Open Thread 1-10-2009

Band on the Run — Paul McCartney & Wings

Stuck inside these four walls, sent inside forever,
Never seeing no one nice again like you,
Mama you, mama you.
If I ever get out of here,
Thought of giving it all away
To a registered charity.
All I need is a pint a day
If I ever get out of here.

My passage with the Credit Siren

I want to share with you a personal experience today: my passage with the Credit Siren.

For those who remember their Greek mythology, the Sirens were singing seductresses who with their beautiful songs lured sailors to their deaths by crashing their boats on the rocks. The Siren Song has become a metaphor for pleasure or vice that leads people to their own destruction. On this blog, I write frequently about the Siren Song of HELOCs that caused so many homeowners to crash on the foreclosure rocks.

Any time someone writes about a behavior like that, there is the risk of the message sounding preachy or coming across as if the author is above falling victim to such things. I write about this issue in hopes that others will learn from it and recognize the folly for what it is. It isn’t about morality, a statement of right and wrong; it is about wisdom, recognition of what is prudent and what is foolish. I am certainly not immune to the Siren Song about which I write.

I have not always been wise about how I have managed my own financial affairs. I don’t know if I am even now. One thing I am proud of is the fact that I have no debt. I have been recently reminded about how difficult a discipline staying out of debt really is.

During December, I had too much activity in my savings account, and I began getting “excessive use” fees. Like many people, I was overspending. When I saw what was happening, I didn’t want to get any more of these fees, so I quit using my checking account until the bank cycle for December had past. I used my credit card for almost 10 days.

I felt like I was spending free money.

I went out to eat with family, bought a few presents for my son, and generally had a great time. Neither my checking account nor my savings account changed. It was really cool. It brought up all the old feelings I used to have when I used (and sometimes abused) credit years ago.

When the first of January rolled around, and I was able to get access to my checking and savings accounts without further bank fees, I knew it was time to pay the piper for my 10 days of fiscal irresponsibility. When I paused to reflect on what I did and how I felt while doing it, I was quite astonished to see how easy it was for me to fall back into old habits. I guess it is like being an alcoholic or drug addict. Once you stop, you better not ever start again.

I won’t be doing much in January. I spent all my discretionary income for January in December. I know where the rocks are, and I know how the Credit Sirens lead me there. Fortunately, I am at a stage in my life where I have the self-discipline not to listen to those Sirens and keep the family boat from crashing and sinking. Unfortunately, it means January is going to be quite boring…

While looking around YouTube, I came across this three part lecture series from former UCLA economist Christopher Thornberg now with Beacon Economics. He is one economist who correctly predicted the housing bubble. This series is excellent.

Real Estate Bubbles and California’s Economic Growth, Part 1

Real Estate Bubbles and California’s Economic Growth, Part 2

Real Estate Bubbles and California’s Economic Growth, Part 3


If you like academic reviews of bubbles in general and the housing bubble in particular, here are two more videos for you:

Crash Course: Chapter 15, Part 1

Crash Course: Chapter 15, Part 2

More Artticles Online:

Roberts, Lawrence D. “Flip That House – Houses Were Traded Like Commodities.” Flip That House – Houses Were Traded Like Commodities—Houses-Were-Traded-Like-Commodities&id=1817794

Roberts, Lawrence D. “Fundamental House Value – What Are Houses Really Worth?.” Fundamental House Value – What Are Houses Really Worth?—What-Are-Houses-Really-Worth?&id=1817732

Roberts, Lawrence D. “Housing Bubbles As Cultural Pathology.” Housing Bubbles As Cultural Pathology

Roberts, Lawrence D. “Housing Bailouts Are False Hopes.” Housing Bailouts Are False Hopes

Roberts, Lawrence D. “Future House Prices Are Dependent Upon Future Loan Terms.” Future House Prices Are Dependent Upon Future Loan Terms

Roberts, Lawrence D. “House Prices Fall – How Low Will They Go?.” House Prices Fall – How Low Will They Go?—How-Low-Will-They-Go?&id=1825189

Roberts, Lawrence D. “Housing Market Bottom – Price Action Estimates.” Housing Market Bottom – Price Action Estimates—Price-Action-Estimates&id=1825191

Roberts, Lawrence D. “Housing Market Bottom – Price-to-Rent Ratio Estimates.” Housing Market Bottom – Price-to-Rent Ratio Estimates—Price-to-Rent-Ratio-Estimates&id=1825193

Roberts, Lawrence D. “Housing Market Bottom – Price-to-Income Ratio Estimates.” Housing Market Bottom – Price-to-Income Ratio Estimates—Price-to-Income-Ratio-Estimates&id=1825194

Roberts, Lawrence D. “Hyperinflation and the Housing Market.” Hyperinflation and the Housing Market

Roberts, Lawrence D. “Interest Rate Resets on Adjustable Rate Mortgages Are a Problem.” Interest Rate Resets on Adjustable Rate Mortgages Are a Problem

Roberts, Lawrence D. “Learn to Identify Asset Bubbles Or Lose Your Money.” Learn to Identify Asset Bubbles Or Lose Your Money

Roberts, Lawrence D. “Unaffordable House Prices – Will it Last Forever?.” Unaffordable House Prices – Will it Last Forever?—Will-it-Last-Forever?&id=1841766

Roberts, Lawrence D. “Subprime Containment Theory Was a Lie.” Subprime Containment Theory Was a Lie

Roberts, Lawrence D. “Real Estate Bubble Fallacies – Can You Identify Them?.” Real Estate Bubble Fallacies – Can You Identify Them?—Can-You-Identify-Them?&id=1841776

Roberts, Lawrence D. “Housing Bubble – Why Should Anyone Care?.” Housing Bubble – Why Should Anyone Care?—Why-Should-Anyone-Care?&id=1841779

Roberts, Lawrence D. “Adjustable Rate Mortgage Payment Recast – What is It?.” Adjustable Rate Mortgage Payment Recast – What is It?—What-is-It?&id=1841780

Roberts, Lawrence D. “Real Estate Speculators Usually Fail.” Real Estate Speculators Usually Fail

Roberts, Lawrence D. “Debt-To-Income Ratios Impact on Residential Real Estate Markets.” Debt-To-Income Ratios Impact on Residential Real Estate Markets

Roberts, Lawrence D. “Real Estate Only Goes Up – Not!.” Real Estate Only Goes Up – Not!—Not!&id=1841747

Roberts, Lawrence D. “Real Estate Investment Versus Real Estate Speculation – What is the Difference?.” Real Estate Investment Versus Real Estate Speculation – What is the Difference?—What-is-the-Difference?&id=1841757

Roberts, Lawrence D. “How Do Debt-To-Income Ratios Impact House Prices?.” How Do Debt-To-Income Ratios Impact House Prices?

Roberts, Lawrence D. “Home Equity – What is It?.” Home Equity – What is It?—What-is-It?&id=1841771

Roberts, Lawrence D. “Paying Off Mortgage Debt is Becoming Fashionable Again.” Paying Off Mortgage Debt is Becoming Fashionable Again

40 thoughts on “Open Thread 1-10-2009

  1. Gindy

    One way to use credit cards effectively is keeping track of the balance daily. We use our credit cards to pay off all our household bills. American Express is great for making sure who we pay only takes what they should. If there are any problems, we call them up and sic them on the offending “vendor”. Problem solved.
    I keep track of our financial health and I check all accounts, from our banking accounts to our utilities on a daily basis. In 24 years of marriage we have never had ONE finance charge and our only debt is our mortgage, which we pay off an extra $1500 per month. While my husband’s 401K and our IRA’s were dented by this latest round of crashes, we didn’t lose even half of what more aggressive investors did and we still have enough pure cash to pay off our mortgage and our taxes and insurance until we die.
    You can use credit wisely, you just can’t let it use YOU.

    1. dafox

      My wife and I are in the same boat – we use CCs for everything. I think for some people, a casino chip isnt really money. For me, I still see $5 on the table whether its a chip or cash.

      There are many benefits of using a CC instead of a debit card/cash. They are only benefits if you do not feel like its free money. If you’re the type of person that doesnt ‘feel’ the money leaving you, then CCs are not for you.

      1. JoeSez

        I use a CC like a checking account I track ALL my spending and get a rebate on GM cars. Obviously I pay off every month.

        2003 Vibe was bought with a $3500 CC rebate from GM and $3,000 GM rebate (6,500 total).

        2009 Vibe we used a $2500 CC rebate on top of employee pricing.

        You get detailed tracking of finances AND if you have a dispute, the CC let’s you contest payment.

    2. Chris

      The best way to use credit cards effectively is to PAY YOUR BALANCE OFF EVERY SINGLE PAY PERIOD! I cannot believe people would have balances on their credit cards at all unless the APR percentage on the credit card is less than the APR that you’re getting on your CD minus the potential tax hit on that CD.

      1. Matt

        I have carried balances before… a grad student, that year’s loans wouldn’t usually come in until September. Every year, I wouldn’t be able to pay my August balance on time, but I would pay it all the next month. I considered the $20 in interest for a month a reasonable fee.
        I also carried a bigger balance when I moved down here as a professor. In the CSU system, they don’t pay a new professor until OCTOBER, yet I had to move my stuff down, have a bed to sleep on, have a table to eat on, have a fridge to put food in….that ended up being months of interest. Not because I was spending above my means, just because I was spending AT ALL.

        I, too, used CC points to get $1500 off a new car last summer, and should be able to do the same if we need to become a 2-car family. There are benefits…but you have to be sensible.

        My mom plays the balance transfer game; she’s clearly living above her means.

    1. maliburenter

      IR posted some time ago that he has a program which automatically puts the posts up early in the morning. He could have written it at noon the prior day.

    1. maliburenter

      And he had a ton of people telling him it would burst, both because of his stupid books on housing and his role as alleged economist at the National Association of Realtors.

  2. maureen

    I think on some level, we all have to fight the impulse to overspend. Personally I love credit cards because of the conveinience, but I keep a stack of all my receipts from both my visa and mastercard. Everytime I make a purchase, I add it to my pile and add the balance to remind myself what I have spent. I also pay my monthly bills with traditional checks, to force myself to look at how much everything costs each month. I have never had credit card debt. Works for me!

  3. Perspective

    This recession and housing bust could very become a transformational event, but I haven’t witnessed any slowdown in the Irvine-area economy. Just last night, the wait at BJ’s in the Marketplace was close to two hours! The wait at Yardhouse in Costa Mesa last Friday was close to one hour.

    I know the macro-economic data continues to prove we’re going deeper into this recession, but I’ll “feel” it when I can get a table on a Friday night with a short wait.

    1. Major Schadenfreude

      I drive up Newport Blvd. to the 55 every day and it seems I’m seeing more “For Lease” signs on that street (and elsewhere too). Just yesterday I noticed the used gym equipment place is all empty and there is an Italian botique clothing store a couple doors down that is having a going-out-of-business sale.

      This time it really is “different”, I’m afraid.

      1. irvinemommy

        I just got an email that Pottery Barn is closing its Fashion Island store on Jan. 18th. I can think of other stores that I thought would close at FI before a big chain like that.

        1. irvperson

          I talked to a person selling hotdogs at a stall Fashion Island. He has been there for years and might be the best person to understand the economics of what the recession is doing to that very upscale shopping center.

          He says that outside of the Apple store, all shops, especially the jewlery stores are really hurting.

          There has been very little traffic especially during the holiday according to him.

          1. Major Schadenfreude

            I don’t understand how those high end botiques at the South Coast Plaza can stay in business. When I was shopping this season, I would glance inside and see a well dressed sales clerk or two just standing there with no one in the store. I imagine a lot of those will be going away soon.

          2. TurtleRidgeRenter

            The hot dog guy is right. Fashion Island is a ghost town. I work at the Apple store, the exciting pace never lets up. When I walk past the other stores and see no customers and the salesgirls leisurely reading magazines, I am so jealous of their cushy jobs!

          3. TurtleRidgeRenter

            People are actually BUYING at Apple. And then bringing their friends in to BUY MORE. They’re mainly buying computers, but also the little stuff like iPods, iPhones and accessories. We’ve had an incredible year.

    2. zoiks

      “but I haven’t witnessed any slowdown in the Irvine-area economy.”

      No offense, but as far as Costa Mesa is concerned I think you aren’t paying attention or you are in denial. CM Yardhouse has always been packed. Less than an hour on a Friday night is slow for that place. I would like to offer counter-examples in Costa Mesa:

      1) Curiously, you picked the Yard House as an example, almost the only place left in Triangle Square. Go around the corner: virtually *all* the shops in that mall are closed, even the underground place that was once Ralphs and then Whole Foods. Except for Sutra, which AFAIK could be a money laundering operation. The Edwards there is practically empty.

      2) Next door, Pasta Connection traffic is quite slow (oh, that’s right they actually closed it down now; it’s now replaced by an empty retail building). The paint store on that corner is shut down too, with no new tenant.

      3) Two or three auto dealerships on Harbor are shut down, as are numerous other retail places along Harbor.

      4) Virtually all the boutique mortgage shops in Costa Mesa have closed. Most of those places have not found new tenants.

      5) A bunch of furniture joints have closed up. Some moved to the South Coast Furnishings outlet mall in north Costa Mesa. You want to see a ghost town? Go to that place at peak hours (e.g. Saturday afternoon). Half their stores never found a tenant. Some of the other half have closed since opening the place (Wickes, Banner Mattress).

      6) Check out the old Mobil gas + shop + car wash place on Baker and Fairview. Used to be a busy place, washing cars, filling the tank, etc. Now it’s completely closed, as is the Mobil + garage that was on Harber + Gisler. The big car wash joint on Harbor is still open AFAIK, but there are almost no cars there anymore.

      7) My own job in CM has witnessed a large drop in business, followed by layoffs, furloughs, and pay cuts.

      8) I have spoken to CM police – they tell me car repossessions in the city are way up. I also know people who’ve recently been burglarized for the first time.

      9) In the last 6 months, I have seen three families (two of them in the Wilson & Harbor shopping center) dumpster-diving at night for recyclables. I had not seen that for many years prior to last year.

      I won’t speak to Irvine, but if you spend much time in CM (as I do), you will quickly recognize that business is very slow all over the city. All the lunch shops where I used to have to stand in line have no line now, a few are just closed. I know some business owners in CM and they all say the same thing.

      I have my doubts that Irvine businesses haven’t seen a dramatic slowdown, too.

      1. Perspective

        Helpful info about Costa Mesa. I don’t spend much time there other than visiting Yardhouse. Maybe shorter waits are coming?

      2. CougBear

        I agree, there are a lot of places in Newport, CM and Irvine that are going out of business.

        I work in the entertainment (not adult) industry and it’s actually quite level right now. Some of the theories that I’ve heard are:
        1. Instead of going to Las Vegas for a weekend, people are sticking around. Based on the rates in Vegas, this seems to be pretty true.
        2. Options like dinner and a movie are still cheaper than going on a weekend trip to Napa or even attending a Ducks or Angels game.

        As in every market, there is usually a movement towards lower price options. I think golf is a great example of this. Anyone seen how dead it is at Monarch Beach Golf Links lately? Wow…

      3. Major Schadenfreude

        “Except for Sutra, which AFAIK could be a money laundering operation.”

        I overhead a nightclub-knowledgeable guy say that that place would do 100 grand a week. This was a couple of years ago when I heard that remark.

        I’ve never been in the place, but can tell it is quite ritzy.


  4. tonyE

    (1) You need to get a different bank for your accounts. We use a Credit Union… low fees and no charges for “overuse”.

    (2) Credit cards are convenient and impossible to ignore in many circumstances: hotels, rental cars, online shopping, etc…. the trick is to keep track of them and not go nuts.

    (3) Currently we use an Amex we got from Costco. Great thing. Pay it off monthly.

    (4) Credit cards also protect you from vendors. If they hose you then you can call the CC company and put a hold on the payment until they make good on it.

    (5) Lastly, credit cards do give you cashback and stuff… Again, good to have and use under certain circumstances.

    1. mav

      Credit card companies charge retailers a fee on all transactions…around 2%.

      Guess who really ends up paying this 2% on all transactions?……

      … the reality is you the consumer pay the 2% fee, because part of the price of all consumer goods includes this fee…. it’s all a big scam.

      Without credit cards you spend less, and things cost less….

      1. djd

        Without credit cards you spend less, and things cost less….

        Why would things cost less? Few businesses give discounts on non-CC transactions and I can’t immediately recall any I’ve seen that aren’t gas stations. And debit card processors charge fees too, right? So unless we get rid of the card systems entirely the situation will probably continue.

        1. mav

          the situation will continue until it can’t any longer

          i agree, my point that things cost less without credit cards is more hypothetical, but the fees do get passed down to the consumer.

          credit in general inflates purchase price of everything, be it a TV, an education, or a home.

  5. irvinemommy

    I find it funny that some people are feeling like they need to give IR advice on how to handle his credit cards. IR is giving us daily nuggets of info on how to make wise financial transactions in real estate, and reinforcing the necessity to live within our means and stay out of debt. He just shared that he was a little lax around the holidays to say that he ‘falls victim to the siren’ sometimes too. He isn’t infallible, but he doesn’t need a remedial course in credit card use.

    1. tonyE

      Hmmmm.. wait just a minute…

      IR just made a point, and I made a counterpoint… with others.

      No pontification, no remedial course, just some notes.

    2. Gindy

      No remedial course offered, irvinemommy. IR told us how he uses his cards and we’ve told him how we used ours.
      I will admit I am a child of poverty so free money was never, ever available in our house. Now that I am very secure monetarily, I still make Mr. Lincoln squeal when it comes time to pay bills and budget. It’s just in my monetary genetic makeup, debt is BAD, savings are GOOD. I don’t confuse the word credit with goodness, ever. Credit cards = debt and like the old saw about crime… if you can’t pay the bill, don’t charge the item.

      1. irvinemommy

        My bad. I should stick to my usual routine of just reading this blog between changing dirty diapers and not posting comments. 🙂

      2. CA

        “It’s just in my monetary genetic makeup, debt is BAD, savings are GOOD. I don’t confuse the word credit with goodness, ever. Credit cards = debt and like the old saw about crime… if you can’t pay the bill, don’t charge the item.”

        This is the best description of how I feel about myself. Totally exemplifies my adult life. And it works.

  6. newbie2008

    I use credit cards extensively and am called a deadbeat by the credit card companies. I don’t pay a service charge, yearly fee, interest or any other fee. I pay off the full amount on time and use the free interest, rebate and their spending tracking system. The main draw back is big brother is watching.
    I live within my means as the Good Book instructs. Too bad I have to pay for those that didn’t.

    1. HydroCabron

      > I live within my means as the Good Book instructs. Too bad I have to pay for those that didn’t.

      I assume you mean you’re paying as a taxpayer who funds the bailouts through taxation and inflation. Because if you pay no service charge, annual fee, or interest rate, you are enjoying free money thanks to those who run balances, pay extreme late fees, and pay annual fees. Credit-card float is a form of indebtedness; if you’re enjoying it interest-free, then good for you, but it’s the mass of the utterly indebted who purchase that pleasure for you.

      1. zoiks

        Ah, yes, those who live within their means are abusing the charity of those who, in your words, “run balances, pay extreme late fees, and pay annual fees.”

        I got news for you pal, the over-consumers are the greediest people on the planet, and over-consume for the sake of their own vanity and egos. They are *not* charitable, and never were. Those who save actually help to promote a productive economy through investment, wise decision-making, charity, responsibility, and low waste.

        Save your crocodile tears for those who truly suffer in this world, like the villagers in the Darfur region.

        1. HydroCabron

          I don’t have a problem with anyone using credit-card float, which is roughly equivalent to enjoying free food and cheap room rates at a casino without gambling. It’s a smart move. Nowhere did I indicate that I disapprove of playing the float. You may not find it politically correct to mention it, but the big casino of debt creates opportunities for the responsible as well as the irresponsible. Too bad we all get the hangover after the party breaks up.

  7. Dave in YL

    I work at Kaiser and haven’t seen any slowdown at all. Kaiser just keeps building new hospitals and clinics everywhere. Everyone else is closing down hospitals while Kaiser is the only one building brand new ones.

    1. HydroCabron

      I’m amazed to hear that any health care institution is scaling back construction. It seems that every hospital I visit is a construction zone, from my earliest memories of visiting an ill relative in 1970 to my last trip for a drug test. Hospitals are worse than colleges and universities for the noise, dust, back-up truck beeping, and girders of fresh construction.

      Hospital is to construction site as SUV is to cell phone.

      1. alan

        Much of this new construction has more to do with CA earthquake codes. Hospitals must upgrade or close down, that’s why USC, UCLA rebuilt. Kaiser is growing because it’s the lowest cost provider, like Walmart so it’s different.

        1. Forbear

          “Kaiser is growing because it’s the lowest cost provider, like Walmart so it’s different.”

          Please enlighten me on where you got this information from.

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