Monthly Archives: March 2009

The Insanity of Yesteryear

We have become so accustomed to inflation that it is difficult to remember a past when prices were more expensive. Welcome to the age of deflation.

Todays featured property is a 35% rollback that will probably drop further.

61 Costero Aisle kitchen

Asking Price: $325,900

Address: 61 Costero Aisle #242, Irvine, CA 92614

{book4}

Insanity — Oingo Boingo

Madness hiding everywhere
Such a curiosity
Here it comes to set us free
Plenty left for you and me
Say hello insanity

After you live in California for a while the insanity of house prices
becomes the reality of life. You accept it, and you learn to live with
it. However, after prices crash there is at least a brief period of time when sanity rules. Houses in California are still expensive by national standards even after a bust, but at least they are affordable relative to local incomes.

Usually when people yearn for the prices of yesteryear, they
remember nickel sodas, or fifty-cent gas (I can remember that). But do you
remember when 2/2 condos went for $500,000? Homeowners certainly do. Many of them are still trying to live in a bubble fantasy world where these prices are still the market. Despite the pockets of denial, most are adjusting to the new reality of lower house prices.

When gas prices went from $4.50 a gallon back to $2.25 a gallon people made the emotional adjustment quickly. Few outside the oil industry benefit from $4.50 gas, so people are eager to accept price declines. When house prices cut in half, the emotional reactions are different. Those living the HELOC lifestyle need ever-increasing prices to fuel their Ponzi Scheme living. Besides the addiction to spending the free money, these people are attached to their illusions of wealth. The collapse of house prices robs them of both their spending power and their fantasies of riches. In such circumstances, lingering memories of past prices and past price increases are clung to with religious fervor.

It was pointed out recently in the comments that past prices paid during the bubble are being used as a selling point by realtors. A $550,000 property is being touted as a bargain because it “previously sold for $1,000,000!!!” Someday, I hope a realtor says this to me; I will comment on the inconceivable ignorance of people during the housing bubble because even $550,000 is overpriced (that should quickly deflate the “bargain” sales tactic).

Today’s featured property went for $500,000 at the peak. It will likely decline in price by more than 50%. When it does, it will not be perceived as a bargain because it will not be one. The debt service payments will be just as high, but the loan terms will be much different as the exotic financing will be replaced by 30-year conventional financing. The conservative loan terms will lower the amounts borrowed and thereby lower resale prices. Most people do not realize how much their perception of prices of financed purchases is dependent upon financing terms.

I have toured this apartment condo complex a couple of times. These are apartments. They are no different than any apartment complex in Irvine; in fact, is is not as nice as most of them. There are few garages; the residents park in unassigned parking or under carports. IMO, this REO is a POS (I couldn’t resist the acronyms).

This particular apartment would probably rent for $1,750 if the Irvine Company ran the complex. A private owner would have to settle for $1,600-$1,650. That puts rental parity at about $264,000. But who wants to live there? To work as a rental, this needs to fall to $180,000 or less which puts it back at late 90s pricing.

61 Costero Aisle kitchen

Asking Price: $325,900

Income Requirement: $81,475

Downpayment Needed: $65,180

Monthly Equity Burn: $2,715

Purchase Price: $500,000

Purchase Date: 4/25/2006

Address: 61 Costero Aisle #242, Irvine, CA 92614

Beds:	2
Baths:	2
Sq. Ft.:	1,100
$/Sq. Ft.:	$296
Lot Size:	–
Property Type:	Condominium
Style:	Contemporary
Year Built:	1987
Stories:	2
Floor:	1
Area:	Westpark
County:	Orange
MLS#:	S567986
Source:	SoCalMLS
Status:	Active
On Redfin:	1 day

Interior location, far from the noise of the complex. This property is
a two level, with a bedroom on each floor as well as a loft overlooking
the spacious living room. Therefore there are vaulted ceilings in the
living room with a fireplace. The flooring is laminate on the 1st floor
(kitchen, hall & bath) except carpet in the bedroom. The second
floor has carpet on the stairs, loft and bedroom. The master bathroom
has laminate & sheet vinyl(in the shower room). There is mirrored
wardrobe doors & tile counters. It offers a one car detached garage
and an assigned carport as well. Property is sold ‘As-Is’.

The master bathroom
has laminate & sheet vinyl? Is that a plus?

It offers a one car detached garage
and an assigned carport as well. It must be the luxury unit.

This property was purchased on 4/25/2006 for $500,000. In a rather unusual transaction, this property was financed with a $500,000 Option ARM first mortgage. There was no second mortgage, and no downpayment.

It isn’t surprising that the borrower walked from the debt. The lender paid $471,115 at auction. I imagine the professional flippers in the crowd must have chuckled when they heard that bid.

If it sells for its current asking price–it probably won’t–the total loss to the lender will be $193,654 plus negative amortization and missed payments. The carnage continues…

The video above is true insanity.

{book5}

All around the world now
Like a big bright cherry cloud
Traveling from home to home
Tv sets and telephones
Here it comes just like a storm
Bathe in it and be reborn
Time to let the world know
Welcome madness, say hello
Like a wave we cannot see
Washing over you and me
Hiding here and hiding there
Madness hiding everywhere
Such a curiosity
Here it comes to set us free
Plenty left for you and me
Say hello insanity

Insanity — Oingo Boingo

Fleece the Rich

The rich are facing hard times; their prospects for the future are bleak. Asset deflation, taxation and future inflation are going to continue to eat away at their wealth.

Today’s featured property is a very high-end property being offered for 20% off.

12 Prairie Grass inside

Asking Price: $2,750,000

Address: 12 Prairie Grass, Irvine, CA 92603

Rich Girl — Gwen Stefani

Think what that money could bring
I’d buy everything
Clean out Vivienne Westwood
In my Galliano gown
No, wouldn’t just have one hood
A Hollywood mansion if I could
Please book me first class to my fancy house in London town

The wealthy prospered since 1980 and particularly since 2000. Just like populist cries caused the government to confiscate the AIG bonuses, the wealthy are going to suffer at the hands of a populist mob over the next several years. Much of the wealth will be taken either directly by taxation or indirectly by inflation. It is not a good time to be rich.

During our Ponzi Scheme economy of the last 25 years, taxes on the wealthiest Americans declined from over 50% to less than 35%. One of the biggest tax breaks given to the wealthy was the elimination of the inheritance tax. Rich people who die in 2010 will pay no inheritance tax; those that die in 2011 will face a 45% tax rate on amounts over $3.5 million. It seems very unlikely that the tax breaks for the wealthy passed under the previous presidential administration will survive. The inheritance tax will come back, and income tax rates will go up.

The more pernicious tax the rich will likely face is the erosion in the value of their wealth through inflation. As I mentioned in yesterday’s post, it seems likely that the FED will allow inflation to remain at elevated levels once this crisis has past. The wealthy are made less wealthy by inflation.

The affluent are out-of-favor politically, and it appears tax policy and monetary policy will not be in their favor. We can debate the wisdom and morality of these policies in the comments if you wish, but the reality is inescapable.

12 Prairie Grass inside

Asking Price: $2,750,000

Income Requirement: $687,500

Downpayment Needed: $550,000

Monthly Equity Burn: $22,916

Purchase Price: $3,200,000

Purchase Date: 5/3/2006

Address: 12 Prairie Grass, Irvine, CA 92603

Beds:	3
Baths:	4
Sq. Ft.:	4,097
$/Sq. Ft.:	$671
Lot Size:	0.35 Acres
Property Type:	Single Family Residence
Style:	Mediterranean, Spanish
Year Built:	2003
Stories:	1
Area:	Turtle Rock
County:	Orange
MLS#:	U8003594
Source:	SoCalMLS
Status:	Active
On Redfin:	223 days
Unsold in 90+ days

Good Feng Shui! Sunny and bright single-level Mediterranean villa
nestled in the exclusive Shady Canyon enclave. Understated elegance
throughout. Secluded master suite has its own retreat with fireplace,
his and her lavatories and walk-in closets. Spacious office with French
doors open to the interior courtyard with fireplace and fountain.
Bright and airy great room and chef’s kitchen opens onto a covered
loggia. Bonus butlers kitchen is equipped with a 2nd sink, 2nd
dishwasher, pantry, and door opening to the outdoor BBQ area.
Exquisitely landscaped backyard ($750,000 of upgrades) with salt water
pool, spa, waterfalls, fountains, and ice firepits. Perfect setting for
entertaining.

nestled–this word grates on my nerves when I see it in a property description.

This property was purchased on 5/3/2006 for $3,200,000. The owner used a $2,240,000 first mortgage, a $750,000 second mortgage, and a $210,000 downpayment… It still amazes me when I see tiny downpayments on houses in this price range. Prices are going to crash hard because of all this debt.

If this property sells for its asking price, and if a 6% commission is paid, the total loss on the property will be $615,000.

Most wealthy people have already lost half or more of their fortunes with the collapse of asset prices across the investment spectrum. When house prices cut in half, those who are leveraged will lose much more.

It is not a great time to be rich.

{book4}

If I was a Rich Girl
See, I’d have all the money in the world, if I was a wealthy girl
No man could test me, impress me, my cash flow would never ever end
Cause I’d have all the money in the world, if I was a wealthy girl

Rich Girl — Gwen Stefani

Real Estate's Lost Decade

Much has been written about the “Lost Decade” in the Japanese economy. In the 90s they faced the same decisions we face today, and we appear to be making the same mistakes.

Today’s featured property is a condo being offered for 55% off its peak purchase price; a new record for Irvine. It is our first 2001 price rollback.

Asking Price: $149,900

Address: 76 Lakepines, Irvine, CA 92620

{book1}

Turning Japanese — The Vapors

I think I’m turning Japanese
I really think so

Japan simultaneously inflated massive financial bubbles in real estate and stocks during the late 1980s. The slow deflation of this bubble and the general economic malaise that impacted Japan during the years that followed became known as the “Lost Decade.” The United States is facing a similar set of circumstances in the aftermath of the Great Housing Bubble. So far, we have been following the same policy actions as the Japanese did. Perhaps our officials have come to believe a Lost Decade is preferable to the next Great Depression.

Today, I want to demonstrate how easy it would be to have a similar result in our own housing market. By lowering interest rates to artificially low levels, the Federal Reserve hopes to stabilize the housing market; however, weaning the housing market off these subsidies will need to be a slow process to prevent real estate prices from taking another nosedive. Gradually increasing interest rates back to long-term norms will result in an erosion of buying power that prevents price appreciation. I want to be clear about the implications of this; we are not looking at a decade to get back to peak prices, we are looking at a decade of stagnate prices at the bottom. Real estate will not reach peak prices until 2032.

The Lost Decade

The chart above shows median home prices in Irvine stabilizing at
$450,000 in 2010 as interest rates bottom at 4.5%. To calculate a median home price, I needed to make assumptions about incomes, allowable debt-to-income ratios and interest rates.

The example above uses the most recent Irvine Median Household Income Data. At the end of 2007, the median household income in Irvine was $91,101. Due to the recession, I have assumed this will also be the median household income at the end of 2009. It might be higher; it might be lower. The historic rate of income growth between 1980 and 2007 is 3.6%. I assume that median household income will again increase at this rate starting in 2010. By 2019, this figure reaches $129,500.

The recent bailout legislation passed by Congress is a combination of workouts and government buy-downs to get borrowers debt-to-income ratios down to 31%. Previous bailouts failed because they only got the borrowers debt-to-income ratios down to 38%. The FHA has long term records showing 31% is as high as this ratio can go without significant increases in defaults. I have assumed debt-to-income ratios will be limited to 31% going forward. Also, I have assumed 30-year fixed-rate conventional financing; exotic financing will not be coming back any time soon.

The Federal Reserve’s policy of “quantitative easing” (aka printing money), is an attempt to drive down long-term interest rates like those for home mortgages. If the FED is successful–and for the short term they probably will be–mortgage interest rates could drop as low as 4.5%. The average interest rate since the early 1970s when the GSEs started keeping records is 8% (7.99% actually). I further assumed interest rates will rise once this economic crisis is over from an unprecedented 4.5% to the long term average of 8%.

I used Microsoft Excels handy solver tool to calculate the interest rate required to keep prices stable while incomes grew. The interest rate chart above shows interest rates going up about 35 basis points a year for 10 years. This puts interest rates back to historic norms of 8%. If interest rates can be eased upward at this controlled rate, and if incomes rise again at their historic 3.6%, prices will stabilize at $450,000 in 2009, and they will stay there for 10 years. After 2019, incomes have caught up with 8% interest rates, and prices begin to appreciate at 3.6% a year to match income growth.

In my opinion, this is a realistic outcome. Eventually interest rates have to go back up. When this crisis is over, the money the FED is printing will cause inflation to return. The Federal Reserve will need to raise interest rates to control inflation. If they do this too quickly, it would take the floor out from under home prices, and despite a high level of general price inflation in the economy, house prices would resume their descent.

When you look at these charts collectively, it suggests the Federal Reserve may allow inflation at levels higher than what is normally desirable for several years after this crisis is over. This will help the Federal Government inflate away much of the debt it is taking on with its stimulus spending, and it will keep a floor under asset prices, particularly housing. Note that asset prices will not be increasing. The consumer price index may increase significantly, but house prices will not budge. Also when you consider the impact of the long-term foreclosure crisis in real estate due to the resetting of adjustable rate mortgages, the FED has incentive to keep rates as low as possible for as long as possible, and house prices have resistance to upward movement.

It is difficult to be bullish with these market conditions. How exactly
would prices go up? Will interest rates stay at 4.5% permanently?

People can only increase their bids if lenders give
them the opportunity. Rising incomes provides the ability to bid prices
higher, but only at the rate of rising incomes. The long-term average
is 3.6 %, not exactly rampant appreciation.

Another way people can
raise bids is if they increase their debt-to-income ratio, and lenders
must allow this in their underwriting. With the history of defaults
with DTIs over 31%, it doesn’t seem likely that lenders will be
relaxing this parameter any time soon.

Another way buyers can raise
their bids is through using exotic financing; we all know how that
turned out last time. I don’t see Option ARMs going to Subprime borrowers without verified income happening again, do you?

The final way people can raise their bids is to
settle for less. Personally, I will not buy a tiny 1/1 condo like today’s
featured property when I can rent a nice 3/2 SFD.

If my assumptions are correct, and if events unfold as I have outlined, prices will bottom over the next couple of years, and they will stay there for a decade while both incomes and interest rates slowly increase. The “Lost Decade” that the Japanese experienced is not just realistic, it is perhaps a best-case outcome.

{book}

Asking Price: $149,900

Income Requirement: $37,475

Downpayment Needed: $29,980

Monthly Equity Burn: $1,249

Purchase Price: $322,000

Purchase Date: 7/12/2005

Address: 76 Lakepines, Irvine, CA 92620

Beds:	1
Baths:	1
Sq. Ft.:	932
$/Sq. Ft.:	$161
Lot Size:	763 Sq. Ft.
Property Type:	Condominium
Style:	Townhouse
Year Built:	1977
Stories:	2
Floor:	1
View:	Creek/Stream
Area:	Northwood
County:	Orange
MLS#:	P658271
Source:	SoCalMLS
Status:	Active
On Redfin:	173 days
Unsold in 90+ days

Beautiful 1 Bdrm Loft Townhome Over-Looking Bubbling Brook. Stand Alone
Fireplace in the Living Room; Breakfast Bar and Separate Dining Area.
Assigned Carport Parking. Walk-In Master Bdroom Closet. Spacious Back
Patio. Full-Size Washer/Dryer Hookups.

Check out the listing price history:

Date	Event	Price
Mar 19, 2009	Price Changed	$149,900
Feb 01, 2009	Price Changed	$215,000
Nov 07, 2008	Price Changed	$229,900
Sep 29, 2008	Listed	$265,000
Jul 12, 2005	Sold	$332,000
May 23, 2001	Sold	$163,000
Dec 03, 1996	Sold	$89,000
Sep 14, 1989	Sold	$116,000

This property was purchased for $332,000 on 7/12/2005. This is a full year before the peak, so this property might have appraised for around $360,000 in the summer of 2006. The owner used a $265,600 first mortgage, a $66,400 second mortgage, and a $0 downpayment.

This property is listed at 55% off its 2005 purchase price, and it is below its 2001 sales price.

If this property sells for its asking price, and if a 6% commission is paid, the total loss to the lender will be $191,094.

Rollback

Our housing market is starting to look like a Wal-Mart.

{book2}

I’ve got your picture of me and you
You wrote “I love you” I wrote “me too”
I sit there staring and there’s nothing else to do
Oh it’s in color Your hair is brown
Your eyes are hazel And soft as clouds
I often kiss you when there’s no one else around

I’ve got your picture, I’ve got your picture
I’d like a million of you all round my cell
I want a doctor to take your picture
So I can look at you from inside as well
You’ve got me turning up and turning down
And turning in and turning ’round

I’m turning Japanese
I think I’m turning Japanese
I really think so
Turning Japanese
I think I’m turning Japanese
I really think so
I’m turning Japanese
I think I’m turning Japanese
I really think so
Turning Japanese
I think I’m turning Japanese
I really think so

Turning Japanese — The Vapors

Open Thread 3-21-2009

As is becoming tradition, I would like to share with you some interesting blog posts I read this week at The Housing Chronicles Blog, and at the site of local realtor, Shevy Akason, who has been profiling OC properties at or below rental parity.

Apartment renters now getting caught up in foreclosures

Why is mortgage fraud still a problem?

Fannie Mae tightens rules on mortgages for new condos

Shevy’s deals:

Canyon Hills

Laguna Hills

In other news, IrvineRenter was mentioned on Portfolio.com on Wednesday: Six Bloggers of the Apocalypse.

Welcome to the Jungle — Guns n Roses

Welcome to the jungle
We got fun ‘n’ games
We got everything you want
Honey we know the names
We are the people that can find
Whatever you may need
If you got the money honey
We got your disease

In the jungle
Welcome to the jungle
Watch it bring you to your knees, knees
I wanna watch you bleed

I know I am not the only one who is thrilled to see the government move to tax the recipients of AIG bonuses. Welcome to the Jungle, baby. I get a schadenfreude overdose from that story.

What ever happened to performance bonuses being linked to good performance? The AIG bonuses were justified by the idea that the people who made this mess are the only ones who understand it, so we need to keep them around. Doesn’t this entrench incompetence? Have you ever worked with someone who developed a way of doing things only they could understand because they thought it gave them job security? I have, and it doesn’t.

{book2}

Since I reviewed another Stick Figure book this weekend, I thought it might be interesting to see where stick figures went wrong…

In unrelated personal news, close personal friends of mine have been on an emotional rollercoaster ride for the last year. Their baby was born at 17 ounces. He has survived the whole year, and it looks like he is going to make it. Check this out: Tiny survivor defies the odds, inspires others

And finally…

Six Bloggers of the Apocalypse

You wouldn’t
listen to them when they said the economy was headed off a cliff.
Should you listen now that they’re predicting the end of civilization?

If you spend enough time surfing the Web, you might think Nouriel Roubini, the pessimistic economist profiled in the April issue of Condé Nast Portfolio, is taking a walk on the sunny side of the street. There are bloggers who have been forecasting much worse for several years.

While bankers were still ordering $1,000 bottles of wine in trendy
Manhattan restaurants, these internet Sybils of the impending economic
apocalypse were already prophesizing food shortages and endless gas
lines.

Some are on the right side of the political spectrum,
others on the far left, but they all share one thing—traffic on their
sites has increased exponentially since Wall Street began to implode
last fall.

We caught up with a few of the more provocative
doommongers to see what they think is coming next. Hint: Before reading
further, you may want to uncork your most expensive bottle of wine.
You’ll need it.

Clusterfuck Nation

James Howard Kunstler

Novelist
and journalist James Howard Kunstler is the leading popular voice of
peak oil, the theory that says we have gone through more than half the
world’s supply of this much-needed resource. Kunstler’s regular Monday
morning posts foretell a world beset by oil shortages, which he
believes will lead to everything from financial shenanigans (sound
familiar?) to food riots, not to mention attacks on the wealthy,
abandoned suburban housing developments and a forced return to
small-town living.

Prediction: High potential for civil unrest and violence. “It won’t be good for your health to be a conspicuous consumer.”

The Trends Research Institute

Gerald Celente

Not
a blogger per se, trends researcher Gerald Celente publishes his
predictions for the future in a quarterly journal. In December 2007, he
called “The Panic of ’08,” featuring “failing banks, busted brokerages,
toppled corporate giants, bankrupt cities, states in default…. When
the giant firms fall, they’ll crush the man on the street.” The journal
is by paid subscription only, but Celente makes frequent radio
appearances, which his many fans record and post online.

Prediction: The current economic crisis will be worse than the Great Depression,
with a rise in alternative living arrangements. He’s thinking
self-storage units. “People are going to self-store themselves.” FYI,
Roubini’s offices just happen to be located in the same building as a
Manhattan Mini Storage facility. Coincidence? You decide.

Speaking Truth to Power

Carolyn Baker

The
site run by Carolyn Baker, an adjunct professor of history in Vermont,
is structured her site like an Utne Reader of global collapse lit, with
links to sites ranging from the very mainstream Marketwatch.com to some
of the bloggers on our list. Her goal is to connect the dots between
peak oil, global climate change, financial collapse and other ongoing
trends and debates. The common thread: Our way of life cannot be
sustained. And it will all end badly.

Prediction: “It’s not going to be like falling off a cliff but a slow descent with
tipping points. There are going to be different kinds of Katrinas,
economic crises, natural disasters, and nuclear exchanges—but I really
hope I am wrong about that.”

Generational Dynamics

John Xenakis

Xenakis,
a computer consultant, analyzes previous and current generations in
American history to predict catastrophe to come. He believes the exit
of the Greatest Generation from the workforce in the 1990s set the
stage for disaster as Baby Boomers, who are uncomfortable with
authority, fell prey to the amoral Gen Xer’s right behind them. The two
groups combined to bring us the current financial crisis as the Baby
Boomers want money badly enough not to ask many questions about its
provenance, while the equally greedy Gen Xer’s are nihilistic enough to
do what it takes to get it.

Prediction: The
misbegotten combination of the Boomers and the Gen Xers will continue
to cause trouble for several more decades, leading to complete
financial collapse and war before Xers are able to turn things around
in their old age. Says Xenakis, “I don’t expect to live through it.”

Itulip

Eric Janszen

Janszen,
an investor and analyst, first started Itulip at the height of the tech
bubble. The tulip is, of course, a reference to the infamous Dutch
tulip bubble of the 17th century. He retired the site when the Internet
bubble burst, only to return in 2006, when he saw a housing bubble
developing. Janszen predicted it would end badly, with a mass deflation
leading to a multi-year economic crash. Parts of the site—including its
many reader forums—are subscription only.

Prediction: The United States will, over time, right itself, but will first have to
survive a period where one million folks will be added to the
unemployment rolls every month by the end of 2009.

Irvine Housing Blog

Larry Roberts

Many
bloggers are writing about the housing bust but perhaps Larry Roberts,
a.k.a. IrvineRenter, has found the best way to demonstrate how everyone
from the lowliest buyer to the highest paid financier was implicated in
the bubble. Almost daily, he posts a house for sale in Irvine,
California, taking readers on a journey through the home’s recent
financial history. He reveals the price the home was originally
purchased for, how much money was taken out of the home during various
re-financings, and what the potential loss to the bank is if the house
sale goes thru. Needless to say, sardonic comments abound.

Prediction: Roberts is the cockeyed optimist of our bunch. He plans to change his
handle to IrvineHomeowner in 2011, when he believes the housing market
will bottom out.

{book4}

The Skinny on Credit Cards

The Skinny on Credit Cards is a wonderful new book explaining the functional basics of credit cards. Jim Randel does a fantastic job of taking a complex subject and reducing it to its simplest form. He unmasks some of the most egregious practices of the industry and shows how “revolvers” get addicted to credit in college and often never get off the merry-go-round. I recommend the book to anyone who uses credit and wants to learn how to use it more judiciously.

In their own words…

Stick People Books

Welcome to a new series of publications entitled stick people books™, a progression of drawings (stick people), dialogue and text intended to convey information in a concise fashion.

Most nonfiction books are 200 pages or more. Why? Because that is what worked 100 years ago. The problem is that people have less time to read than they did 100 years ago, and there is a lot more to read than there was 100 years ago.

The real substance in most nonfiction books can be conveyed in far fewer pages. We believe that less is more. As first said by French scholar Blaise Pascal in the 17th century when writing to an associate: “Sorry for the length of this letter, it would have been much shorter had I had more time.”

We invest the time for you. We do all the reading.We then summarize and synthesize it for you.

In learning any subject, there are hundreds, maybe thousands of bits of information you need to absorb. In writing our books, we address the most important points a reader needs to learn about a given topic. Once you have read a “skinny” book, you will have a good understanding of a specific subject. Our bibliography identifies suggestions for further reading, if you are so inclined.

Although minimalist in design, drawing and verbiage, we take our message very seriously. Please do not confuse format with content. The time you invest reading our book will be paid back to you many times over.

I was going to describe the book, but the section above from the front matter of the book is very good, and it typifies the writing therein. It is a quick read, and most will complete it in 2 hours or less, but the brevity of the work is not indicative of its content; the information is in there. The reader is spared the brain damage of a typical author’s flower prose. I highly recommend this book.

My soapbox

As many of know, I am not a fan of the credit card industry. Personally I think this industry is on par with drug dealers, or perhaps the somewhat more respectable tobacco or alcohol industries. I make this analogy because credit cards do not provide anything other than a short-lived pleasure of immediate consumption. There is no “product” produced by this industry, and if the entire industry disappeared tomorrow, nothing would be lost. It can be argued they provide a “service,” and this would be true to a point. They provide a pool of savings for people who do not have the self-discipline to save for themselves.

Think about how credit cards work. Let’s say you make enough money that you could afford to put $500 a month into savings; unfortunately, you do not have the discipline. You spend the money… and then some. After a few irresponsible spending sprees, the monthly bills start coming in from the credit card company, and you dutifully make the $500 minimum payment. What just happened? The credit card bill forced the discipline on you that you were unable to muster on your own. However, there is one very big difference: instead of earning interest on you money, you are paying it instead. Over the long term, this will sharply curtail spending power. The rich can spend like rich people because they are on the good side of compound interest; debt slaves are not.

The credit card industry addicts people to their product at a very young age (they start at 18 once people reach adulthood and are bound by their contracts). Once addicted, they drain them of every available resource through high fees, high interest rates and endless promotions of the sophisticated life credit cards enable. I know this through my own personal experience.

I managed to stay away from credit until I was about 22. By the time I was finished with graduate school, I had $2,500 in credit card debt. Then, I did something really, really stupid; I discovered Ponzi Scheme borrowing. Right out of school, I tried to begin a venture with an established businessman in Texas. While we were trying to get the venture off the ground, I needed a way to support myself, so I would use cash advance checks from one credit card issuer to pay another. For about 6 months, it worked. It worked so well that I had $10,000 in credit card debt by the time we gave up on the venture. That debt lingered for a long time.

I am not some morally superior person lecturing about a subject about which I have no experience; on the contrary, I know all too well what credit card addition can do. We use the term alcoholism to describe the alcohol addicted, perhaps we should use the term creditism to describe the credit card addicted. Getting over credit card addiction is much like being a recovering alcoholic; it is a daily struggle. I have not carried a revolving balance in over 5 years. I hope to make 50 more.