictures! of! Randy Quaid! and Jake Gyllenhaal! and Ian Holmes! and a bunch of frozen people!

I think you guys might enjoy this ad report card on the Century 21 nagging wife ad.

http://www.slate.com/id/2139572/

Astrid,

I'm not taking up the cudgel against Kyoto. I know that I don't understand our climate. Though not completely ignorant, I'm hardly well read. I just can't help but suspect that many loud activists know even less than I do. I certainly won't look to Hollywood for guidance.

Yes, Lexis-Nexis is cool. However:

You must not decide an issue by the simple process of counting the number of witnesses who have testified on the opposing sides. The final test is not in the relative number of witnesses, but in the convincing force of the evidence.

CALJIC 2.22 WEIGHING CONFLICTING TESTIMONY

I've put a copy of the outrageously offensive Century 21 ad on my blog, you can view or download it here.

This thing makes my skin crawl. It is just so wrong on so many levels. At long last, has this industry absolutely no sense of decency?

I know I wouldn't want to live in a neighborhood of nothing but lawyers. :)

Anyway, the thing of it is, in other areas of the country there isn't as much stratification. In Chicago, where I grew up, a blue collar family could live in the best neighborhood in town if they really, really wanted to.

For example, Wilmette, IL, a very rich neighborhood with an average family income north of $100k per Wikipedia, has the best schools in the Chicago area, bar none. Donald Rumsfeld and Rahm Emanuel both grew up there, as did a whole host of other famous Chicagoans.

A realtor.com search reveals that a 2BR condo can be had in Wilmette for only $150k.

Virtually any working-class Chicagoan could afford to live in Wilmette if they really, really wanted to. Like a bus driver married to a grocery store cashier -- these people really could do it. They could send their kids to the same schools as the rich and famous.

This almost never actually happens. Chicagoans tend to segregate themselves and simply won't move to an unfamillar area. And residents of Wilmette would be awfully frosty to any bus driver who actually did move into their community. And of course, if every bus driver in town started moving there, the condo prices would quickly skyrocket out ot reach. Moreover, most people would rather live in a house than a condo. But it could be done. If someone wanted to make those sacrifices, they could actually achieve that goal.

In CA, OTOH, it's not possible. There is no $150k house in Montecito or Beverly Hills. No bus driver can afford to send his kids to an expensive private school like SoCal's Harvard Westlake. Even if he gets a second job or whatever -- it's not going to happen.

In this way, the housing bubble is adversely affecting social mobility.

I don't know if this is what Nomadtoons was getting at, but I did understand his post to be alluding to it.

Proof that change is underway in a big way is reading the R and R on the Asheville Craigslist forum. It seems like every other post there is from someone in california asking what it's like there because they want to move to North Carolina. Read the replies from the locals and there is a fear of californians because as my mom says, california real estate is on the national news nightly, and many in the SE are glad they aren't in that boat. But if Californians bring the problems to them , what will happen? I never thought it would be possible to that Californians would migrate away in large numbers, but reading some of these posts makes me wonder if that could very well be the case.

Joe,
What's interesting to me is that there is a growing lack of people with trade skills. 30 years of mom and dad saying lil' Jr had to go to college has virtually put an end to people- younger people- thinking of becoming a mechanic or electrician. I work on all my own cars, with 2 of them being modern complete with electronic emmision and engine management systems that requires several books that I must read heavily anytime there is a problem. I'm impressed with how quickly professional mechanics can repair a complex problem in 30 minutes while it would take me all day. You have to go get your certification just to work at any shop, and it takes up to 5 years.
These guys can make 55-75k a year too, plus they can easily move upward in their trade. I've thought about this over and over, as I see the throngs of office drones with little chance of gaining that much of a salary increase or promotion, many making the same or less as that mechanic.
The idea that the mechanic, plumber, salesman, electrician, and contractor is uneducated is flawed. I seriously doubt Bob the Lawyer or Jim the Executive could change the oil on their 70k BMW or replace a faucet.
The problem we face now is that EVERYONE went to college. College is the modern day equivelant to High school of the 50's. If you went to college, so what- so did everyone else, and they learned all the same crap, from the same books. Thus everyone is level and hence there's no real demand for office drones unless you're just absolutly stellar. I think the next wave will be that EVRYONE will become lawyers. Yay. We can all sue each other for a living.

Garth Farkley,

Yep, anti-globalisation/greenpeace activists do come off like the PETA of labor/climate change/nuclear non-proliferation.

I haven't made a serious study of the issue ( notice how I used a movie as my major piece of supporting evidence? :P ). However, from what I read, evidence of global warming are quite a bit more established than that it doesn't exist.

That's also what my eyes tell me. I have a great love of lofty snowy mountains and counts reading mountaineering history as one of my hobbies. I can tell you that current pictures of these mountains often show substantially fewer snow fields and glacier than ones taken just decades earlier. There's now almost no snow on Mt. Kilimanjaro. These are glaciers and snow fields that have been around since at least the end of the little ice age, and in higher latitudes glaciers, for tens of thousands of years.

Given the complex nature of climate systems, we still have no concrete way to model the changes that these melting snowcaps will have. At the very least, a lot of people who used to depend on snow melt for irrigation will soon be unable to live off their land. This is a major concern for everybody, and the current administration's denial of any and all ecology related problems makes me sick.

Nomadtoons2,

I know a couple instances where people either finished college and then went to trade school or dropped out of college and went to trade school. It still happens. I do wish fewer people are pushed into law school though, I find law school is just as capable of muddling minds as clearing them up.

I think of lawyers to law as stockbrokers to stock. Take what you will out of that analogy.

Nomadtoons-

I agree. But I still think everyone should go to college. Education is enriching. It makes life more interesting. We all benefit from having a well-educated, well-informed populace.

I wonder how long it will take before college educated people start joining the trades after they graduate.

This is already happening in several fields. Lots of formerly blue-collar jobs now require a college degree. Take nurses, for example. When my mom became a nurse, she went to nursing school, not college. Today most nurses have bachelor's degrees; my mom had to go back to school to get hers and actually graduated from college the same year I did. Or consider police officers. 30 years ago, rookie police officers were almost never college graduates. A lot of people got their degrees after joining the force, but virtually no one had already gone to college when they signed up. Today, on the other hand, this is quite common. A lot of clerical jobs are the same way. So are sales positions for stuff like insurance; a lot of insurnace salesman have bachelor's degrees these days; heck, mine has an MBA.

This hasn't started happening in the trades yet so far as I can see, but it probably will.

Maybe one answer is a "college degree" that is really a trade school certificate. A friend of mine got one of these. He got a 4-year "engineering" degree in some kind of "technology." He is a surveyor, that is what he was trained to do. But he also has a 4-year college degree from an accredited state university. In addition to his surveying classes, he had to take Psych 101, English Lit, and all of the rest of your undergrad courses.

The reason why I want everyone to go to college is becuase I think that guys ike you and me would get screwed if the rules were changed. I grew up in a lower-middle-class community, but my high school offered a full college prep cirriculum, AP courses, the whole nine yards. If it hadn't, and the emphasis had been on metal shop, etc., I might not have been able to go to college. If college for everyone were de-emphasized, the kids in blue collar communities would get stuck going to blue collar high schools and would be unable to get out, even if they were really smart. And the ones who are smart but need help, like a little special ed? They'd be totally screwed. My buddy is a guy like that. He is a nuclear physicist, used to work at Lawrence Livermore, but he is also dyslexic. He was only able to get out becuase his parents sent him to Catholic school. If he'd had to go to the local blue collar public school, he'd probably be working as a truck driver today.

Personally, I'm trying to learn some of those blue-collar skills, just becuase I think they are good to have. For example, although my dad drove a cab, he knew nothing about cars. So I always change my own oil, etc., buy the factory service manual, etc., just so that I can know a little bit. I don't want to feel totally inadequate about this stuff! :)

Astrid,
I don't have problems with lawyers, as many that I know are fairly generous, honest people. It's the bad eggs- the ones that will take any case and lie to win even if it is way, way obvious that their client is guilty as hell that bothers me. It's more their lifestyle that I don't associate with.Perhaps I'll be more broad and just include all wealthy people to be fair since as mentioned, many lawyers I've met are decent people. The Audis, Mercedes, Lattes', Euro-fetishism, and staying away from places like Wal-mart and payless shoes that bothers me. Of course I wouldn't expect Lawyers to find joy in buying WD40 in bulk at Costco or going to rodeos either, so the feelings are probably mutual. In the end, it all comes back to money. If you make a LOT of money, then you will spend the maxiumum you can without going into debt and therfore surround yourself in an enviroment that insulates you from people in a lower bracket. The same is true with lower income people, so perhaps I'm just stating the obvious.
I grew up from humble means and working in a hardware store selling overpriced crap to wealthy people made me not have what you could call a soft spot for these kinds of people who seem to all act the same. Then again I suppose they thought people like me are "all the same" as well.
Call me immature, but that's just the way I feel. In the bay area I feel a lot of this wealth from RE was undeserved so the harder the fall the better.

Joe,
Yup, it's good to know how to fix things for yourself. For example, last year my truck started stalling out. The dealer said it was a faulty TP sensor. I did the research, replaced it myself for $75 and 3 hours on a Saturday. The dealer would have charged me over $500 for the same service. Those small things add up.