The California Economy Is Dependent Upon Ponzi Borrowers

After years of free HELOC money, our economy is not completely dependent upon Ponzi borrowers. Today's featured property was another spent by its owners who stimulated California's economy. 

 

Irvine Home Address ... 74 LINHAVEN Irvine, CA 92602
Resale Home Price ...... $710,000


It's like you're a drug
It's like you're a demon I can't face down
It's like I'm stuck
It's like I'm running from you all the time
And I know I let you have all the power
It's like the only company I seek is misery all around
It's like you're a leech
Sucking the life from me

Kelly Clarkson -- Addicted

Californians are addicted to borrowed money. We are stuck waiting for lenders to make us feel powerful again. Borrowed money is a vice provided by lenders who suck the life blood from our economy.  

Yesterday we explored what it means to be a Ponzi, and today, we are going to look at some of the ramifications of widespread Ponzi borrowing.

Ponzi borrowing and HELOC Abuse

Most people fail to budget properly for unexpected expenses or expenses that do not occur monthly. When these expenses occur, most will borrow the money, often on credit cards. During the year, this debt will accumulate like tooth plaque, and at the end of the year, many debtors hope for a work bonus or a tax refund to clean the debt from their balance sheets. Homeowners, particularly in California, would go to the housing ATM and add to their mortgage to pay for these un-budgeted expenses of daily life.

The sad reality is that this method of Ponzi borrowing can work as long as (1) the amounts added to the home mortgage are less than the sustained rate of appreciation and (2) if the payments are still affordable with wage income. During the housing bubble, many borrowed much more than the sustained rate of appreciation and took out every penny as it accumulated. With the steadily falling interest rates of the last 30 years and the profusion of toxic financing, affordable payments were seldom a problem. Therefore, many people have become accustomed to Ponzi borrowing on the home ATM, and that source of borrowing is shut down for a while -- probably for a very long time.

Personal Ponzi Schemes

First, let's review how personal Ponzi Schemes work:

Examine the graphic above. The first column shows a graphical breakdown of the income of a typical homeowner. Total home related debt (including taxes, insurance, HOA and other monthly expenses) is limited to 28% of gross income. Consumer debt including all other debt service payments is limited to 8%. Taxes take up about 24% (depending on income and tax bracket), and the remaining 40% is disposable income to cover the other expenses of daily life.

The second column shows what happens as people start to stretch to buy a home in a financial mania (charts are below). The increasing home debt reduces the tax burden a little, but the increased consumer spending and home debt takes a big chunk out of disposable income. The recession of the early 90s lingered for so long here in California because the people who bought in the frenzy of the late 1980s found themselves with crushing debts and greatly reduced disposable income. Prior to the increase in housing debt, this disposable income would have been spent in the local economy; instead, this money was sent out of state to the creditor who made the loan.

The big financial innovation—if you want to call it that—of the Great Housing Bubble was the nearly unrestricted use of cash-out refinancing and HELOCs to tap into home price appreciation. The third column shows the impact this new source of credit had on personal income statements. HELOC money allowed people to pay off their consumer debt while only modestly increasing their home debt. Since this income was untaxed (borrowed money is not truly income), the extracted money was entirely converted to disposable income. This incredible influx of disposable income caused our economy to explode.

Unfortunately, as is documented in the post Our HELOC Economy, the loss of this HELOC income is having devastating effects on local tax revenues and our economy. When you examine the personal income statements of borrowers in column four, you see that home debt and consumer debt have now become so burdensome that there is no longer enough disposable income to cover life’s basic needs; borrowers are insolvent.

The only solution to the problem of borrower insolvency is a monumental restructuring of both home and consumer debt. Realistically, the only way this is going to occur is through foreclosure and bankruptcy. We are not going to re-inflate this Ponzi Scheme because when sustainable loan terms are applied to real incomes, people cannot raise bids to sustain or inflate home prices—even with 4.5% interest rates. Without home price appreciation and subsequent HELOC borrowing, the Ponzi Scheme does not work.

The implications of this are clear; we are going to experience an extended recession bordering on depression here in California that is going to linger for many, many years. During this extended crisis, a significant percentage of California homeowners are going to face foreclosure and personal bankruptcy.

Lending to Ponzis 

Lenders may loan to Ponzis for a time, but eventually the losses mount, and lenders realize their folly and stop making Ponzi loans. That is the market mechanism in place right now. The credit crunch was a direct result of lenders realizing they were making Ponzi loans and abruptly stopping.

The market-only solution to keeping lenders from making dumb loans is working for the most part. The US Government in cahoots with the Federal Reserve has completely taken over mortgage finance because they are the only entities willing to underwrite loans. Borrowers who try to get a jumbo loan, a HELOC or a stand-alone second right now are shocked at the qualification standards and the high interest rate spreads. The lack of a jumbo market is also why lenders are not foreclosing on anything above the $729,750 conforming limit and thereby allowing a great deal of squatting.

The problem with the market-only solution is that the mechanism that inflated the housing bubble is still in place, and the market will likely inflate another bubble once lenders believe they have no risk. Borrowers and owners would be delighted to see the lure of HELOC riches prompt a rally in prices. Lenders would also be delighted as they could sell their garbage into the rally. Without some basic reforms, our market will become very volatile as changes in credit availability take prices up and down. The ongoing turmoil and the capricious nature of winners and losers in the real estate market would be very unsettling just as it has over the last several years. 

Ponzi borrowing and loan amortization

In Conservative House Financing - Part 1, I wrote about the basic loan types in mortgage finance:

There are 3 main categories of loans: Conventional, Interest-Only, and Negative Amortization. The distinction between these loans is how the amount of principal is impacted by monthly payments. A Conventional mortgage includes some amount of principal in the payment in order to repay the original loan amount. The greater the amount of principal repaid, the quicker the loan is paid off. An Interest-Only loan does just what it describes; it only pays the interest. This loan does not pay back any of the principal, but it at least “treads water” and does not fall behind. The Negative Amortization loan is one in which the full amount of interest is not paid with each payment, and the unpaid interest gets added to the principal balance. Each month, the borrower is increasing the debt.

A conventionally amortized mortgage loan pays off the principal over time -- sometimes over a very long time. The best form of mortgage finance is the 15-year fixed-rate mortgage, but 30-year terms are common, and provide a reasonable balance between purchasing power and Time to Payoff. Japan experimented with 100-year loans as their housing bubble deflated. The marginal returns in the form of reduced payments get very small as the amortization length gets much over 30 years.

The interest-only loan is a Ponzi limit loan. This is the event horizon that leads to the singularity. Of course, the kool aid intoxicated think this loan is too conservative because it fails to capture and spend the inevitable and unending home price appreciation. The solution many fools employ is the interest-only loan in combination with a HELOC that can grow with appreciation. Once the cost of HELOC financing gets too high, the debt can be reconsolidated into a lower cost first mortgage or a stand-alone second. The trip to foreclosure and bankruptcy sounds very reasoned and reasonable, doesn't it?

The negative amortization loan (Option ARM) is the pinnacle of Ponzi financing. The Ponzi borrowing is directly built in to the loan itself. Borrowers are able to spend some of their appreciation each month through a payment subsidy built into the loan. Rather than combine an interest-only with a HELOC, the Option ARM indirectly builds the HELOC into it. As long as home prices go up faster than Option ARM loan balances, these loans successfully convert appreciation to income. Work of genius, when you think about it, except that the loan ignores the reality of Ponzi financing and the inevitable collapse that entails.

The larger impact of Ponzi borrowing

The cultural reliance on appreciation and Ponzi borrowing creates a number of disturbing conditions:

  1. Ponzis live a life of luxury that far exceeds their contribution, and responsible people pay for it.
  2. California's economy depends on borrowed money.
  3. The economic recovery depends on re-inflating the housing bubble and turning on the housing ATM.
  4. The collapse of the Ponzis will be a long-term drag on the economy.

Do you like paying the bills of the Ponzis? You are. If you are a responsible saver, the Federal Reserve has lowered interest rates to take money from you and give it to banks. If that form of theft is not enough, the Federal Reserve will keep interest rates low and steal from savers by devaluing the currency with inflation. One way or the other, the Federal Reserve is stealing from the responsible to pay for the irresponsible. If that wasn't enough, our own federal government is stealing from you with a variety of tax incentives and bogus loan modification programs to transfer the losses from banks to the taxpayer.

The dependency of California on Ponzi borrowing is evident. Our state budget is a Ponzi scheme imploding right now, but the real reason for the state budget problems isn't just Sacramento's inability to say no to special interest groups. The state budget is a wreck because tax revenues rely heavily on Ponzi borrowers spending borrowed money and circulating it through the economy.

How many people do you know that are borrowing from other sources until the housing ATM gets turned on? I will tackle this subject in more detail tomorrow, but for many Californians the end of the recession will not come when they find a job or get a raise, it will come when they get a new credit line or when house prices come back enough to allow them to get more HELOC money. Our state economy is on hold until HELOC money returns.

Since HELOC riches and ATM spending isn't coming back any time soon, our state economy will limp along with the Ponzis collapsing one at a time. With each Ponzi collapse, the money that used to go to debt service payments is freed up to circulate in the local economy. It is a slow and painful process, but weaning society off Ponzi borrowing is necessary to have a real economy based on wages and growth in productivity. Do any of you remember the lingering effects of the last bubble from 1993-1997? Unfortunately, we will probably take the short cut through Ponzi borrowing if given the chance. 

Today's featured Ponzi borrower 

  • Today's featured property was purchased on 11/13/1999 for $485,000. My records say the owners used a $502,000 first mortgage, but that is unlikely. It is more likely they used a $402,000 first mortgage and a $83,000 down payment.
  • On 5/13/2003 they opened a HELOC for $63,400
  • On 1/26/2004 they got a HELOC for $100,000.
  • On 2/1/2005 they refinanced with a $634,500 Option ARM with a 1% teaser rate.
  • On 3/23/2005 they obtained a $80,000 HELOC.
  • On 8/10/2005 they got a HELOC for $100,000. 
  • On 11/3/2006 they refinanced with a $688,000 first mortgage and a $85,000 HELOC from Wells Fargo. Since Wells owns both mortgages, they are in no hurry to foreclose on this owner and wipe out their HELOC. Look for this property to be in the amend-pretend-extend dance forever.
  • Total property debt is $773,000.
  • Total mortgage equity withdrawal is $484,227 plus whatever down payment they put into the property.
  • Total squatting is at least 5 months.

Foreclosure Record
Recording Date: 04/15/2010
Document Type: Notice of Default

This couple spent almost half a million dollars in a four-year span. That is a one-family stimulus plan. If they were an isolated case, it may be a titillating story, but I have profiled hundreds of these here in Irvine. It is a widespread practice.

California implicitly endorses Ponzi finance

Since we have done nothing in California to reform mortgage finance, we are implicitly saying this is acceptable behavior. Apparently, we want people to do this. It stimulates the economy, and since the losses are passed on to investors around the world, California gets all of the benefit and endures only a fraction of the pain. And now that the US taxpayer is covering all future losses either through the GSEs or FHA, there is no reason at all for California to do anything other than inflate another housing bubble. 

Truth be told, nobody in power to do anything in California sees HELOC abuse as a problem. It is spending. It stimulates the California economy, and fills the State's coffers with tax revenues. Few in Sacramento seem to care about the stability of the tax stream, so we will continue on this cycle of boom and bust completely dependent upon creditors. For all its economic prowess, California is the weakest state in the nation. Financially, everything here is an illusion.

What will happen to government entitlements and the individual entitlements of loan owners everywhere should lenders realize they are supporting a entire state of Ponzis? They might just cut us off.

I wish they would. California would be a much better place.  

 

Irvine Home Address ... 74 LINHAVEN Irvine, CA 92602

Resale Home Price ... $710,000

Home Purchase Price … $485,000
Home Purchase Date .... 11/13/1999

Net Gain (Loss) .......... $182,400
Percent Change .......... 46.4%
Annual Appreciation … 4.3%

Cost of Ownership
-------------------------------------------------
$710,000 .......... Asking Price
$142,000 .......... 20% Down Conventional
4.94% ............... Mortgage Interest Rate
$568,000 .......... 30-Year Mortgage
$146,010 .......... Income Requirement

$3,028 .......... Monthly Mortgage Payment

$615 .......... Property Tax
$125 .......... Special Taxes and Levies (Mello Roos)
$59 .......... Homeowners Insurance
$200 .......... Homeowners Association Fees
============================================
$4,028 .......... Monthly Cash Outlays

-$738 .......... Tax Savings (% of Interest and Property Tax)
-$690 .......... Equity Hidden in Payment
$271 .......... Lost Income to Down Payment (net of taxes)
$89 .......... Maintenance and Replacement Reserves
============================================
$2,959 .......... Monthly Cost of Ownership

Cash Acquisition Demands
------------------------------------------------------------------------------
$7,100 .......... Furnishing and Move In @1%
$7,100 .......... Closing Costs @1%
$5,680 ............ Interest Points @1% of Loan
$142,000 .......... Down Payment
============================================
$161,880 .......... Total Cash Costs
$45,300 ............ Emergency Cash Reserves
============================================
$207,180 .......... Total Savings Needed

Property Details for 74 LINHAVEN Irvine, CA 92602
------------------------------------------------------------------------------
Beds: 4
Baths: 2 full 1 part baths
Home size: 2,478 sq ft
($287 / sq ft)
Lot Size: 6,937 sq ft
Year Built: 1999
Days on Market: 14
Listing Updated: 40315
MLS Number: S616662
Property Type: Single Family, Residential
Community: West Irvine
Tract: Othr
------------------------------------------------------------------------------

This property is in backup or contingent offer status.

Highly upgraded home in West Irvine! Very private yard, extra long driveway, Granite countertops.

In case you missed it a few weeks ago, not all lenders are anxious to loan money to the Ponzis....


 


Astute Observations

Astute Observation by Planet Reality
2010-05-25 06:21 AM

Here’s another house Ponzied from 1999 prices all the way to damn near 2010 rental parity.

How long before a 30 year mortgage is at 4.0%?  How about lower?  As I predicted not very long.  Meaningless to most housing markets, but meaningful to areas like Irvine.

Astute Observation by wheresthebeef
2010-05-25 07:15 AM

Planet Reality, I hope you submitted an offer on this place.  Hurry, you’ll probably have competition. 

Like you said, you’ll be collecting a fabulous Irvine rent check for eternity.  Buy now or be priced out forever!!!!

Astute Observation by Planet Reality
2010-05-25 07:23 AM

I’m not I interested in Irvine as a place to live, I am interested in what has become of premium areas.  Irvine continues to be the safest city in America with it’s crime rate decreasing to record lows while other areas see crime increasing with the recession.

Astute Observation by wheresthebeef
2010-05-25 08:50 AM

Planet, I’m not saying you have to live in Irvine.  You can buy in Irvine and rent the place out…rental parity is the name of the game here.  This is a no brainer if mortgage rates continue to drop (as you predict).  As we heard, even people from Newport and Laguna are flocking to Irvine.  Safest city in the US, the best schools in OC, endless FCBs…I think you should take the plunge.

Astute Observation by Planet Reality
2010-05-25 09:04 AM

There are other more efficient ways to make the flight to safety trade than Irvine rental parity.  Like I said I’m only interested in the thought provoking commentary on what has become of premium US locations.  Your best options is to continue renting and enjoy your young beach life style.

Astute Observation by wheresthebeef
2010-05-25 10:07 AM

Thanks Planet, that’s what I intend on doing.  Way too much risk in buying right now.  I enjoy reading your posts, and it’s always fun to ruffle your feathers occasionally.

Astute Observation by matt138
2010-05-25 07:01 PM

what are efficient ways to fly to safety?

Astute Observation by Walter
2010-05-25 09:03 AM

Since you constantly grind IR on his facts:
In Crime, a Remarkable Trend
http://blogs.abcnews.com/thenumbers/2010/05/in-crime-a-remarkable-trend.html

Astute Observation by Planet Reality
2010-05-25 09:41 AM

Care to ask someone from Las Vegas what 20% unemploynent, 80% decline in commercial properites, and 50+% decline in residential properties is doing to the community?

Astute Observation by IrvineRenter
2010-05-25 10:50 AM

One thing it is doing is creating opportunities to pick up distressed assets at great prices.

Astute Observation by Geotpf
2010-05-25 11:11 AM

If I was a builder with lots of cash, now would the time to start a huge project, IMHO.  Construction costs are very low right now, and by the time anything big was completed, the economy should be recovering strongly.

Astute Observation by awgee
2010-05-25 11:15 AM

That is why you are not a builder.

Astute Observation by matt138
2010-05-25 07:08 PM

can we do a let’s pretend?  How long would that project take to fruition?

I want us all to come back on that date and see how it would have panned out.  BOom or Bust?

I think building right now is a TERRIBLE idea because the economy is in worse shape now than before.  I’m trying to think what bubble they can blow up next to make it appear the economy is recovering strongly.  ?  We have created a massive economic contraction which must be dealt with.  I feel this real estate bust is large enought to force us to face reality soon.

Astute Observation by Swiller
2010-05-26 06:39 AM

All hail unrestrained capitalism…Condo Vultures Inc.

I’m positive some people would pick the gold out of dead people’s mouths if they could get away with it.

Astute Observation by lowrydr310
2010-05-25 08:35 AM

This home is near rental parity for a buyer with a $142K downpayment and another $19,880 for move-in and closing costs. My assumption is that a majority of people don’t have that much liquid cash saved.

Even at ‘rental parity’ that is a lot of money to gamble with. It only makes sense if you believe that rents hold and home values don’t drop any more before you need to sell. Despite what some people say on TV, the signs for a rapid recovery are nowhere in sight.

Astute Observation by Planet Reality
2010-05-25 08:48 AM

I’m not sure about your first assertion.  People with money are flocking to premium areas.  Irvine and other premium areas illustrate this.  You don’t see the same results in areas like Riverside and Las Vegas.  These areas are in the process of being decimated.

Your second assertion may be correct.  I am simply stating the facts, the Ponzi economy has this house at rental parity and people are quick to purcahse in Irvine with cash and incomes.

The next FBI report will show that Irvine is the safest city in China LOL.

Astute Observation by Geotpf
2010-05-25 11:05 AM

I disagree that Riverside is in the process of being decimated.  I would say that that the decimation happened about a year ago, and it has been very slowly recovering ever since.  Now, the question remains whether or not the ending of the tax credits will reverse this trend.  Inventories on the low end are creeping up (from very low levels), although there hasn’t been much effect on pricing yet.

Astute Observation by Marc
2010-05-25 03:41 PM

I dont think anyone is flocking these days. Even people with money and jobs don’t know what the future holds and will be careful to make the commitment to buy a house now. Also, I am not sure where this rental parity assumption is coming from that I read over and over on this blog. I can tell you as a long term renter who is keeping a close eye on the market that rents continue to drop and this rental parity will be a thing of the past. This is the case for all types of properties in Irvine, from houses to upscale (e.g. Marquee) and lower scale rentals. I think the impact of these falling rents on prices is underestimated on this blog.

Astute Observation by HydroCabron
2010-05-25 10:38 AM

“How long before a 30 year mortgage is at 4.0%?  How about lower?”

How long can prices grind lower, year after year, under such conditions?

Ask Japan!

Disclaimer: Japan obviously is not as desirable, nor as crime-free as Irvine, and in general the motivation of schoolchildren from Japan can never approach Irvine standards. Also, Japan has gobs of open space: most Japanese live in 6,500 square-foot dwellings, which creates a downward pressure on prices.

Astute Observation by avobserver
2010-05-25 12:03 PM

Another example would be Hong Kong. According to Andy Xie HK RE price went up 4 times from 1990 to 1997 in a fantastic bubble fashion. After East Asia financial crisis of 97-98, HK RE market began its descending course, and eventually dropped 75% by 2003, relinquished pretty much all the gains from bubble years. And I always wondered why HK bubble market hadn’t been saved by investors from mainland China with bagful of cash.

Some would say that hot air was let out of HK RE market because rich HK residents fled to other parts of the world to avoid the takeover by the Mainland. So they took their money and blew bubbles in some other “lucky” places (Vancouver, maybe?). Or just like Japan (and unlike Irvine), HK crime rate was way too high (have you seen those early John Woo films – everybody there seemed to belong to some local gang or triad, and people hacked at each other with machetes under broad day light), school quality was terrible, and the place was so sparsely populated.

My bad for even bringing Hong Kong into the same sentence with Irvine …

Astute Observation by Planet Reality
2010-05-25 02:52 PM

When was the last time you looked at Japanese real estate?  Even today Tokyo is priced at over $2000 per sq. ft. many times more expensive than Irvine ever was.

Astute Observation by AZDavidPhx
2010-05-25 08:02 AM

Breaking NEWS, the recovery continues at a craptastic pace!

Private Pay Shrinks to Historic Lows

Look out Zimbabwe, there’s a new Sheriff in town.

Astute Observation by $485,000 in 1999
2010-05-25 10:31 AM

I think $485,000 was too much for this place in 1999. My friend bought a 2,900 sq.ft. house for $450K in West Irvine, in 2000. Maybe this house is full of marble?

Astute Observation by $485,000 in 1999
2010-05-25 10:49 AM

Ok, Redfin explains the discrepancy:

Property History for 74 LINHAVEN
May 10, 2010 Listed $710,000
Nov 13, 2001 Sold (Public Records) $485,000
Aug 06, 1999 Sold (Public Records) $389,000

—————————-
So it was $389,000 in 1999.

Astute Observation by IrvineRenter
2010-05-25 10:33 AM

Glut of bank-owned homes means prolonged agony for California governments.

Tens of thousands of homes in the East Bay are in foreclosure or are owned by banks. Some sit empty; a few are boarded up.

Beyond the squatters and overgrown yards blighting neighborhoods, the glut of bank-owned homes means years of decline in the property taxes on which cities, schools and the state of California depend.

So local governments that already have sent out layoff notices by the hundreds may be forced to make more cuts.

For those losing their homes to foreclosure, the end of the line comes when banks reclaim the house keys.

For governments, that is just the beginning.

Foreclosed houses do not obtain lower property tax assessments until banks sell them. So tax revenue will keep falling until banks sell all the houses they end up with, creating a long-term lower tax base.

In the East Bay, banks own more than 10,000 homes, only a fraction of which are listed for sale. Another 20,000 are in foreclosure, headed toward bank ownership, according to data from RealtyTrac.com.

About one in 20 houses in Contra Costa County is either in the foreclosure process or is bank-owned, according to the data.

“There is no question government services at all levels are going to suffer because of this,” said Contra Costa County Assessor Gus Kramer. “It’s just one of the trappings of the economy we’re in.”

The number of bank-owned homes is a double-edged sword. For the moment,
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banks are still paying the higher taxes associated with the original values. So for the moment, local and state governments still receive the higher allocations.

“(Banks) are not dumping all these properties on the market at once,” Kramer said. “If they spoon-feed them out, it just spreads out the pain a little bit longer.”

Astute Observation by avobserver
2010-05-25 11:35 AM

IR,

The escalation of Ponzi mentality probably all started in 80’s when Reaganomics took the center stage. Before Reagan, under the typical Keynesian framework, gov’t only engaged in large deficit spending during economic downturns (recession/depression) to fill in the demand shortfall from private sector. But Reagan started massive gov’t borrowing (due to tax cut) during a BOOMING economy. The rationale of the Reaganomics is that cutting taxes would stimulate the “supply” side of the economy and therefore expands corporate investment, earnings and employment, and the incremental tax revenue will not only pay off the fiscal deficit, but also creates surpluses in the long haul.

I always wondered whether Reaganomics had a profound impact on American society in terms of its general attitude towards debt/credit and public view on what constitutes a sound policy. If the federal gov’t believes leveraging on debt could be an effective way to produce greater good for the society on a national level, then it must be a sound financial decision for individuals as well. It is no surprise that deregulation was another hallmark of Reagan era, which unleashed the wicked “creative” power of Wall Street. Widespread use of debt instruments proliferated during the decade – securitization of loans (including MBS), junk bonds, leveraged buyout (LBO), credit card debt … all flourished.

Although Ponzi thinking wasn’t really a new phenomenon, it did become much more ingrained in American public psyche during Reagan Administration. America finally completed its transformation into a true “financial economy”. Debt financing was no longer just the lubricant for the real economy, it became the economy.

Astute Observation by IrvineRenter
2010-05-25 03:41 PM

It will be interesting to see if we can find a cause and effect of the Ponzi mentality. I suspect it always lurks below the surface.

Ever since the early 1980s when Reagan took office, steadily declining interest rates made continually larger debts serviceable with continually smaller payments. It is hard to say if Reaganomics created this mentality or if it is merely a natural response to steadily declining interest rates among both government and private borrowers alike.

This whole era reminds be of the Roaring 20s when interest rates were very low and Ponzi financing was common. It took the Great Depression to purge the Ponzi mentality from the population. The Great Recession has been bad, but it seems we are working hard to bring Ponzi back.

Astute Observation by matt138
2010-05-25 07:34 PM

I wonder what Reagan would be saying right now.

My question is: “is it better to give the people the freedom to take on as much or as little debt as they desire and learn from any mistakes made? Or is it better that the government dictate who can lend to whom and at what price and quantity?”

Knowledge and experience can be gained from making or watching people make mistakes.  can the govt prevent this?  Not as well as you’d like to believe.  Is it the govts job to prevent this?  They have proven they are not so good at manipulating mortgage markets.

I blame the debacle on a socialized mortgage market and govt meddling, that a free market would never have allowed to blow to such proportions.

Astute Observation by newbie2008
2010-05-25 02:07 PM

It seems as if people and the govt analists are confusing real and virtual realities.  The real disposible income from a debt load that excedes income is negative in real accounting.  But with the HEW, HEW money feels and acts like a positive income.  The virtual income can become real if the debt is forgiven.  Real at least to the one who borrowed and didn’t pay it back.  It becomes a real debt to the taxpayers, who stuck with the bill.  The real debt should be with the borrowers and lenders.  Sandbagging the taxpayers with the real debt is unethical, theft and standard practice in the USA welfare for the banksters and indrustialists for the last 100 years.

Correction on my last post on the number of police cars in RPV, they might have increased it to 5 cars from 2 cars at all times.  If they would only have increased it to 10 cars, they wouldn’t have had their crimewave.  Where the website the FBI UCS for Irvine?

Astute Observation by Mark
2010-05-25 04:21 PM

I think there was a lot of focused attention on interest rates, interest rates, interest rates in the early 2000s.  Some people were freaking out about how times like these were so rare and that now is a once in a lifetime opportunity to borrow money, and lots of it because, like, just look at the cost of funds will you! It’s rigodammneddiculous.

Maybe this fed the acceptance of more and more borrowing beyond the means of real income to ever pay it back. 

What I consider sad is that even today (May 2010) OC Realtors at open houses are still plugging the fact that interest rates remain at record lows, and that this should serve to remove any pause to buying now, particularly the higher priced 4 Bed SFHs for families.  It is a NAR- and CAR-sanctioned Herlihy Boy appeal to buyers: “Please go into debt. Please consider placing your financial well-being in the 4th column.  You’ll like it there. And we’ll be paid a nice commission in the process”

“FOR THE LOVE OF GOD, leverage yourself to the hilt and buy a house beyond your means!”

Astute Observation by newbie2008
2010-05-25 06:00 PM

Most people only look at imediate monthly payment as the cost.  With 3.5% down and low interest, the “purchase” doesn’t look bad.  If thing get bad (i.e., job loss), the BO stimulus package of 400 day for the average NOD plus time for the trustee sale is much better than renting and being evicted in 60 day after non-payment. 

Do the math to include low interest rates, low down payment and squatter’s benefits.

Astute Observation by Heather
2010-05-25 06:20 PM

I cringe at the thought of living on freeway Jamboree.  I just walk along it and wonder how anyone can enjoy their yards or open their windows without being annoyed.  Does anyone know how much if at all that factors into someone’s desire to buy a home? To me it’s like living on train tracks. I guess if they want the home and the “lifestyle” enough, they will pay the same amount as a house not near a busy street.

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