Tuesday, May 19, 2009

The face of the housing crisis

Okay, there are a million guilty faces in this crisis (besides Alan Greenspan). This is only one of them. But this guy sort of makes me sick. You can read the article if you want to. (But NYT will probably make you register. I'd use bugmenot if it were me.) But whatever you do, DO NOT buy his book. You're already going to be bailing out his mortgage -- probably both on the bank end and on his end. I see no reason to give him any more money. If you don't bother reading it, here's the highlights:

  • a financial reporter for the New York Times. Yes, I said financial reporter.
  • $120,000 base salary and about $50,000 annual alimony/child support liability, leaving him with a $33,000 take home salary after taxes.
  • buys a $460,000 house knowing ahead of time he cannot afford it
  • attempts one of those "liar loans" with full knowledge he does not qualify and having written about how stupid they are. (Oh, and full knowledge on the part of the mortgage broker, too.)
  • gets rejected on the liar loan ... due to, well -- what appears to be excessive lying
  • reapplies for a "no ratio loan" (which to me seems to be just another type of liar loan) with some seemingly ridiculous piggy back loan -- both primary and secondary loans have a rate adjustment in 5 years.
  • very little down, no emergency fund, living paycheck to paycheck... and broke and unable to make the payments in 5 months.
  • no change in spending habits when they bought into their "dream" -- high end groceries, Starbucks, clothes, vacations, big christmases
  • began to finance daily expenses on their credit card to the tune of about $50,000
  • refinanced the house (you know, they always go up in value) into one of those famous subprime loans and tossed the credit cards into the house payment -- turning stupid unsecured debt into stupid secured debt "because of the great tax write off". Yeah, now non-payment on your new tie and half-caff latte will put your ass on the curb. Smart.
  • refinanced again. (geez, I hate to see how much closing fees this guy paid.... oh, wait, I bet those are tax deductible. That makes it "smart.") This time he'd brought his FICO up because he had actually paid his bills (with his house) and had lots of available credit.
  • puts a little dig into his wife, who at this time loses her job. Never you mind that there is no cushion. Never you mind that they are living at about twice their means. The financial genius makes it her fault. (Don't get me wrong, she's partially to blame here. Marriage is a business partnership.)
  • gloats that he "outlasted" the original mortgage lender, who went belly up. This, to me, is a way of saying that the taxpayer was already on the hook for the mortgage.
  • is offered a "catch up plan" by the 3rd generation mortgage rescuer. This plan is where he pays more per month and gets forgiven, yet he choses to let the mortgage go unpaid longer so he can see what sort of (probably government backed) loan modification program he can qualify for. Oddly, there's no talk of earning and banking that $3700 a month payment -- you know, just in case the modification comes through. Maybe he did. I have my doubts.

Sadly, the article ends with no mention of if (or how) he got out of the mess. My guess is that he's still in it... and hoping you'll buy his book to bail him out.

This is the face I now have on the whole situation. Forget the "poor me, I didn't understand, the bankers took advantage of me" guy. Mortgages should be understandable by someone that passed 6th grade math. It isn't that complicated. If it is, then -- well, maybe that's a sign you shouldn't be doing it. This makes me an even bigger fan of the Dave Ramsey crowd. There is no freedom like the freedom of owning your own life. Sure, there are days I panic. I've been out of a job for almost 3 years now. And I've lost lots of stock market opportunity by not being able to invest like I would like to in the down market. But, here I sit, still living on my own dime... and still friends with my wife.

So tell me: Why are we bailing out these people? If you ask me, both the borrowers and lenders here should be prosecuted for fraud, not bailed out.


bigjohn756 said...

You didn't mention Clinton who started this whole thing and Bush who continued it unabated. The part I like is that Obama is getting all of the blame.

The news media is now whining about how the poor minorities are feeling the brunt of it. The media have conveniently forgotten that poor minorities are the reason Clinton wanted these unsupportable loans to made in the first place. Ol' Billy wanted everyone to have a nice house whether they could afford one or not.

What balderdash it all is.

Og Make Blog said...

Ahhhh, the saga of the enablers and co-dependents... how sad (yeah, right.) Sad for the rest of us, really, but no one cries for me... well, they cry for me to bail them out.

Again... discount rate is mainly at play to explain the exuberant rush to insanity and irresponsibility. Of course, the basic lack of understanding of mathematics leads the majority of (I use the term loosely)-> people to assess a much lower discount rate in the first place. Oh, I should perhaps explain, I am referring to the concept of discounting as in deferred payment (be it monetary, emotional, caloric, etc.) to explain the psychology behind immediate gratification... the true and deeper meaning of the term... not the crap about the Fed rate you will get if you Google the term.

You can also bet that 'Bob' padded some extra fees in there for himself... that was pretty common from what I've seen in the sub-prime and Alt-A worlds. 8% was not uncommon. The author even states he couldn't understand all the paperwork. Illegal, but again, who was watching or even cared.

At the beginning of 2008, when the sub-prime was tanking in excess of 13.6%, Alternate A was around 4%, or twice the expected norm or 2%. That was more of an indicator of the extent of the meltdown than the sub-prime, actually.

Now apparently there was a good deal of fraud amongst the brokerage houses and banks where the 'supposed' AAA and AA paper was sold with a good bit of B and Alt-A in the mix, which explains the year long delay in the meltdown from the initial panic amongst the bankers in 2007. No one was willing to look into the pile to find just how much worthless paper was in there. The smarter (or more criminal) banks sold out of the business early and escaped relatively intact. We now see who was left holding the poke.

"... the road goes on forever, and the party never ends." Ooops, maybe it did.

Og Make Blog said...

Not balderdash at all. It is the slavery of debt. What better than to have the monkeys sign themselves up and volunteer? Once indentured, hard to unshackle.

Fiat currency is at the heart of the matter. It would take a page or two to shake that out, but it wasn't necessarily the fault of Slick Willy or GWB or any one person in the political arena.

What I am most interested in hearing is just where you heard the O-man taking the blame for ANYTHING.

bigjohn756 said...

I don't remember and I can't find the reference. It may have been CNN or Faux News upon which I rely completely for my news updates. Or, maybe, it was a real news outlet. If I come across it again, I shall make a note and report.

Spork In the Eye said...

Bill & Bush were there promoting housing. But *IF* I had to put a governmental name to it as to primary blame -- for me it would totally be Greenspan. Greenspan because HE KNEW BETTER.

It makes me ill to read some of his pro-capitalist, pro gold standard stuff and then see him manipulating the market (housing market in particular) with the Fed Rate. And then to see him blame capitalism for the problem....

Totally unrelated, but I read some old behind-the-scenes stuff about Greenspan. Apparently he had difficulty with the primacy of existence -- even back in the day -- and was known to doubt if he existed or not. There was a Rand quote something along the lines of "Does the professor think he exists today?"

Spork In the Eye said...

Oh and Og... Just for the record, that may not be the John you think it is.

John, meet Og.
Og, meet John.

There, done.

James said...

I read this article as well. I make about as much as this bloke and I live in a home half the price of his ... AND I'm not paying alimony. I feel bad for their stress but under no circumstances should they be "bailed out".

These aren't poor migrant workers who don't understand English. These are educated, otherwise bright people who've bought in to the "I deserve" mentality of this culture. People don't HAVE to live in San Francisco or New York.

Spork In the Eye said...

For what it's worth, James, I made less than this guy (the gross amount) and lived on less than his net amount. And I am semi-retired in my mid 40s.

...granted, I'm not quite living in the American dream house... But if I can swing an average paying job, I'll build that dream house for cash.

Spork In the Eye said...

for those of you playing at home, Ellie stumbled across this article... which gives a wider angle lens to this. Apparently, overspending is not a new thing for the wife (and might be part of why he seems so full of bile). Oh, and the book supposedly is very very pointed in the "poor me, blame the banks."

Anyway, if you're interested:

Og Make Blog said...

Nah, I think I'll pass. I'm not that that interested or sympathetic.