How many times must we tell the tale?

How many times must we fall?

Living in lost memory

You just recalled

Working on the sound of the band

Trying to get the music right

Two go out working

Three stay home at night

Thats when she said she was pretending

Like she knew the plan

Thats when I knew she was pretending

Pretending to understand

Pretending, pretending

Pretending, pretending

Pretending — Eric Clapton



Human nature is to spend everything you make. It takes discipline to save money and accumulate wealth, and most people do not have it. When house prices were rising, every homeowner suddenly faced with a dramatic increase in their yearly “income,” if they drank the kool aid and learned to view appreciation as income. Many, many people did what human nature would compel them to do — they took this free money and spent it. Given the pressures in Orange County to look and act rich, the temptation of all this “unliberated equity” was too much for many to resist. Pretending to be making a great deal of money and being rich became a way of life to many in Irvine. It went on for so long, it became part of their identity. These people actually believed they were rich. The influx of free money through appreciation was considered an entitlement for homeowners; something that would go on forever.

Mortgage Equity Withdrawal

Some have argued rampant equity extraction was not widespread, and it will not be the cause of many foreclosures. As an observer of human nature, I would argue this was very widespread; it had to be. The chart above illustrates the dramatic increase in mortgage equity extraction. It serves as a testament to the foolishness of many homeowners. Your average person cannot stay out of credit card debt, what would lead someone to believe they would treat mortgage debt any differently, particularly when they believed their house would go up in value and pay for it?

Often times the lessons we learn in youth stay with us for a lifetime. When these are good lessons, they serve us well for our lives; when they are bad lessons… I did not pay much attention to mortgage matters in my household growing up, but I know my parents never overextended themselves to buy a house, and they never took out equity to spend on things. In fact, it would have never even occurred to them to do so. Perhaps it is my Midwestern upbringing, or perhaps it is just not growing up in a bubble market where such things are possible, but when I see the financial behavior of people during the bubble, I am simply astonished.

Perhaps the big picture is easier to grasp when you see specific examples of this phenomenon in action. Today’s post is a profile of two pretenders: people who faked being rich for several years by living off their appreciation through mortgage equity extraction. Sometimes I cannot decide which is more amazing, that people would do this at all, or that they could sustain this lifestyle for so long.

4032 Northpark Circle Front4032 Northpark Circle Kitchen

Asking Price: $799,000IrvineRenter

Income Requirement: $199,750

Downpayment Needed: $159,800

Purchase Price: $328,000

Purchase Date: 12/6/2001

Address: 4032 Northpark Circle, Irvine, CA 92604

Beds: 5
Baths: 3
Sq. Ft.: 2,088
$/Sq. Ft.: $383
Lot Size: 5,500 sq. ft.
Type: Single Family Residence
Style: Other
Year Built: 1971
Stories: Two Levels
View(s): Pool
Area: Walnut
County: Orange
MLS#: P617353
Status: Active
On Redfin: 8 days

Charming family home with an open floor plan. Enjoy the convinience of a main floor bedroom & bathroom. Inviting living room with high ceilings and fireplace. Remodeled kithchen with granite counters and a center island. Cozy family room is adjacent to the kithen and it boasts wood floors. Master bedroom is extra spacious and it has its own balcony. Enjoy your own swimming pool and still lots of space to enjoy gardening and entertaining outside. Front, back and side yard are landscaped and hardscaped with lots of fruit trees. Inside laundry for your convinience. Wonderful location is central to shopping, schools, and library; all within walking distance.

convinience? kithchen? kithen?



So how did these people manage their mortgage debt? They bought the property in December 2001 for $328,000, and they had a $307,263 first mortgage. They put just over $20,000 of their own money into the deal. One year later, they opened a $80,000 HELOC. In 2004, they refinanced for $490,000 taking out about $180,000. Hopefully, they paid off the HELOC, at least temporarily. Later that year, they took out a new $30,000 HELOC. Then in July of 2005, they refinanced again for $650,000 with a 1% Option ARM. They have owned the house for less than 4 years at this point, and they have withdrawn $342,737. I guess this wasn’t enough, because later in 2005, they took out three more HELOCs for $24,000, $82,000 and $24,000 respectively. This property has at least $650,000 in mortgage debt, and assuming they took out and spent the HELOC money (it would be a continuation of their pattern,) they have over $750,000 in debt to pay off. So when you look at the $799,000 asking price, and think they are doubling their money, think again: if they don’t get their asking price, this is going to be a short sale.

$100K a year in consumer spending — pretending…

5 Altezza Front5 Altezza Kitchen

Asking Price: $599,000IrvineRenter

Income Requirement: $131,225

Downpayment Needed: $149,750

Purchase Price: $291,000

Purchase Date: 2/19/1999

Address: 5 Altezza, Irvine, CA 92606

.Short Sale

Beds: 3
Baths: 2.5
Sq. Ft.: 1,500
$/Sq. Ft.: $399
Lot Size:
Type: Single Family Residence
Style: Contemporary
Year Built: 1996
Stories: Two Levels
View(s): Trees/Woods, Has View
Area: Westpark
County: Orange
MLS#: P617433
Status: Active
On Redfin: 7 days

SHORT SALE PROPERTY. Cozy fire place in Living room, Step to School, Park. Close to major FREEWAY (5 & 405,Toll Rd), shopping center, professional offices and restaurants. Custom window coverings, Custom Office, Built in closet organizer, spacious Patio next to kitchen. Former MODEL HOME W/ low HOA.



The price is double what they paid, but it is a short sale. There is only one way to do that: borrow and spend your equity. This seller is an example of someone who tried to be good, but they were seduced by the dark side. Darth VaderThey bought the place in 1999, and they put $58,200 down. For three and a half years, they were fiscally responsible and did not expand their mortgage. In late 2002, they gave in an refinanced for $300,000 taking out their downpayment and a few dollars more. Apparently, this “equity liberation” was rewarding because they opened a $90,000 HELOC in the spring of 2003. At this point, kool aid intoxication had set in and their journey to the dark side was complete. The refinanced in late 2003 for $390,000 apparently paying off their first HELOC, but they opened another one for $100,000. That one only lasted until summer of 2004 when they refinanced again for $497,000 to pay off their other mortgages. Having not learned their lesson, they took out another $88,000 HELOC a few months later. By spring of 2006, they were broke again, so they refinanced for $547,000 and took out another $100,000 HELOC. From 2002 to 2006, they took out and spent $414,200 assuming they spent the final HELOC. So now they have $647,000 in debt on a property they paid $291,000 for. A sale at $600,000 will not pay off the debt, and it will be a short sale. It was a great run, wasn’t it? They had 4 years of pretending they were rich.

So what do you think about this behavior?

Think about the impact this money had on our local economy, and think about what it will mean when this money disappears. Do you see why I contend we will have a severe local recession?



I would like to take this opportunity to thank Brittney for researching these properties and providing me with this information. Without her hard work, I would not be able to bring these stories to you, and these stories need to be told. Some people feel our work here is an invasion of privacy (despite all the information being public record.) These people and those who behaved in a similar fashion deserve to be exposed to the general public. This behavior should be scrutinized for what it is: irresponsible. If these owners find it humiliating, then perhaps they won’t do it again… No, who am I kidding? They will do it again.

199 thoughts on “Pretending

  1. mark

    well written.

    Perhaps it is my Midwestern upbringing, or perhaps it is just not growing up in a bubble market where such things are possible, but when I see the financial behavior of people during the bubble, I am simply astonished.

    there are many people like you, brought up the same way, many of them are still like that, and sadly many are not having instead “gone to the dark side.”

    they will return my young jedi master. we will welcome them back as they return with their heads between their collective legs.

    may the force be with you.

  2. Irvine Soul Brother

    Wow IR, crazy profiles. As I as reading, I was trying to see if I could make a case for this kind of spending. . . Was it a medical issue? Was it some other crisis? With those numbers, and that spending it just doesn’t add up. No one should be living in Northpark and spending like a rapper. Not even me.

  3. G in INdiana

    The HELOC we took out ages ago was paid off after one year. We used it to purchase the ten acres next to our existing 12 acre farm in SE IN. We paid $50K for the acreage and it is now worth closer to $100K. We don’t plan on ever selling it, but it is nice to know it is there.
    We’ve taught our daughter the same frugality that we were taught as children. Sure you can treat yourself to something nice once on a while, but not every day and all the time. You drive your car until it can’t be driven any more, you don’t give a fig about what the Jones’s do, and you take care of those less fortunate than yourself.
    These are not Midwestern values either, as both my husband and I were raised in Southern California (me Covina and he Pacific Palisades).

  4. AZDavidPhx

    Of course they would do it again.

    In these people’s minds – THEY are victims. They were not greedy morons.

    House prices were supposed to go up forever.

    Lenders were not supposed to hold money-throwing parades down streets of Gotham.

    People were supposed to honor their social responsibilities and take out a larger loan than the guy before them.

    Negative Nancy bloggers and media stories were not supposed to scare the masses and spoil the party.

    If you were to ask these sellers if they had done anything wrong – they would certainly scapegoat out of it and make no mention of their greed and magical delusions getting the better of them. They would play the “we were taken advantage of” card.

  5. NoWow!way

    People just got used to real estate appreciation and counted on the unending equity appreciation to supplement their life styles. I know many people who pulled money out of their homes to fund their children’s college on a regular basis.
    Remember there was a tech crash that left people in the computer industry without jobs from about 2000. That particular job sector seems to be having some improvement in the computer and software industry in the last couple of years. People might have pulled out equity to cover expenses then, too.
    The stockmarket crash ended the bubble heads who used their stock “equity” to fund all sorts of lifestyle enhancers.
    Vegas has had a major boom going on.
    How many of those heloc’s mentioned on this thread went possibly to purchase other properties by self styled “real estate investor tycoons”?

    There is absolutely no way that the government should bail anyone out of this mess. People need to deal in reality.

  6. NoWow!way

    G in Indiana,
    Those are our values, too and we are calif. natives from covina/West covina area!

    What part did you live in?

  7. Mr Vincent

    Dow futures down over 300 pts this morning.

    This first house highlighted today is a cute little starter home that I would pay about 400k for if I had a bunch of very small children. 5 beds in 2000 sq ft???

    The second prop I would never buy. They are not laid out properly. Look at the pic of the kitchen that shows the view to the outside. The neighbors house is used as the property border and their window looks right into your kitchen/dining area.

    All that aside, I think we are really entering a new era where many potential buyers are going to be very afraid to take on debt. Lets also not forget that many home purchases are trade-ups. The low end housing market is where the most trouble is and they were the ones that were rolling their equity into more expensive houses. That party is over.

    How many of you have plenty of money but are starting to spend less? I did something this weekend that I have never done in my life – I clipped coupons!

  8. AZDavidPhx

    I highly doubt they will come back with the tail between the legs.

    With so many unsavory characters involved in this mess, it is so easy for each party to finger-point and create their own “justification”.

    Lenders point the finger at the buyers for purchasing more than they could afford; for not understanding the details of their loan. A valid point.

    Homedebtors point the finger at the lenders for allowing them to purchase more home than they could afford; for luring them in with “creative financing”. A slightly valid point, but certainly not a valid excuse.

    Realtors play the double-speak neutrality card; they were just doing a public service by supporting the huge demand for housing. The fluffed appraisals and shill bidding wars in the chase for the 6% are swept under the rug.

    The Orwellian outcome:

    All of the villains walk away with a clean conscience at the end of the day. Each one with an accepted BELIEF that it is the OTHER guy’s fault.

  9. Crusader

    My brother and his ex were masters at extracting equity from their OC home. Where did it go? It ended up used for limo’s, Nordstroms, cruise ships. Bimmers and private schools before their bankruptcy/divorce.

    In 2006, he and his new wife tried it again with another house which promptly lost $150,000 in value ending their spree.

    Those of us with parents who suffered through the Great Depression by shoving cardboard in their worn out shoes should have learned a lesson from them.

  10. pat ruvolo

    This is it! The stock market is going to meltdown due to derivatives losses. They are in the trillions. We are going into a depression and the sad thing is even my wife does not beleive me. Real esate prices are going to crash in half or more from where they are right now. Real estate agents oughta no get out of LA LA land.

    My home burned down in the last fires (Lake Arrowhead) so I am on the prowl for a new home. When I talk to realtors they act like I am crazy when I tell them what I would pay for a 3700 sqaure foot home in Corona. They, for the most part, are downright rude. They sit and lie to everyone walking into any open house with statements like “investors are coming back to the market”. Or, ” this is a great time to buy”. I am sorry, I can no longer hold back as I ask them if they can spell D-E-R-I-V-A-T-I-V-E-. Of course they have never heard of the word. The only question is what will the govts. due in the short term. There is no solution to the problem at present. Good luck as we are all going to need it.

    I hope this purge will leave only honest realtors which I think is only about 10% of them.

  11. AZDavidPhx


    The “social contract”.

    I remember in 2006, I was driving from Tucson to Phoenix and was listening to Talk Radio. A news brief came on in between programs and it was sensationalizing the ballooning house prices in CA. “The median house price in CA has climbed to some newly unbelievable number”.

    They then cut to interviews with “buyers” who were nervous about taking on these huge mortgages. I will never forget it – this woman being interviewed said “well at least if it all comes crashing down; we won’t be the only ones in trouble”. The “everyone else is doing it” justification.

    The “social contract” at work.

  12. NoWow!way

    REIT – Real Estate Investment Trust

    Panic selling shuts down REIT fund :

    One of Britain’s biggest property funds was forced to shut its doors to withdrawals yesterday after the slump in commercial prices triggered panic selling by small investors.

    The move prompted fears of a Northern Rock-style run on billions of pounds invested in once high-flying funds which many savers have seen as a safe haven for their pensions.

    Scottish Equitable said yesterday that 129,000 small investors in its £2bn property fund will not be able to access their money for up to a year, although payments relating to regular income already being paid, retirements and death claims will not be affected.


    REIT’s are taking a hit in US, too.

  13. NoWow!way

    Morgan Stanley opened up a west coast office for commercial properties about a year and a half ago. Commission-only based for the executives who moved out here from east coast to operate this office.

    Now, they are not able to fund several projects, previously Okayed by the main branch. No one sure if they will be paid and they have expensive multi-million dollar mortgages that need to be paid each month.

  14. Priced_Out_IT_Guy

    I have spoken with a lender during the boom that justified his “assistance” with getting borrowers qualified and through underwriting using his “special tactics”, ie loan falsification, by telling himself that so long as he believed the buyer could pay the loan back, everything was ok.

    After all, he was getting the buyer into a home to live a high quality lifestyle, and since real estate was always going up, the buyer could always refinance into a traditional mortgage from their self destructing ARM.


  15. Perspective

    “I think we are really entering a new era where many potential buyers are going to be very afraid to take on debt.”

    I think this is very true. If 28% DTI is the max conservative ratio in a normal environment, then what’s the DTI most rational people will be comfortable with in a declining market? It killed me to take on 25% even though that’s really about 18% when adjusted for the tax consequences.

  16. IrvineRenter

    The markets are closed today, but they are trading some futures contracts. The volume is low, so there is no telling if today’s action is meaningful. However, as of 8:00 AM our time, the DOW futures are trading 450 points lower. Wow! This should be an interesting week.

  17. Perspective

    “I would argue this was very widespread.”

    I agree that HELOC-ing your way to a richer life was widespread in SoCal. At least half of the homeowners I know cashed-out some equity. But I don’t know a single person who went crazy like the examples here.

  18. Pianist

    Last year my depression-era parents decided to reward themselves with a new car. My elderly parents have >1 mil in retirement accounts, bonds, and cash, plus pensions and a paid-for house, in spite of a lifetime of lower income. So what did they splurge on? A mid-line Toyota Camry that they are so proud of…although my mom wishes my dad would have been willing to buy up to leather seats!

    They passed this value on thrift to their children. We all live below our means.

  19. Priced_Out_IT_Guy

    Great points.

    FYI clipping coupons is for the birds. It takes less time to make money than to save it scouring through newspaper ads.

    Go to costco and pay $49 per year to save 10X your membership or more per year. No coupons needed 🙂

  20. Alan

    Vincent, Ipoop, IR

    I still have some equites, not in financials.

    I was hoping for a “dead cat bounce” tomorrow-wed before pulling them out.

    Do you think there will be a dead cat bounce, rally in the morning or are we doomed to another free fall.

    I can’t tell which way the wind will blow

    Any thoughts?

  21. Priced_Out_IT_Guy

    My grandmother used to carry her lunch to school in newspaper during the depression, and she was considered well off compared to some of her friends. Now days if you sent your kid to school with a healthy lunch wrapped in a newspaper you’d have child services knocking on your door.

    People forget where they came from and have to be reminded every once in a while.

  22. Aerogell

    Yes, indeed this will affect our local economy, among the things that my coworkers have bought or paid are: a $60K+ backyard pool, a new pick up for the brother in law, credit card debt, new gourmet kitchen, new outdoor kitchen, a home theater.

    All this consumption that has been pumping up the SoCal economy is now gone, well, where is going to come from now?

    So far the job losses have been in the financial and real estate area, but the radio of this impact will keep increasing and increasing.

    This is like economic atomic bomb detonation we’re seeing the mushroom cloud far in the distance but later the the impact wave will come obliterating everything in its path.

  23. Alan

    Iron Chief America had an English chief on (don’t ask me his name) and he wrapped his fish&chips in newspaper.. Still the traditional way to serve this dish.

    I guess if the Judges were Irvantes they would mark him down in presentation. Although, besides lining the cat box what is is the OC register good for?

  24. Laura Louzader

    Just what did these people spend their $342K on, I wonder.

    They sure as hell didn’t spend it on that dowdy, ordinary house. I see white tile counters and cheap cabinets, and bottom-of-the-line white appliances. Is there a pool with a cabana? A tennis court?

    I notice that, in listing every one of the houses you’ve featured, the seller highlights the kitchen. That must mean it’s the only decent-looking room in the house. So God knows what the rest of the place looks like.

    I hope these folks enjoyed the cars and boats and vacations and overpriced clothes they hocked their house for, because I can’t imagine even CA buyers anteing up the price asked for this place.

    People have HELOCed themselves to death allover the country. I noticed that in my mother’s formerly conservative old St. Louis suburb, that many nearby homes suddenly sported additions larger than the original house and that many overpoweringly large homes went up on tiny lots during the bubble years. $80K cars suddenly appeared in driveways where there had been 7 -year-old Honda Civics before- this is an affluent, but formerly very conservative place where understatement was the byword. Ostentation in cars and clothing was frowned upon- it’s a place where 50-year-old women walked around in their old school uniforms from Mary Institute and most large, expensive homes had 30s-vintage kitchens. There were never foreclosures before, either, but now they are happening, and to owners of these same large, expensive houses. Nothing is selling, and asking prices are being dropped by large percentages.

    At first I was overjoyed at the bursting of the bubble and the subsequent rolling back of prices because that means that I will be able to afford a nice place in keeping with my means, after sitting on the curb for 5 years watching in chagrin as the prices ratcheted rapidly upwards and out of my reach, driven by moonshine mortgages.

    However, now I am filled with fear, because it is evident that our whole economy became dependent upon the continuance and rapid expansion of the bubble. In other words, our entire economy since 2001 has been fantasy, and the wealth “hallucinated”, to use the word of one pundit. Now that the whole skien of over-sized mortgages for 2, 3, or 4 times the value of the property, granted to people who never could pay for them, financed by institutions with no regard for risk, is unraveling rapidly and taking down a huge portion of the financial sector with it, we can see that it will means hundreds of thousands of lost jobs and incomes at every level not only in financial but in all industries dependent upon housing in any manner. There will be massive spillover into other, seemingly unrelated industries, as the entities they depend on for their business are decimated.

    So my joy was very short-lived. I mean, it’s great that by 2010, I will be able to score a great place at a very reasonable price and in keeping with my means, but will I still have any means? Will anybody else?

  25. Laura Louzader

    Of all the recent innovations in home improvements, I can’t think of anything more inherently ridiculous and criminally wasteful than an outdoor kitchen.

    There has been a big fad for these here in Chicago, in the more expensive suburbs, and to me, our financial decadence has reached the last, terminal stage when wealthy people who let their own communities rot around them because they don’t want to pay an extra dime of taxes, are willing to drop $60K to $100K for a state-of-the-art kitchen replete with Viking ranges, and dishwashers, and granite, to sit on the back lawn under a tarp and attract condensation and rust during Chicago’s wet, freezing winters.

    Well, the foreclosures are hitting wealthy suburbs like Hinsdale and Bonnockburn, and all the rich folks who just had to pretend to be much richer and who borrowed against their $3MM houses for crap like this are ending up much poorer as a result. Tough luck for them, couldn’t happen to less deserving people, could it?

  26. IrvineRenter

    At some point, we will have a dead cat bounce because the markets are very oversold at this point. However, markets can stay oversold for a long time, and they can become even more deeply oversold before the bounce occurs.

    The activity in the DOW futures market this morning is very troubling. At 8:46 AM our time, the DOW futures are off over 520 points. That is huge. It is a low volume trading day because the broader markets are closed, but a 520 point drop is very unusual to say the least.

    I would note this: when a market starts a major bear market, it is steady professional selling at first (which is what we have seen for the last month) followed by panic selling by the general public. It is usually only after the general public sells in a panic that the markets bounce. If your desire to sell is shared by the general public, we may get a huge drop followed by a strong bounce. So the question is, “Do you want to try to beat the panic selling and quite possibly participate in it? Or do you want to try to wait for the bounce to sell at a better price?” If the DOW opens 400 points down tomorrow, it is probably already too late to beat the panic drop.

  27. Mr Blifil

    Fortunately Irvine is big enough that squatters will still need cars to get to and fro, which means they’ll still have to earn enough to pay for gas, and therefore may be less likely to light the house ablaze in a crack pipe incident.

    Any information on how the local police are planning to ramp up their readiness when the class wars begin in earnest?

  28. ex-Tangelo

    Some media from today:

    “The main reason you are sitting in traffic, [Secretary of Transportation Mary Peters] believes, is not that the purchasing power of Highway Trust Fund revenue has been dwindling for the past decade, not that population and freight traffic have been soaring with no government response — but that you are not being asked to pay enough to use the road you are on.”

    OK, it’s off topic, but IHB commenters occasionally suggest that toll roads or congestion pricing might solve traffic congestion.

    I’m part of the problem, today… I willingly spent $4 in tolls, $16 in parking + about $3 in gas just because I didn’t feel like waiting for the train’s holiday schedule.

  29. Alan

    The reason I was holding out for this week was becuse Apple and Microsoft are both predicted to announce earnings that will blow thru expectations and I had assumed that this news would rally these equites, now I’m not sure anything can rally the market.

  30. Glenn

    So, where do you draw the line. Yes, I could live in a 750ft2 apartment and save a bunch of money. I could drive a $9k Kia and run it into the ground.

    What is the point of having a good job and making good money if you don’t enjoy it to a certain extent? I save 15% in my 401k and put another 10% away in a taxable account. I pay extra on my mortgage. At what point is it o.k. to enjoy your wealth? Is it a good thing to die with $3Million + in assets and leave it to your heirs? I could see leaving it to a charity but other than that I think it is better to enjoy and die with minimal assets.

    The housing bubble isn’t really going to hurt here (we are in DFW Texas and bought in the mid 90’s.) What will hurt is the stock market. Maybe I should try to time the market and liquidate but 1) I don’t want to pay the taxes on my gains and 2) I’m in long term so it should work out in the long run.

    Good luck to everyone out there. It will be an interesting next few years.

  31. r€nato

    fascinating reading the comments. I too am horrified thinking about what, exactly, all these people spent their HELOC money on. Vacations, dining out at fancy restaurants, boob jobs, expensive cars… pretty much every single rule of personal budgeting and financial management violated.

    I am a very empathetic person but I have a hard time feeling much empathy for fools like these. There are some very simple rules to becoming wealthy virtually no matter what you make: live below your means. Never take out a loan whose duration is longer than the life of what you’re going to buy with the proceeds. Whenever you think of making a major or semi-major purchase, remember that you have to make twice the purchase price in order to pay for it (due to taxes… for instance, to pay for that $10,000 vacation, you really have to make $20,000). Pay yourself first. Whenever possible, pay off your credit cards in full. Remember that a car is a necessity in most places (particularly in western states), but it’s one of the worst things to spend money on; buy less car than you can afford if possible. Don’t buy a new car unless you can really, really, really afford it; let someone else take the ~40% depreciation hit which occurs in the first two years of ownership. You can eat at home for 10 or more days, for what it costs to eat out for one evening; so learn to cook and bag your lunches.

    These are hard and fast rules, and no matter what anyone tells you, no matter what bubble is currently going on, you can’t fail to enrich yourself if you follow these rules. There’s no freedom that feels quite like living debt-free, or as nearly so as possible.

    It warms my heart to know there are at least a few people around (like you commenters) who understand these basic rules. It gets pretty lonely sometimes, watching everyone else live like rock stars while I’m minding my P’s and Q’s. Thank goodness my self-esteem is high enough that I don’t really give a fig what others think of me, just because I’m not spending my future wealth in order to live an unrealistic lifestyle.

  32. ex-Tangelo

    I *wish* I had the money-saving options available to me that were available to my parents.

    They had full health insurance through their employer. Hell, my Rx copay just went up to $40 EACH.

    We had excellent public schools all the way to college, and very good public universities. (UC is great, but just try to get in nowadays. It has hardly expanded in the last two decades)

    Unemployment insurance? My dad was fortunately never laid off, but my wife’s father (we’re from the same small town) was a carpenter and work was seasonal. His unemployment benefits through the state and the union were very generous – it allowed him to be the sole breadwinner and put three kids through school. In fact, my wife once told him how low my Cal EDD unemployment check was — his response was “Oh my God!” At the time, it wasn’t even enough for rent.

    Retirement? No way that retirement benefits will be this generous when I retire. Today’s seniors are living a gold-plated life compared to what they are leaving for me.

  33. tenmagnet

    I’m having a hard time believing the realtor’s comments regarding 5 Altezza being a “Former Model Home.”
    There isn’t a single upgrade in the entire place.
    Do mini-blinds qualify as “custom window coverings”?
    This one’s a dog!

  34. r€nato

    Another thought that occurred to me while reading about all these people cashing out imaginary wealth and spending it on keeping-up-with-the-Joneses:

    It’s already expensive enough to live in the southland. I gotta think that all these people living well beyond their means, had to cause some sort of localized price inflation which affected everybody, including those who have been living and spending responsibly. If people are busting down the doors to drop $100 an evening on dining out, why not increase menu prices? If people are buying Bimmers and Escalades left and right, why not jack up prices a few grand? The market can bear it!

    We haven’t even begun to see the real pain. My yardstick is the 80s S+L crash; I’ve been thinking all along that the market decline will equal that, more or less: 3 or 4 years of declines, followed by an essentially flat market for 5 to 7 years before a weak-to-normal appreciation in home prices begins. Now I’m wondering if it will be even worse than that. After all, it took Japan, what, 15 years to recover from their bubble, didn’t it?

  35. NoWow!way

    When the twin towers were blown up, we were told to go out shopping. Remember? So the terrorists would not win, we had to have a good Chirstmas retail season. I remember people running out to buy stocks to be patriotic, too.

    And haven’t we been told to buy stuff to help combat terrorism? I don’t think i am the only one who has seen that kind of talking point put out to the public during war time.

    One of the biggest factors underlying all this dollar falling and heading into recession is this non-ending and expensive war. This war is definitely a “luxury” and the expense is killing our economy.

    I also remember the suggestions to go buy duct tape and plastic sheeting in case of nuclear incidents immediately following the terrorist attacks in NYC. Gads, I guess they expect us to believe just anything. And that is a big part of the problems. No one is actually THINKING. Everyone is out there hoping, praying, fantasizing… that everything will be okay if they just submit to a varity of authority figures and talking heads and spiritual leaders.

  36. Joe

    I would try a slightly more compassionate take. They used helocs to pay budget shortfalls on a monthly basis for years at a time.

    I’ve seen this with people. A lot of the people who buy home are couples who are planning to start a family. What happens when you start having kids? More expenses, less income, medical expenses, etc.

    Also, people transitioning from childless renters to home owning parents with no disposable income using helocs to maintain their lifestyle of eating out for lunch and dinner several times a week, clothing, stylish cars.

    The ultimate problem though is that house debt was not seen as “real” debt.

    I hope these people can sell their homes for at least a modest loss and start over.

  37. gfw

    Of course you never know… in individual cases, maybe they wanted to pay their kid’s college fees, or their grandparents’ medical bills. But, obviously, the widespread practice suggests that most people were just spending on stuff, hummers, trips, remodels, etc.

    What the fuck would you do with all that spending money? Maybe most of these people lost their jobs? That’s the only other reason you need that much cash on hand…

  38. deebee

    I take your point. I am on the thrifty side myself. Sort of a fear of being broke which has been lifelong. Yes, I’ll die with money in the bank.
    Guess it depends on what makes you happy. External things or internal things. One thing I know is that I don’t have stress over finances, only have to work one job, and will bring a lifetime habit of living below my means into retirement. So I will be able to continue my modest lifestyle.

  39. r€nato

    I dunno, Joe – I’ve seen how people are in OC. If conspicuous consumption is a religion in the US, it’s a damned cult in OC. You’re *expected* to live it up, and if you don’t, there’s something wrong with you and you’re an outcast. I couldn’t stand that attitude and that’s why I moved away.

    My mother and her husband recently came into inherited wealth. She still shops for her clothes at thrift stores (she’s damned good at it too; she doesn’t buy crap!). I’m proud of her for that. Paying full retail is for suckers.

  40. ipoplaya

    The freefall in markets from asia to Britain is pretty scary, especially as those markets tend to follow the US markets. I have seen days back in the tech implosion when futures were showing massive pre-open declines only to have the traders rally things to green shortly after the market opened…

    All depends on news and sentiment. It doesn’t appear that the Bush plan made much impression on the markets. I think the key for this weak will be trader reaction to BofA earnings and what happens with the bond insurers. Catepillar reports this week as well, and if there overseas business is soft, that’ll help sour everyone on global markets vs. just the US.

    I’m still almost all cash/bonds, even having pulled out from my emerging market stuff last month, and won’t start to push back in until bearish sentiment becomes a bit stronger. I’d be surprised if AAPL can rally the market. Looks like traders have been reducing exposure to Apple since early January. Most bets have been on an earnings disappointment…

  41. r€nato

    One last comment… this makes me think of a guy I used to know quite well, he came into a $70,000 windfall ’round about 1996 or so. Know what he did with it? He spent it all. In one year.

    OTOH I had a little less than half that amount burning a hole in my pocket. I used half to make a down payment on a home which has appreciated spectacularly and which I could never afford nowadays, with a very manageable payment. The other half I used to start my retirement account, which has also grown spectacularly in that time. My ex-friend could have done something like that too; instead he’s living in a slightly undesirable part of town, living paycheck-to-paycheck, and I’m certain he still has no retirement savings.

    It’s really not that hard to get wealthy or at least have some financial security… so long as you don’t spend everything you make, and use wisely any windfalls you might have the good fortune to come across.

  42. r€nato

    No one is actually THINKING.

    Indeed, a lot of problems/crises can be traced back to that unwillingness to think for one’s self. For instance, why we have the current fool as president.

  43. Graham

    I am trying to picture the process of actually going to the bank for HELOC after HOLEC over the space of 4 years. Is it the same banker? The same or relaxed credit rules? Is there any attempt at educating the client on the risks?
    The lending institution must be changing their rules as quickly as the market is advancing and in present day case as the market is retreating. How does a lender, the actual person sitting across from the client, convey the payback agreement and rules of engagement? How does the bank think they will get paid back, what is their sure fire etched in stone agreement.

  44. movingaround

    coupons can be great – my Ralphs doubles $1.00 coupons – when I find them on things I normally buy that can be great savings!!!

  45. r€nato

    clipping coupons is definitely not for the birds, if you do it intelligently. You’d be surprised how much stuff I get for free or nearly free. Especially if a coupon’d item also happens to be on sale that particular week. I regularly pay 33% to 40% of the ‘list price’ of groceries.

  46. BubbleLee

    Costco’s prices are going up. Milk, eggs, butter. Staple items. Did you notice their eggs doubled in price compared to last year? $2.99 for 18 eggs? Go to Trader Joe’s and get a dozen for $1.19. Two dozen for $2.38. Spending a few minutes clipping coupon’s from Sunday’s paper is a smart idea, especially when you double the savings at places like Ralph’s.

  47. camsavem

    I agree completely.

    I have made over six figures for a decade now and my father in law cant understand why we struggle. (well, as much as one can struggle making six figures in OC)

    When he was our age you could work a minimum wage job and own a home, health insurance was paid by employers and most jobs had some sort of pension. Not to mention all the intangables that are part of today, cell phone, internet, cable TV etc.

  48. r€nato

    $60,000 backyard pool? Jesus. I think pools are mostly a waste of money anyway; not for everybody, but how many people really use them all that much? And they really don’t add much value to a home, when you consider the cost of maintenance.

    $60,000? Christ. That’s a lot of money to pay for ego gratification. You know what makes me feel smug and makes my dick bigger? Financial security.

    I drive a Corolla. It will be paid off this time next year and I can’t wait. I plan on driving it another five years after that before I even begin to think about another car. I realize in OC this would make me a social outcast; women wouldn’t want to date me and I probably wouldn’t get many invites to parties or other social occasions. This is one of the reasons I moved away from there. I’d rather have money in the bank than be seen shopping at South Coast Plaza.

  49. frizzy

    Thank you very much G in INdiana for pointing out that frugality and quiet but hardnosed common sense ARE NOT MIDWESTERN VALUES. If I hear one more midwesterner praise themself on this and all the other things they endlessly priase themselves on, I just don’t know what … (I have three midwestern cousins and they are no paragons on any front. But goddness me they went to church, as we were reminded often.) It looks a lot like bragging about your moral superiority is a midwestern value.

    OK that happily off my east coast raised, first generation American on one side chest, I just escaped California after 10 yrs there of difficult renting while looking to buy. Thank my east coast values, I never bit the bait. But it seemed so easy to see what was going on, I could never understand why so many others did. Weren’t they ever told not to accept candy from strangers?

  50. BubbleLee

    I can tell you my friend, Dianna MacDavid (First Team in Irvine), is one of the 10%. This woman takes the code of ethics to heart. A couple of years ago, she sold her client an FSBO home, even though she wouldn’t make any money on the transaction, but she knew this home is exactly what her client wanted. She is sooo honest that she lost many potential clients to other realtors who made promises on what they said they could sell their house for, which was more than Dianna thought they were worth.

  51. FairEconomist

    There’s been a lot of discussion of this on the other side. Many making the loans knew they were likely to be disasters. But they could get fired for something that (appeared to) temporarily reduce profits. So they just go with the herd over the cliff like a bunch of lemmings.

  52. Iblis

    Costco has its own coupons, and they are generally pretty good. I redeemed one last week for $5 off a $17.99 purchase.

  53. lawyerliz

    I got my chance to know what it was like to feel rich after I got my hurricane Andrew check. The house was re-done beautifully. All my worthless paperback destroyed books turned into a saving account (the insurance paid replacement value). They turned into very nice furniture. Everything harmonized. Everything was new all at the same time. Granite (which I don’t like) wasn’t the thing in’93, so we got lovely corian knock-off counters in the kitchen. Tiles replaced linoleum. We still have the furniture, and since it was very good quality, it still looks good.

    I had to replace clothes, etc.

    It was an interesting experience. And you-all know what. I got shopped out. I’ve been there done that. And I’ve had more interesting experiences, in good and bad ways. Giving birth. Going to Europe. Arguing before a mean or a too sympathethic judge.

    It still, I suppose, would be nice to be richer, but not so nice that I feel any urge to kill myself to get there. Now, what I’d want is maid service several times a week, all the plants I could plant, and maybe a gardening to help pull weeds.

    And the hub and I have been eating out less; spending a bit less, so I guess the herding instinct takes hold for saving as well as spending. This doesn’t bode well for restaurants. . .

  54. FairEconomist

    I don’t think there are many misers here. I agree money is a means, not an end. My attitude is to save for retirement, college, etc. and otherwise to spend just as I see fit. I just don’t spend money unless it’s “extra”.

  55. Iblis

    Lets have a little perspective please. Time was a factory sewn shirt was a luxury — sure to get your neighbors gawking and gossiping during church on Sunday.

    The problem is not wealth. Wealth is a good thing. The problem highlighted day by day here at IHB is people who spend like they are wealthy, but aren’t.

  56. FairEconomist

    Overseas markets already tanked – often over 5%. The panic is already here. When was the last time we had an international day like this? I’m a mutual fund buy-and-hold investor so I don’t remember daily details.

  57. springmom

    Thanks for posting this IR. We have been renters in Woodbridge going on 6 years. Since we moved to Irvine my husband has been trying to figure out how all these people could afford to buy here. I am going to have him read this – I think it’s one of the answers. The others being they rent, inherited the house or bought a long time ago.

  58. Laura Louzader

    I’m a denizen of the Midwest and have lived in major cities in this part of the country my entire life, and I am here to tell you that values are just as skewed and people are just as greedy, pretentious, self-indulgent, and fantasy-prone, as they are anywhere else in the country.

    If we Midwesterners are so upright and responsible, why do our cities, along with those of that other bastion of old-time religion and morality, the South, have the highest rates of violent crime in the country, and hence the developed world?

    The only places in the Midwest that did not become bubblelicious are places that are permanently depressed and where you can’t make a living. I mean, prices for totally fabulous houses and condos in suburban Detroit and Cleveland looked really low until you consider that these places are hollowed-out ruins whose economies have been blasted away-thus, the horrifying foreclosure rate in these two locales.

    I noticed also that prices in Cleveland increased 50% between 2003 and 2005 while what remained of Ohio manufacturing was rapidly relocating itself to Mexico and other slave-wage havens. What justified such a runup in prices while the city area was bleeding business and jobs?

    St. Louis, Chicago, Milwaukee, Cleveland, Cincinnati, and even IndiaNOplace are laughably overpriced relative to their local fundamentals, and they are experiencing steeply elevated foreclosure rates due to the excessive use of HELOCs and option arms.

    No part of the U.S. has a corner on pretension, delusional thinking, self- indulgence, or irresponsibility.

  59. Perspective

    I follow the markets as closely as anyone here (weird what some people find entertaining). But wow! Are you discussing this because it’s interesting, or because you’re seriously trying to “time the market”?

    Timing the slow moving obviously over-valued real estate market is one thing, but timing equities? Any gain from timing real estate will certainly be lost over the years timing equities. But I wish you the best of luck.

  60. Tim

    There is plenty of blame to go around, but I think the buyers deserve the least of it. Of course they were greedy and irresponsible, but they made lots of money (tax free! they will only be taxed on the discharge of indebtedness income. good luck to the IRS trying to collect THAT within the 10 year statute of limitations!). They had a good ride and now they will have some rough years, but they probably knew that going in, at least at some level.

    Same goes for the lenders and realtors (who will probably have an even rougher ride). Greed and irresponsibility are human nature, and that’s why we have governments and laws and regulations. But the constituency of greed and irresponsibliity is largely the modern Republican party. Twenty years after Ronnie’s first financial fiasco (the S&L crisis), the full fruition of his deregulatory dream is nigh upon us. If you voted for a Republican or a Republican enabler (that would be 50% or more of the Democratic party) in the last 30 years, I BLAME YOU! Those regulations were put in place for good reasons – because all of this crap has happened before, if not on such a huge scale. And you fell for the con men who told you government regulation was killing the economy. Yeah, it was bad for the fraud based economy. Now watch what deregulation has done to the whole economy. This is only the start. SUCKERS!

    Happy MLK day! Get ready for the stock market melt down wave that will have another day to build in Asia and Europe before it washes over Wall Street.

  61. Mr Vincent

    “I still have some equites, not in financials. I was hoping for a ‘dead cat bounce’ tomorrow-wed before pulling them out.”

    How long have you held these stocks and why do you need to sell?

    Just an FYI here cause I dont really know your situation: When I buy stocks I use risk capital only and hold onto these stocks until the reason I bought them has changed based on where I think the companies or societies direction is heading.

    I may hold stocks from anywhere between 5 and 20 years.

  62. PurpleHaze

    I grew up in a business family and one thing I learnt from Dad to make an “independent” assessment of tha value of an object to yourself as a person before comparing that with the market’s valuation. Let me give you an example – the homes in woodbury. I never saw the value in dilapidated, 30-40 year old structures that massively over-priced. I would ask my realtor why these are so highly priced and he would talk about the area’s desirability which never made sense to me because as an individual I did not see the value of older parts of Irvine over some of the newly made areas or Tustin Ranch for that matter. But for a lot of knife catchers, they drank the kool aid propogated by the realtors or by their friends. Bottom line, look for the value, do you see it?? If you do not then there is no point buying into the poop the sales and marketing folks fling at you.

  63. ipoplaya

    Bah. If what you say is true Perspective, there would be no such thing as a professional trader. If you are lucky and good, you can time equities to a degree and make out with gains at the end.

    Timing is relative. I essentially “timed” the market by rebalancing my 401K into cash/bonds and by pulling out $50K via a loan over the summer. I’ll push those dollars back into equities during the recession since equities will typically coming out of an economic downturn. Long versions of “timing the market” are called asset reallocation/rebalancing or trend following.

    The above being said, the most timing I would today is trend following, maybe some swing trading, which is basically what Alan refers to. I lost way too much money in 2000 by attempting the ultimate market timing, day trading.

  64. Lily

    I was raised by depression era parents, so those early lessons of living below my means sunk in. The only reason to take equity out of a house was to do repairs/improvements to the house, since it increased/preserved the value, or to start a business, since that would increase your income to repay the loan. Nothing else.

    Yes, these homeowners were foolish but so was every bank that lent to them. What the hell were they thinking? How did so many people lose their minds at the same time? Oh, wait. Greed is an equal opportunity bastard. As long as everyone thought they were making money, the usual rules didn’t apply. Too bad we’re all going to suffer the consequences.

  65. Mooser

    Moosehall is paid for. It’s not too fancy, but it’s all mine, I guess. While I was always insecure whilst I had mortgage payments to make, They got made, and a lot over (my wife has a mortal dread of paying interest) and after the house was paid for my problem got worse. Now that I’m not making payments, I feel like a houseguest! I keep waiting for the real owners to get home and kick me out, and demand a huge amount to cover utilities. I can’t sleep, I can’t eat, I wander back and forth from room to room. Apparently, debt is addictive, and I’m jonesin’ bad! For God’s sake, readers, don’t end up like me! To owe nothing to no-one, no time, turns one into a complete nonentity in today’s consumer schema! You are what you owe!
    So pity me, I beg you, for I am no-one. Credit card companies have a name for people like me, deadbeats, and I almost wish I was.

  66. skek

    I’ve said it before — I think a large part of the problem is the fact that most Americans graduate from high school, even college, financially and economically illiterate. We’re dooming our children by not teaching them the fundamentals they will need to survive in the real world. Don’t get me started on what we ARE teaching them…

  67. AZDavidPhx

    I don’t recall seeing anyone say that you should not spend money on non-essentials.

    The point (at least as I read it) was that you do not refinance your house into further debt to pay for non-essentials.

    Your example of having a good job and putting away money, yet still having money left over for fluff is not the same thing as cashing phoney equity out of your house to pay for bling.

  68. IrvineRenter

    This article is a few months old, but it may help people understand what we are seeing now in the financial markets.

    At its core, the Minsky view was straightforward: When times are good, investors take on risk; the longer times stay good, the more risk they take on, until they’ve taken on too much. Eventually, they reach a point where the cash generated by their assets no longer is sufficient to pay off the mountains of debt they took on to acquire them. Losses on such speculative assets prompt lenders to call in their loans. “This is likely to lead to a collapse of asset values,” Mr. Minsky wrote.

    When investors are forced to sell even their less-speculative positions to make good on their loans, markets spiral lower and create a severe demand for cash. At that point, the Minsky moment has arrived.

  69. Rob

    I live in the Santa Clarita Valley where the lifestyle is similar to the OC (but without the ocean )

    This type of funding is all too common here…you have the big SUV, the BMW, the boat, the RV, and the his n hers Harleys. I’ve seen enough neighbors drink the koolaid, people I knew did not make as much money as my ex and I did, but HAD to show they were well off. My girlfriend calls it “Afluenza”. We have both BMW and Mercedes dealers here as well ast all the high end Japanese brands and a Hummer dealership. Foreclosures are now becoming the dirty lil secret.

  70. Pianist

    I think enjoyment in the US is driven by consumption. Many people aspire to and assume that unless you drive a luxury car and live in a larger house and vacation overseas and dine out in fine restaurants you are not truly enjoying your life. Perhaps a severe recession will help us redefine what constitutes enjoyment.

  71. skek


    I generally agree with your post, but I have to call you on one comment: “wealthy people who let their own communities rot around them because they don’t want to pay an extra dime of taxes…”

    Here in California, top marginal STATE income tax rates are in excess of 10%. The “wealthy” (which is just about any professional dual-income household) pay way more than their fair share of taxes. The problem is that the corrupt idiots in Sacramento waste that money. They fund worthless pork projects and then threaten us with cuts in schools, fire and police to try to scare us into approving higher taxes. Don’t fall for it. There isn’t a government in this country that can’t pay for all of the essentials if it would prioritize. Taxes at all levels — federal, state and local — are too high. People deserve to spend as much of their own money as they can. And if they want to spend it on outdoor kitchens, more power to them.

    Now, if they are borrowing against their imaginary equity to do so, that’s another story. But don’t make that into an argument to raise taxes.

  72. JCaraway

    Is it possible that, maybe not a majority, but a significant percentage of the equity taken out was reinvested in the stock market? Do you have some sort of stats for that irvine housing blog person? I know of more than a few people who did just that.

  73. AZDavidPhx

    Call me old fashioned, but I keep money in a reserve savings account in case I lose my job.

    You don’t need hundreds of thousands of dollars to support yourself while looking for a new job, either.

  74. skek

    Good lord, the lefties are out in force today. You’re right, Tim — those reliably Democratic areas that vote for higher taxes and government regulation at every opportunity are doing great. Detroit. New Orleans. Washington, D.C. Yep, 20 years of Democratic rule sure changes the results.

  75. ex-Tangelo

    “I never saw the value in dilapidated, 30-40 year old structures”

    Yeah I’m clipping without the ‘overpriced’ qualifier but this statement is illuminating. Americans see everything as disposable. If you assume being 30 years old makes something “dilapidated” then there’s really no point getting a mortgage, is there? (And how old are you…)

    I’ve lived in a 110 year old home in a desirable, mature neighborhood you could never replicate in a new development.

    My current home is 58 years old and structurally straight as an arrow — contractors who come visit to a person marvel at the now-extinct high quality old-growth framing that new homes just can’t get for any amount of money. I feel my home is a responsibility and it should last at least as long as the 110 year old one, and hopefully much longer.

  76. Alan


    It didn’t occur to me that my equity positions were at risk even thought they I wasn’t in the housing sector because some loosers in the housing sector had holdings in the same equities and would have to dump everything they had to cover their losses.

  77. ex-Tangelo

    “Professional traders” are worthless overpaid monkeys who think they provide value. They are merely gamblers who lose other people’s money. And the WORST are the ‘technical analysis’ witchdoctors gibbering about “support levels” and crap.

    Indexes beat traders, every time. The only exception you can find is if you slice the performance over a narrow enough period of time, but in time, they all do worse than an index.

    There, I’m done saying my piece, file for future reference to throw in my face if you wish…

  78. T!m

    Check out this book. It explores how people justify mistakes in their minds. This “thinking” definitely applies here.

  79. Henk

    Thanks for the examples. I was feeling guilty, because I just spent $275 replacing a year old car stereo because I couldn’t directly conect my ipod to it. My little extravigance seems like a pitance in comparison.

    Three years ago I refinanced my duplex after a freind hounded me incessantly. She had just got into the business and was very gungho. I shaved a point off my rate and reduced my term by half, she thought I was nuts for not taking out equity. This thing will be paid off in 5 years and producing an income. She’s struggling to make her payments.

  80. PurpleHaze

    The intrinsic assumption you are making are that Woodbridge homes are well maintained. You are also assuming that my statement applies to all homes that are 30 plus years of age. None of these assumptions are true. I have looked at quite a few homes in Woodbridge, which the owners have no interest in maintaining i.e they use the same flooring and equipment that were installed back in the 70s. The wooden patios are termite infested with webs all over the place and the seller wants $600-700k for the house. Hope that makes sense. If you are upgrading the place and maintaing it the way you describe it, thats great but you should take a look at some of these homes.

  81. Glenn

    I don’t know. I reread the message and it looks like the poster was saying you should live below your means. My point is to live within your means. Get the leather seats if you can afford it (especially if you are retired with a nice nest egg). I’m not taking out a HELOC but I am enjoying my life while saving for retirement, college, etc.

  82. Phil

    So other people living a lavish lifestyle on borrowed $ is the reason my retirement savings is going down the drain? God, am I stupid.

  83. Chuck Ponzi


    With all due respect… for the love of god and sanity, do not ever quote the “value” of something, especially something as illiquid as real estate, or you reveal your true insanity. That acreage is worth exactly what someone else is going to pay for it when they are willing to buy it. Acreage is notoriously illiquid… I know this through first-hand experience. Let’s all just hope you’re not forced to actually find out how much it is worth.

    With that said, there’s a reason you’re no longer in SoCal… you’d no longer fit in.

    True story… I as speaking with a friend who called himself “frugal” to my face. He proceed to justify this frugality with the statement that he had only extracted 200K of his house’s value. He then proceeded to tell me that his real estate broker friend had told him that his zip code was the only one in all of California that had not lost any value in the current crash.

    Uh… right. You have to just listen and nod when stupid people talk, otherwise you waste too much of your own time trying to inform them of reality. Not worth it. G, i’m not saying you’re stupid, but if you quote the “value” of real estate, especially acreage in the midwest again, I’ll have to reevaluate that assumption.

    Chuck Ponzi

  84. surfing in newport

    I’d take Bill Clinton over Bush 2 any day: welfare reform, more fiscal responsibility, not starting wars…seems like the good ol’ days.

    All the republicans have done is given tax breaks to those that need it the least. You know, the flippers, the wall street private equity guys, the people that come up with the toxic financial products that we see now. Heaven forbid if you actually have to go out and earn a living.

    Worse mistake I ever made was trying to start a business 10 years ago instead of buying real estate….we sure have priorities right as a nation to favor returns on non-productive assets vs. creating jobs.

  85. MMG

    I went to Covina elementary many years ago, there was a Mrs Leonard who taught there, very nice lady.

  86. Kirk

    AZDavidPhx, you nailed it.

    However, I would like to finger point. If you elect a president that doesn’t believe in government then he will not allow the part of government he controls to do its job. Legislation doesn’t mean jack if you don’t have enforcement. Maybe, just maybe, if someone was prosecuting people for obvious fraud (stated income loans) then the bubble wouldn’t have gotten so friggin enormous that money markets were put at risk.

    Don’t get me wrong. I don’t blame President Bush. I blame certain voters. Hopefully they are the same people getting foreclosed on. I almost feel bad saying that. Almost…

  87. skek

    Ironic that the two economic examples you gave are traditional Republican issues. Republicans favored welfare reform for years (and were called racists in the process), but it took a bipartisan effort led by a centrist Democratic President to get it done politically. But make no mistake, it was the Republicans in Congress that made it possible.

    As for fiscal responsibility — conservatives are for smaller government, not the liberals. Granted, it is easy to get confused — Bush 2 is not a traditional conservative in many ways.

    And Iraq (I assume you are talking about Iraq, since the US didn’t “start” the war in Afghanistan or the larger war on terror unless you are one of the “blame America” crowd) both transcends party politics (check the votes to authorize the war if you don’t recall) and is irrelevant to a discussion of economic policy. Besides, it’s not like Clinton got us involved in nation-building projects in Bosnia or Somalia.

    Republicans differ on how to target tax cuts, but at least they are making the argument. Reducing capital gains, reducing top marginal rates, reducing corporate tax rates and eliminating the death tax (any of which will help business owners like you), all have pros and cons, but all are genuine attempts to help the economy.

    As for giving tax cuts to “those that need it the least,” — 1/3 of the country doesn’t even pay income tax and 5% pay 80% of all taxes (I’m ballparking, so forgive me if my figures are off), so who are you going to give the tax cuts to? Sending $800 to a working class family is a nice touch and might even help that family for a month, but it won’t make a drop of difference in the overall economy. You need to stimulate investment, capital expenditures and job creation — and sorry, surfing, the “rich” folks who pay the most taxes are the ones who can do that. By the way, Obama thinks that anyone making over $100k is “rich” and should pay more taxes. How many folks on this board agree with that?

    Come on, people. The 2008 election is critical to the future of this country. Reasonable people can disagree on who the best choice is, but at least think through it before you start spouting DailyKos talking points.

  88. lendingmaestro

    When these homeowners die and wait in line at the pearly gates it will be interesting when they finally stand before God. When he looks at them he’s not going to even bother looking at the Lamb’s book of Life. He’s simply going to ask them “What the hell did you do with all that money!?”

  89. Joe33

    I have no idea what these people have done with the money, but when I see that much re-financing / equity extraction in such a short period of time the first thought that comes to my mind is that they are using the funds to buy more real estate…….not $400K worth of cars/boats/vacations/boob jobs.

    A ton of people over the last 5 years have bought multiple properties as the market went up. Ultimately if you look at their entire debt/leverage situation across multiple properties it can get staggering.

  90. Pianist

    I think we are saying the same thing, Glenn. I say live below your means so you can have an emergency fund and save for your retirement. That’s the same as living within your means by allocating x% to retirement savings and the emergency fund.

    I find elders who have been through the depression tend to view with amazement some of the luxuries we acquire. They just can’t understand how those things add to enjoyment of life.

    My parents would rather pay for plane tickets to have the grandkids visit than have a luxury car. They believe their true wealth is in their family.

    I don’t find my parents to be unique. Many of that generation want to leave money to the kids and grandkids, for things such as advanced education. They are concerned about where the U.S. economy is heading. They understand that they benefited from an upward trajectory but that their descendants may not.

  91. Laura Louzader

    Hey, wealth is great and so is luxury, but waste is criminal.

    I’ve noticed that many people in all income brackets expect a vast menu of community services, then wonder why their taxes are hiked to intolerable levels. In the case of these wealthy outer suburbs, the “service” that they expect but don’t want to pay for is the vast amount of extra road, cable, and pipe mileage per household that accompanies the three-acre-lot lifestyle.

    Likewise, in my moderate-bracket community, and in the rest of the city, people don’t want to realize that Da Mare’s monument-building projects, and things like assistance for moderate-income home buyers, and evermore new parks and recreation, have a price tag. People demand these things, then have gran mal seizures when the county announces a new tax hike.

    It is another part of the modern mentality common to all of America, that we should get endless freebies with no price tag attached, and it spills over into people’s personal spending and debt accumulation.

    I don’t blame people for wanting to keep as much of their own dough as possible, and there is absolutely no question that our public officials should be held accountable for the unspeakable waste, corruption, and massive misallocation of our money, especially here in Crook County, IL. However, a good community comes at a price, and there are certain services and civic amenities that are indispensible to maintaining one, so people need to consider what they are willing to pay for that, and what sort of trade-offs they are willing to make either direction.

    In the case of many formerly super-affluent homeowners in Hinsdale and other such places, high-end homes were mortgaged for outdoor kitches, tennis courts, and “in-town” condos costing $2mm or more in glossy downtown Chicago buildings, to stay in for a weekend of opera-going and eating at expensive restaurants. One mansion in Hinsdale was mortgaged for $3MM a few years ago, and sold at a recent foreclosure auction for $1.3MM. What a tragedy- to be in possession, however briefly, of such a trove of wealth and to literally throw it down on the ground. I don’t know what kind of condition these owners could be in after a disaster like this, but they obviously couldn’t afford the house or mortgage, and now have a $1.7MM deficiency judgement. I can’t imagine even a high earner being able to recover from that.

  92. Laura Louzader

    You have to be right…. I can’t think how else so many people bought expensive second homes, and so many other people were able to buy entire blocks of thirty or forty condos in luxury buildings for the purpose of flipping them.

    People were pyramiding the fake equity all the way up, until one day about a year and a half ago, there were no “greater fools” left.

  93. FairEconomist

    Our government is far too small and too weak. This financial/housing crisis we’re going through now is as clear a demo as you could possibly wish that the free market cannot regulate itself. Taxes probably don’t need to be raised, beyond cancelling Bush’s ridiculous tax cuts – we could get enough for the many things we need like universal health care if we didn’t spend so much money on bombing Iraqis.

    The reason nobody – even Bush – is suggesting the stimulus go to the rich is that the rich will indeed invest and create jobs – in other countries. We need it here.

  94. 25w100k+

    Wow. A good lot of you are a depressing bunch. Somehow responsible money management values were corrupted in your little minds to the point where you glorify the traits of the miserly.

    Now you judge your self worth by how much money is in your bank account, or how much you can penny pinch here or there. Scorning all those who simply *must* be living beyond their means, all while being miserable.

    I’m just curious how long the happiness will last once you can afford your dream house, despite being old, never haven eaten a meal out, driven a nice car, or otherwise enjoyed life.

    Call it the naivety of youth, but I believe in both saving money *and* enjoying life.

  95. Pianist

    Yeah, I feel like a loser because I didn’t buy a house 100% financing teaser rate with upgrades added to the purchase price and with cash back at COE so I could live in a palace for a few years, buy some toys, and vacation in Bali, until the rate adjustment became unaffordable and then walk away from my purchase money non-recourse debt in the glorious state of California.

  96. Irvine Soul Brother

    Wow, you mean it’s possible to save money *and* enjoy life?

    That seems to be the rebuttal I hear every time I or anyone else brings up even the hint of frugality.

    From what I know about the people here, there don’t seem to be many true misers, and many of them can afford their dream homes already, they just want to save a few (hundred thousand) dollars on them and are willing to wait a few years.

    If you can piece together a scenario of where the hundreds of thousands of money went that these people pulled out of their homes and how that represented anything resembling responsible, please enlighten us with your fresh and youthful take on the situation.

    You equate money with happiness, hence your handle. I don’t know how youthful that idea really is. . .

    I have the full article above if anyone is interested. That’s the research that basically kicked off the modern “Positive Psychology” movement.

  97. lawyerliz

    Great snark.

    My Estate is paid off and I have this feeling that to balance the good and bad in the universe, something awful is going to happen. Somebody very sick or killed in the family.

    This is silly I know, but true, as to how I feel.

  98. lendingmaestro

    25 w100k

    If your name is truly indicative of your financial situation, then I must say you are a true rarity. There is simply no chance in hell that you graduate from college 3 years ago and have managed to save 6 figures worth of after-tax dollars.

    Either you are a brilliant entrepreneur or a trust fund baby. Either of these two options is representative of about .005% of the countries population.

  99. tenmagnet


    BTW forgot to thank you for calling out my Trojans last week.
    I think your posting that stupid UCLA fight song worked its magic.
    SC laid a nice beat down on your lady Bruins this past Sat.

  100. CK

    Right on Ten Magnet! I was trying to remember who posted that UCLA song — forgot it was IPO. It might be just my imagination — but walking through the cube farm today, I swear I see a lot less blue and gold flags sticking up.

  101. tenmagnet


    Funny, I noticed the same exact thing. Less eye contact as well. I’m already having trouble collecting on those free lunches.

  102. skek

    No, the reason nobody is suggesting the stimulus go to the “rich” is that the Democratic Congress will not allow it in an election year. Do you honestly think Bush would have proposed the same package if he had a filibuster-proof Republican Congress? Everybody understands in an election year the government has to appear to be doing something. This was a compromise that both parties can defend to their bases.

    “Our government is far too small and too weak.” Do you really believe that the US federal government is too small and too weak? I shudder at your idea of too big and too intrusive.

  103. Hmmmmm

    I believe this comment from another board, sums it up nicely…

    “I am a “Gen X-er” interested in buying a home, but have been renting until the right price, location, and size came on the market. Just when I was about to give up, the “Housing Boom” ended!

    The problem is that I found my dream home. The owner paid 133K in 2000, and now has been trying to sell it for 475K! To add insult to injury, she has been “semi-retired” since moving in her house at age 45, living off of her periodic refinancing and hardly working at all over the past 7 years. Luckily, she is now in foreclosure from excessive HELOCs, very little of which actually went to improve the property. I expect to get a great deal on the property this year. The greed of the previous generation now trying to sell their homes is astounding. How can you expect to walk away from your home with almost 3 1/2 times what you paid for it, simply by just living in it for 7 years? I’m sorry, but I have very little pity for this group that thinks they can get something for nothing.”

  104. tenmagnet

    Well if that’s the case, I may need to roll with this guy to Opah in Irvine. Sugar momma central there on Thursday nite.

  105. seattlegameboy

    Man Skek, thanks for your post. I needed the laugh today.

    As for fiscal responsibility — conservatives are for smaller government, not the liberals. Granted, it is easy to get confused — Bush 2 is not a traditional conservative in many ways.

    Correction – conservatives are for smaller government when it is politically expedient. In practice, they spent even more money than so called “liberals”. The Republican Congress (let’s not just blame W) grew spending faster than the previous Democratic Congress when they have nobody to check them. I think we can safely retire this myth that conservatives are for smaller governments – it is simply not true.

    And Iraq War is relevant to economy as most of the GDP growth during W’s presidency has been around the housing bubble, the increased government spending (see above), and spending on Iraq War. And it is because of this uncontrolled spending (including the war that we cannot afford) we have dollar that is in the toilet and the very real possibility of stagflation.

    Reducing capital gains, reducing top marginal rates, reducing corporate tax rates and eliminating the death tax (any of which will help business owners like you), all have pros and cons, but all are genuine attempts to help the economy.

    HA! That is a laugh. Are you one of the supply-siders that has been debunked by economists over and over again? US had the highest rate of GDP growth when the highest marginal tax rate was 70%. While it is a good idea to reduce taxes during recessions, cutting the top rate is not the best way to go. And I fail to see how allowing billionaires to pass their wealth to their scions like Paris Hilton who have absolutely no motivation other than to party their lives away. You don’t pay ANY tax for inheritance below $1.5 million, so small businesses are already covered. This is supposed to be a Republic, not monarchy or oligarchy. There is no reason to encourage “extreme wealth” for people who do not deserve them.

  106. ex-Tangelo

    “the Democratic Congress will not allow it”


    As if.

    Name ONE thing the Losercrat – Surrendercrat – dumbasses have been able to do since getting the majority. Instead they’re being slapped silly by the lame duck Mr 26%, least popular President EVER. They can’t even tie their shoes, much less dictate policy.

    I’d have thought they’d at least make a Michael Moore national holiday or something. Or nationalize Starbucks. Or force us all to gay-marry. Where ARE these powerful librul hippies and their communism all ya’all keep yammering on about?

  107. irvinesinglemom

    I wouldn’t reject you because of your car; I’d reject you because of your need to use crude language rather than articulate your thoughts intelligently. In case you hadn’t noticed, the culture on this blog does not support potty-mouth.

  108. fensterlips

    How long have you shopped at Costco?

    I agree that they tend to have good prices from the outset but I receive at least one booklet from them every 2 or 3 months full of coupons to clip out and bring in to redeem for an even better value.

  109. Major Schadenfreude

    Its a long season and there will be another meeting yet!

    PS: Thanks for Norm Chow!!!!!!!

    Go UCLA!!!!!!

  110. lendingmaestro

    There are massive falts in both parties. There is a reason why George Washington suggested that we avoid the establisment of political parties. So much for that, huh?

    I just have a hard time aligning myself with a party (the Democrooks) who pretend to stand for the average working american. Well, why don’t we all strive to be above-average working Americans? I can’t stand the “woe is me” mentality of democrats. The hand-outs and bail-outs for people who want nothing more in this life than to be mediocre. I see jealous little children who are too lazy to better their lives and moan and complain about what others have and what they themselves do not have.

    The Republicans are just as retarded. They only care about the same things as the democrats do, getting re-elected. Many of them wine and dine in Larry Kudlow’s fantasy land of low interest rates and non-stop corporate earnings growth. Nevermind that there is a rapidly accelerating gap between the upper, upper class and everyone else. Just as democrats whine about what others have, Republicans ignore what others don’t have.

    I’ve given up on our incompetent, corrupt congress a while ago.

  111. skek

    “Correction – conservatives are for smaller government when it is politically expedient. In practice, they spent even more money than so called “liberals”. The Republican Congress (let’s not just blame W) grew spending faster than the previous Democratic Congress when they have nobody to check them. I think we can safely retire this myth that conservatives are for smaller governments – it is simply not true.”

    I’ll concede that the Republican Congress, like W, has been a disappointment on this front. That’s why I switched from “Republican” to “conservative” to make this point. But conservatives *are* for small government. Unfortunately, Republicans have too few conservatives in government, and too many who subscribe to the Tom DeLay school of political patronage.

    “And I fail to see how allowing billionaires to pass their wealth to their scions like Paris Hilton who have absolutely no motivation other than to party their lives away.”

    Wow, gameboy, can’t you come up with a more obvious strawman than that? You are right, anyone in the top tax bracket has to be just like Paris Hilton! They couldn’t have possibly worked for their money and they definitely don’t deserve to keep it. Of course, nobody has ever sold a small business for more than $1.5 million. And I’m sure there are no doctors or engineers or entrepeneurs who make that kind of money. So let’s set tax policy based on what Paris Hilton deserves. Try again.

    Sadly, when you peel off all the self-righteous anger and superficial populism from people like gameboy, at the core is usually envy and hostility for people who have done well in life.

  112. 25w100k+

    I didn’t go to college. I’ve been working in the software industry since I was 18. I’ve always spent less money then I made. Hence i’m doing decent with my future downpayment fund.

    But I’m happy I also have had a lot of fun along the way, opposed to an extra 15k in the bank or so.

    Honestly, money doesn’t mean all that much to me. When I was just starting, making 45k a year, I drove a really old bwm, ate at del taco and olive garden a lot, and owned an older computer.

    I make a lot more then that now, but my lifestyle hasn’t changed all that much. My bmw is newer, I eat at del taco and spaghettini, and my computer is a little nicer.

    The reason for the original post was to point out how silly it looked for so many of you to take joy in other people’s (sometimes self inflicted) tragedies, simply because they lived an enviable lifestyle.

    Take joy in their forclosures and bankruptcys because you can buy a cheaper house, not out of wrathful jealousy.

  113. ipoplaya

    Don’t remind me… My boys sucked. SC beat ’em ugly. My beloved Packers lost too. Trevor Ariza broke his foot as well. Not a good sports weekend for ole IPO.

  114. ipoplaya

    Man, a Corolla, sheez… Saving money is great, but there has to be a limit somewhere. If you like little cars with no guts, at least get a Prius. Maybe the ladies will like you because you are “green” in that case.

  115. surfing in newport

    capital gains are almost always related to passive investments (unless of course your are a private equity investor), so those with the lowest marginal tax rates are typically those that are the richest. Working professionals in OC are the ones being taxed the most and W did little to reduce that burden while providing HUGH breaks to the very richest.

  116. IrvineRenter

    If you think the schadenfreude is rooted in jealousy, then you really don’t understand what many of us have been saying about this behavior. This lifestyle is not enviable, it is reprehensible.

  117. tonye

    What’s really sad is that refinancing in 2003 was pretty much the right thing to do. That was the real through in rates and 30 year fixed jumbos were around 6%.

  118. skek

    surfing —

    Agreed on the capital gains point, and that’s a little understood fact. For example, even though I’m a Republican, I don’t like that Romney’s “0% capital gains rate for persons who earn less than $200k in income” is a disingenous giveaway to hedge fund managers with carried interests and corporate execs who take “small” salaries yet cash in millions in stock options.

    Capital gains rates should be low enough to encourage savings and investment, but I personally believe that we shouldn’t lower the capital gains rate further until we’ve lowered income rates at all levels (to relieve the working professionals, many of whom pay at the highest marginal rates) and balanced the budget.

    Bush’s tax cuts did eliminate Clinton’s top marginal rate of 39%, and that helped numerous working professionals in OC.

  119. fensterlips

    I don’t know how the Highway Trust Funds have been spent in your neck of the woods, but in the parts of California I’ve lived in the returns on investment have been abysmal.

    In the 1970’s Jerry Browns Director of Transportation, Adriana Gianturco, canceled nearly all the new road infrastructure explaining that a new day was dawning and we needed good public transit. The freeways and highways were canceled but the high speed rail and subways were never built. Instead the bickering and fights over Rights of Way, buses versus rail and Inter-City versus Intra-City heated to a crescendo.

    Since the allotted funds were not being spent on infrastructure improvements, the public employee unions geared up for a pay and benefits campaign that would bring Christmas early. It used to be that a public agency employee sacrificed pay for security and a good pension. This is no longer the case, at least not in California. The State and government employees are some of the best paid in the nation with incredible benefits plus a fully paid pension to boot. It bought peace and quite at a price to be paid by our children. The complaints about Social Security running out of money don’t hold a candle to what CALPERS and other pension agency shortfalls will see as the Baby Boomers retire — never mind Gen X.

    We have fiscal irresponsibility bombs that will start going off, and Subprime will be the least of our worries.

    Well, these same governments that gave huge benefits and outsize pay raises to their employees are now coming to us and saying, “Gee, if you won’t pony up a few dollars more, there’s no way we can build the 21st Century transportation infrastructure.”

    The duplicity is incredible. How do they restore public trust when they can get nothing done, and get nothing built? How do they fix their budget when everyone is earning big paychecks, getting full benefits and look forward to a fully funded defined benefit pension??

    I just hate giving them any more money when they have nothing to show. They are mortgaged to the hilt with obligations that would embarrass even some of the FB’s we highlight here.

    I would love to wait for the trains holiday schedule, actually any schedule. The SF to LA high speed rail is one of my favorites, right after the LA to Las Vegas train……

  120. BD

    Hi IR –

    Futures contracts are trading and so are US stocks on foreign exchanges. Tomorrow is looking like it is going to be incredibly ugly. European and Asian markets dropped between 3.5% and 7.2% (Germany)! This move doesn’t look rational or porportional but, it is what it is… Maybe we are lucky and we get that capitulation sell that allows new buyers to come into the market. BTW, this is what needs to happen in housing! Too bad housing is so illiquid. This just means it will take longer for prices to find fundamental equilibrium and support. With all of this wealth being obliterated in housing or the markets it makes one wonder aloud how people will come up with downpayments unless prices come down dramatically.

    I’ve said this before but, I believe people’s belief that we will only roll back to 2003 pricing because of inflation and rising rents could very well be in error. What if we have a significant local or national or global recession? If this happens all bets about 2003 prices being support will be amazed at what happens. Just IMHO…

  121. BD

    …I posted this above but, here it is again. What does the board think? Are we heading for an ugly recession? And, if we are how does that change the thinking about the ‘bottom’ in housing prices…?

    Hi IR –

    Futures contracts are trading and so are US stocks on foreign exchanges. Tomorrow is looking like it is going to be incredibly ugly. European and Asian markets dropped between 3.5% and 7.2% (Germany)! This move doesn’t look rational or porportional but, it is what it is… Maybe we are lucky and we get that capitulation sell that allows new buyers to come into the market. BTW, this is what needs to happen in housing! Too bad housing is so illiquid. This just means it will take longer for prices to find fundamental equilibrium and support. With all of this wealth being obliterated in housing or the markets it makes one wonder aloud how people will come up with downpayments unless prices come down dramatically.

    I’ve said this before but, I believe people’s belief that we will only roll back to 2003 pricing because of inflation and rising rents could very well be in error. What if we have a significant local or national or global recession? If this happens all bets about 2003 prices being support will be amazed at what happens. Just IMHO…

  122. homekitty

    I would be willing to bet my 401K that the majority of the people that participate in this kind of fraud can very easily leave the country.

  123. fensterlips

    Well, not withstanding your F-Bomb of astonishment, I think a lot of people leaked their money like a sieve.

    When you think you have a lot of money, it will leak out left and right. This isn’t just paying bills — even the bills for the HELOC and the first mortgage, it’s the meals out, the nice schools, new cars every two years, and oh, a vacation to Hawaii would be nice.

    We sold our house near the top of the bubble to rent, but I have family members who couldn’t resist the sirens call to tap the equity for everything you can imagine. I think of it as couples earning $150K a year spending as if they were earning $250K a year with no idea of a budget. They have nice cars, vacations, pre-paid college for the kids and the requisite granite countertops with stainless appliances.

    I don’t think they could tell you where it all went on a bet.

    I think of it as the Britney Spears Lite lifestyle…:-)

  124. fensterlips

    I agree that there’s little depth to thinking, or thinking for oneself.

    I didn’t vote for the Current Commander in Chief, and from your barb, I suspect you didn’t either.

    I do think the blog and the posts are a lot nicer to read if we stick to real estate.

    I refuse to read the Calculated Risk Blog not because it isn’t good – it’s actually excellent, but since the owner insists on sliding in political asides directed at hatred for the current administration I pulled the bookmark and don’t look back.

    You might want to go to the Huffington Post as a better forum for politics.

  125. ice weasel

    Comment by Perspective
    “But I don’t know a single person who went crazy like the examples here.”

    Then, with all due respect, you don’t get out much. I know of more than a dozen people who have pulled this stunt and none of them live in California (four other states). Which, of course, isn’t to say HELOCing your way into a higher standard of living isn’t common in Socal. I know it was. But to suggest that it’s only Socal is a bit naive, don’t you think?

  126. fensterlips

    Nice rant, but I think you’re in the wrong blog.

    I think a little close examination will show that we can thank Alan Greenspan for allowing 2 bubbles on his watch.

    As I recall it was Bush #41 who first put him in, but Clinton ratified him twice. The tech bubble was on Clinton’s watch and the RE bubble on Bush #43

    I think this kind of posting leads to less support and belief in what remains of the Democratic Party. Seriously, do you think people capitulate and think, “Where did I go so wrong?” after reading your post?

    It reminds me a lot of the Progressives around me here (in the Bay Area at the moment).

    You know, they can’t figure out why everyone is turned off instead of embracing their point of view.

    Imagine that…..

  127. ice weasel

    And trying to stay as non-political as possible, I wonder how many people here complaining about the government are actually involved in their government? How many emails a week do you send to your elected representatives? Do you contribute time or money to people you believe in running for election? Have you ever gone to a city council meeting? Do you do more than simply cross off the party you feel best about when you vote and then, afterwards, cynically complain they’re all incompetent crooks?

    I’m not accusing anyone, I’m asking. Before you complain here, or anywhere, about the government have you done everything in your power to make that government work?

    I’m as disgusted with the failures of our elected governments (city, state and federal) as anyone here. This isn’t a defense of government as an institution, it’s a question of how much responsibility do each of us think we should be taking for what’s going on.

    There’s a commenter here who regularly espouses the pure capitalist idea that if it makes money and you’re not convicted for doing it, it’s all good and, to take a step further “we’re” suckers for thinking that’s not the case. Maybe that person is right but isn’t the end result of years of that thinking what we’re seeing now?

  128. Stupid

    Re “Human nature is to spend everything you make.”

    I’d say IR is more with the times there (except perhaps it’s more like … human nature is to spend everything you anticipate making soon – ie. the bonus is spent before you get the check).

    However, per Paul Krugman’s column today…
    The big problem with attempts to provide temporary economic stimulus is how to ensure that the money gets spent. As Milton Friedman pointed out 50 years ago, consumers tend to base their spending on “permanent income” — the income they expect to have over the long run — rather than their income in any given year. So an $800 check from the Treasury tends, other things equal, to be mostly saved rather than spent.

  129. CapitalismWorks

    I wouldn’t say the markets are oversold. We are still at 15-16x trailing earning on S&P500. Trailing earnings that were high mind you. The updated trailing P/Es on falling earning particularly on financials is going to be boosted upward (redundant I know). So taking the long term average P/E of 14-16x I would say the markets are rights around fair multiples. The big question however is whether those historical averages are justified by 1.5% dividend payouts and anemic long-term growth prospects…

    Oversold? Perhaps not.

  130. tonye

    Aaagh…. we have a Civic Hybrid. What I think is the Driver’s and Thinking Person’s hybrid.

    Research the IMA vs Synergy concepts and you will see that the Honda system is much more sensical.

    The Synergy system is underwritten heavily by TMS and can not be sustained. Only by selling those V8 SUVs and trucks can Toyota afford to sell the Prius at a discount.

    Indeed, Toyota is as much a PR company as the title of this IR’s post. Mortage the money from the unsustainable SUV sales to wink people into believing the company is green and has an actual solution.

    HMC and AHM, OTOH, do not subscribe to this. They have created a system that can be sold for a profit and this is sustainable. Drive the Civic hybrid and it feels like a normal car, with the gauge cluster where God and common sense dictates.

    Of course, the Prius is an ostantatious car for ostentatious people. Hell, I see a few of them around here too. I’ll bet they have outdoor Vking kitchens too.

    We have a BBQ’s Galore.

    So there.

    Prius? Yuck! Just another PR product for ignorant ostantatious people.

    And don’t even talk about the RX400hi or the Chevy (Yukon?) hybrid or the Ford Escape Hybrid? WTF?

  131. tonye

    The only place an outdoor kitchen makes sense is Hawaii. It’s not overly humid and the temps are nice all year long, day and night. So, as long as you got some mosquito repellent, an outdoor setup makes a lot of sense.

    Eons ago, when I lived in Oahu, we spent half our lives in the lanai (morning and evenings) and indoor by the AC (middle of the day). In the winter it was an outdoor affair all the time.

    Of course, if you move to the Windward side then you stay in the lanai all the time.

    Good rum too.

    A cigar lover’s paradise.


  132. Flubber

    Seller might as well slash another 100K off these asking pricesright now– while we celebrated MLK day the global financial markets crashed, and are crashing further tomorrow. Say hello! to unemployment and goodbye! to any turnaround in the housing market for the next few years…

  133. tonye

    We’re gonna put some Stalag 13 like towers in the entrances to TR. To keep the riff raff out. Only three significant points of entry that we can cordone off. The TR Apartments and the walls on the perimeter may be an issue was they are taller now and we have brand new lights courtesy of the City.

    We might as well ring Uni as well.

    Also, there’s talk about moats and bridges on the freeway exits.

    Personally, I will sacrifice the flatlands… There are too many points of entry and the geography is too open. In TR we can control the entries easily at the passes.

    Bring in Los Federales Amigos.

  134. tonye

    One of our favorite restaurants raised their prices in 03 so that dinner for four was over 300 bucks. With a so so bottle of wine. Before that, it was around 200. Went up 50% in a year.

    Miind you, this is The Arches in Newport and the food is really, REALLY good but no way in hell will I pay Ritz Carlton Dining Room prices at The Arches. So we haven’t gone for years.

    Maybe now all of these restaurateurs will come back to reality and lower the prices. Besides, Georgia Frontiere used to eat there and now that she’d dead there goes _that_ part of the very rich business.

    I’m not holding my breath, because there are still many really rich folks around, but I wouldn’t mind it at all if The Arches went back to charging less than 30 bucks for the Prime Rib.

  135. surfing in newport

    FYI, most options are taxed as ordinary income when they are exercised. Like I said, capital gains are supposed to have nothing to do with “working”.

    The idea of the lower tax rate for capital gains is that you already paid taxes on the money once. But, I paid taxes on the money I spent on Graduate school. You pay taxes on the money you put in a savings account and those returns are all taxed as ordinary income.

    The other “lie” that they say is that we need to make up for inflation. If you have enough money to invest long term, you probably are not investing it all at once and all in the same asset, so you are continually investing and continually cashing out of assets. So what’s the difference there? Just like a bank account, add a little every month and get a return every month.

  136. IrvineRenter

    I think there is still plenty of room for equities prices to drop further. I was just pointing out that prices have dropped precipitously over the last month which creates a short-term oversold condition in the markets. My guess is that stocks will bounce back up to technical resistance levels before rolling over and making even lower lows.

  137. IrvineRenter

    2003 pricing will be a milestone we pass this year. 2001 prices will be closer to the bottom.

  138. IrvineRenter

    Personally, I will probably save the money, but I suspect the vast majority will spend every penny of it within 30 days.

  139. Stupid

    Coupons are good.
    Rainchecks are even better.

    Often, the local grocery store price leader is sometimes sold out, so you can ask for a raincheck (which is good for several months, if not forever)
    Then come back a day or two later and find the price leader in stock & buy it and stock up.
    Then a few months later when it’s not on sale, pull out the raincheck.

  140. tonye

    I think you owe me $537.900. I shall accept a payment of $3221.78 per month for 30 years after you give me $20K for the privilege of indebting yourself to me.

    There shall be a prepayment penalty of 10% of the outstanding balance.

    Early principal prepayments shall be assessed a handling fee of $50 or 10% of the amount whichever is larger.

    Make the payments to my Credit Union Account:


    Payment due on the 1st of every month, rain or shine, weekend or holiday matters not. After the 15th the payment is 3532.34.


  141. lorrieambrosino

    In reference to what might happen tomorrow-what is a dead cat bounce and what is a freefall?

  142. Jake

    We don’t really know why these people took out HELOCs. Maybe they were being irresponsible. Maybe they were dealing with a major health crisis. You never know. But I think it’s wrong (and possibly even cruel) to simply assume bad or irresponsible motives without evidence. It’s the one thing that bothers me about this blog.

  143. IrvineRenter

    I suppose it is possible that someone developed a chronic condition (4 years) not covered by insurance requiring hundreds of thousands of dollars in treatment that just happened to correspond to the real estate bubble.

  144. ipoplaya

    We’re not going to have a dead cat tomorrow IMHO. A DCB occurs during oversold conditions and is moderate rise in the prices of a stock or stocks without some underlying improvement in fundamentals or overall short to mid term sentiment. I don’t think there has been enough volume on recent selling to create a seriously oversold condition. If BofA were to come out with surprisingly good earnings maybe, but I doubt that will happen…

    I vote for freefall and will be loving every point of it. Go bonds!

  145. ex-tangelo


    A dead cat bounce is a term used by traders in the finance industry to describe a pattern wherein a moderate rise in the price of a stock follows a spectacular fall, with the connotation that the rise does not indicate improving circumstances. It is derived from the notion that “even a dead cat will bounce if it falls from a great height”.

  146. Lost Cause

    The people who really have lots of money are always trying to look low-key. Tee shirt, shorts and flip-flops seems to be the dress code.

  147. ex-tangelo

    P.S. Traders have lots of pet names for supposedly significant shapes in charts. They are just manifestations of “apophenia” – seeing meaningful patterns in randomness. It’s natural – humans are incredible pattern-finding machines.

    The term was coined in 1958 by Klaus Conrad, who defined it as the “unmotivated seeing of connections” accompanied by a “specific experience of an abnormal meaningfulness”.

    In statistics, apophenia would be classed as a Type I error (false positive, false alarm, caused by an excess in sensitivity). Apophenia is often used as an explanation of some paranormal and religious claims.

    Conrad originally described this phenomenon in relation to the distortion of reality present in psychosis, but it has become more widely used to describe this tendency in healthy individuals without necessarily implying the presence of neurological or mental illness.

  148. lendingmaestro


    I have done dozens and dozens of HELOCS in the last 4 years and I can tell you they were all to payoff credit cards which were already utilized, home improvement (much of which was frivolous), to buy another property, or to buy an automobile.

    I don’t remember a single soul who was using a HELOC to invest.

    So yes, since I was originating these HELOCS I CAN tell you why they took them out. That mistakenly took it as “free cash” not a debt that needed to be paid back.

  149. Formerbanker

    IR, I remain a big fan, but as I’ve posted previously, I believe there are plenty of people like me who have large but unused HELOC’s – a source of cash to tap in the event of unforeseen circumstances. It cost me nothing to increase the HELOC over the past several years – geez, it seems almost imprudent not to have one (don’t most people have more than one credit card jsut to have a backup ?). I never considered using it as an ATM card. But then again, I am also comfortable driving a 10 year old car.

  150. Lost Cause

    Humm. For a minute there, I thought you were going to go off about the redundant kitchens, as if Americans don’t have enough ways to stuff their faces.

  151. Lost Cause

    You are right about Honda having the superior system. And I like the normal car idea — I don’t like what they did to the egghead Prius. Before that, they were normal too.

    My normal gas burning VW gets better milage than the Ford Escape Hybrid. I laugh when I hear them bragging about those numbers.

  152. Roberta Murphy

    Perhaps the HELOCs were drained; perhaps not. We keep a substantial one open on our property, waiting for perfect opportunities.

    It is the primary mortgage on this property that presents the most concern.

  153. Boston2TheBay

    I’ve eaten at the Arches; I thought the food was terrible. The biggest joke of a prime ribeye I ever had. I was more impressed with The Ritz. Bypass them both for a night at Tsuruhashi in Fountain Valley, where you can have prime and Kobe ribeye yakiniku style. You might even run into Ichiro or Matsui if the Yanks or Mariners are in town.

  154. ex-tangelo

    Like, Ohmigod! My Orange County roommates thought I was like totally gay because of the car I drove. Then they met my girlfriend, you know, and they like were totally, like, omigod. That is SUCH a girl car, they said.

    Both were deep in debt; one was getting collection calls, took a second job waiting tables … at Hooters. The other got pregnant – suprise! Didn’t think she could get pregnant, she said…

    My girls are growing up in California… oh. man.

  155. Lost Cause

    Don’t people realize that HELOC is just a loan, that will have to be paid back?

    This is all that is needed to unlock the real estate market again. Free money handed out in wheel-barrows, just like the last time.

    Or they will have to lower prices.

  156. patientrenter

    Formerbanker, I think IR is saying that spending large amounts of HELOC money is unwise, and worse. I didn’t see him say anything bad about setting up an unused HELOC as an extra source of emergency funds. That just seems prudent.

  157. Lost Cause

    Hedge funds exploding and derivatives unwinding — it is going to get vey ugly. The increased volitility seen over the past few months is definintly leading up to something. The icing on the cake was Dubya deciding to do something to help.

  158. c.tucker

    Check the stats on fine dining revenues for the last 7 years and you’ll see it’s gone up, Up, UP. Not just the average tab per person but the frequency per week. Same with consumer electronics, people don’t buy something when the old one wears out, they buy a new one when its a different color or smoother or comes in the new Autumn Berry Mist scent.

    Most of that money has been disposed of, one way or another.

    On the other hand you can find some great stuff on craigslist nowadays and its gonna get even sweeter

  159. tonye

    Then you must have a bad night… or maybe since I quit going there in 03 the place had gone downhill.

    The Ritz offers different type of food. Much more complex so I don’t compare them.

    Nowadays, if I want a nice steak, I buy a nice piece of meat, like a Ribeye Roast, cut our own thick steak and grill them on our BBQ. Since that baby is a four burner from BBQ;’s Galore, it get mighty hot and sizzles the steaks. I’ve even experimented with aging my own beef in the back of the fridge and it works quite well. Takes about two weeks or so.

    Sushi wise we’ve been going to Goro’s right off Alton and Culver. The trick about a sushi bar is knowing the chef, and as my wife is japanese we eat real sushi.

    I will look into Tsuruhashi. Thanks.

    Ichiro? Yeah.. my mom would love that. She’s a hardcore Mariner’s fan. 😉

  160. Ed

    Perhaps this is why the ‘Books of Moses’ ban lending money for profit.. But then what would all these people with no talent do, eh?

  161. 25w100k+

    So your saying its bad to take HELOC money to pay for a car, and instead to finance it through some auto-company?

    Or maybe your suggesting we all pay cash for our cars. 😛

  162. Formerbanker

    I hear you and agree…the thing is, one cannot tell what $ amount of a HELOC is utilized by looking at public records – the lender will record a DT for the full HELOC amount, but comments typically assume that those $’s are all used. We really don’t know for sure unless we have a short sale situation and the lender’s NOD shows the amount owed…

  163. ipoplaya

    Hey Alan, did you sell your AAPL? It’s down 10% in after hours trading…

    Remember IPOs advice – “I’d be surprised if AAPL can rally the market. Looks like traders have been reducing exposure to Apple since early January. Most bets have been on an earnings disappointment…”

  164. zornundo

    Wife and I drive paid-for 2006 Hyundai Accents. Feels great. I wouldn’t think about driving a more expensive car. I’m putting a lot of miles on this thing and a more expensive car just means I’m destroying more value.

  165. Doug

    Great comment Kirk.

    We need a President that can maintain such a tight grip on Americans that he can stop them from being stupid or thoughtless or greedy or shortsighted.

    I hate it when people blame the government for their own shortcomings. Take responsibility people.

  166. Roberta Murphy

    Perhaps the HELOCs were drained; perhaps not.

    It is the primary mortgage on this property that presents the most concern.

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