Repost from last thread...

CR, households are in terrible trouble. And, when it is all said and done, it is all about households, which own the companies, hold the life insurance policies, and fund the government.

In '29, (mortgages + consumer credit)/GDP was 54%.

Today, it is 94%, a ratio 73% higher.

And, today, mortgage and consumer credit rates are near historic lows. But, they will be moving up as defaults pile up and CPI keeps marching north.

That is why I look to '29 and its aftermath to get a sense of what might happen this time: because the '20s were the last time that we had a run up in debt and asset values like this.

Per the Statistical Abstract, tangible assets (i.e., real estate) fell 25% from '29 to '33 as did mortgages and consumer credit.

The run up was much greater this time and the run down will be much greater.

Roubini is right, but understates -- purposely, to preserve credibility? -- the magnitude of the upcoming mess.

Thanks, r-.

I get to do a presentation on this to fellow company management. I'm trying to get them to be realistic about expectations for an upcoming new product launch (this is about the worst time to launch a new product, IMO, but it is OPM).

I will be doing lots of ducking as eggs and tomatoes are thrown my way.

I'm pretty much with CR on this one. Americans are an image conscious people, driving about in our leased Range Rover Sports and flaunting our goods for the neighbors to see. Defaulting on a home, jingle mail or otherwise, would seem to constitute a pretty big hit to ones' prestige/status. (Please don't laugh!)

An interesting issue is the potential impact which high unemployment would have on Roubinis' calculations. Yikes. At least so far job losses have been extremely low. Let's hope it stays that way...

CR,

I will provide you with the link once again that I believe will answer your question:

YouTube - Mr Mortgage - HERE COMES THE ALT-A CRISIS 4-16-08 

Go to the web site he refers to and SEE THE DATA

i have to thank you for your link to the stunning vid at youtube regarding exponential growth.

just awesome and sobering. the numbers appear irrefutable

Mock Turtle, next you should teach yourself about the logistic function . It looks like an exponential curve at the beginning, and then it plateaus. This is used to model growth where there is a carrying capacity that causes the growth to suddenly stop.

I would argue that a major problem is not that people do not understand the exponential, but that if all you do is plot numbers (and not use common sense) then you cannot tell it apart from the logistic until it is too late.

picosec - also if you put 20% down home prices would not have appreciated so much, thus people with normal loans would still be able to afford homes.

When a payment recasts from $1,000 a month to $3,000 it is not a choice of toughing it out. Most people simply don't have the cash flow.

This is going to be very bad. Can hidden government bailout schemes slow the pain, I guess but at what other costs?

Well I have been witnessing more and more people lose their homes due to either reset they couldn't afford or job loss. Both should continue to get worse.

Aside from that, I am sure there will be walk aways, especially the specs, but my knowledge of most is:
1) They don't have a clue their home value went down
2) Even if they do see the evidence of declining home value, they believe their home is still worth as much as the paid for it or more
3) Most sheep are generally optimists and believe this downturn is a short term blip and the market will begin to take off again by the end of this year or next at the lates, so why sweat it.

So, I don't see people walking away just because the market went down. Only if their financial situation changes. Unless of course they do wake and realize one day that their home is worth 50% less, we might see a whole lot of panic walkaways. And of course that would mark a bottom.

We have serious problems in California. How many teachers are being layed-off - 20,000. And thats just upto high school. Don't know how many will be layed off in the community colleges - of course 50% of comunity college employes are part time - so they may cut all part timers and not call it a layoff.

Normalize for state population. as of 4/20/2008. I'd call this homes in distress. Things I can't account for is number of people that own more then 1 home, and number of homes with more then 1 person living in it. I assume a state like FL. most of the defaults are going to be 2nd homes from out of state owners.. but Colorado...confuses me. None the less it will be interesting to track these numbers weekly.

Foreclosure.com public data.

(Pre-Fore+Auction+REO) / (state population)

\t
Alaska \t1.19%
Alabama \t0.41%
Arkansas \t1.26%
Arizona \t3.60%
California \t3.08%
Colorado \t5.91%
Connecticut \t0.68%
Delaware \t0.54%
DC \t0.16%
Florida \t4.66%
Georgia \t1.76%
Hawaii \t0.52%
Iowa \t0.36%
Idaho \t2.17%
Illinois \t2.97%
Indiana \t0.79%
Kansas \t0.27%
Kentucky \t0.49%
Louisiana \t0.68%
Massachusetts \t1.42%
Maryland \t1.26%
Maine \t0.12%
Michigan \t2.05%
Minnesota \t0.29%
Missouri \t1.55%
Mississippi \t0.11%
Montana \t0.88%
North Carolina \t1.29%
North Dakota \t0.30%
Nebraska \t1.02%
New Hampshire \t0.33%
New Jersey \t1.91%
New Mexico \t1.06%
Nevada \t6.18%
New York \t0.85%
Ohio \t1.68%
Oklahoma \t1.51%
Oregon \t1.66%
Pennsylvania \t0.50%
Rhode Island \t0.00%
South Carolina \t0.62%
South Dakota \t0.00%
Tennessee \t1.94%
Texas \t2.13%
Utah \t2.44%
Virginia \t0.71%
Vermont \t0.00%
Washington \t1.29%
Wisconsin \t0.70%
West Virginia \t0.04%
Wyoming \t0.26%

Just some thoughts regarding walk aways. I am a financial planner in Phoenix. My wife's colleagues and friends have lately been asking me for help regarding their situation. This is clearly anecdotal but I think it may be extremely common regarding anyone who is a first time home buyer in the last couple of years.

One couple needs to move out of state to help a family member. Their mortgages total $510,000 and their realtor told them they can sell their home for $350,000. They can afford their payments but desperately need to move.

Another couple bought a small home in Chandler for $350,000 with a neg am loan. They cannot refinance as they are under water (severely) and will probably be unable to make the reset payments. Their own mortgage broker recommended they walk away.

Both these couples put no money down, earn above average household incomes yet are in severe financial distress. I have also spoken with many other 20-30 years olds in similar predicaments. I firmly believe things will get worse.

Last July my wife and drove up to sacramento and then through wine country - stopped at every new housing development we saw. I could not believe - Small cities were selling 1700 sq ft houses on small lots for over 500,000 - whereever we went it was the same. Except for wine country - houses on the side of hills looking over the valley all sold for over 1mil.
In the past in California, when housing went up, if you were far away from the big cities, prices did not go up as much. This time the whole state was insane.
Also, I would like to know how much outright fraud their was. Since, you could get %125 loan. How many people took the extra 25% and just walked. In Santa Ana nothing sold for less than 500,000. But, some of these old small homes sold for as much as $700,000. Now, am i supposed to believe someone really paid 200,000 more than they needed to on a old small house. Or did they perhaps get a 125% loan or perhaps a kickback of 100k from the owner or both?

An anecdote about walk away.
Wife works at one of best universities in California (or in World in fact) as a staff.
She told that one but two of her coworkers consider about walk away.
And one of them is a manager. The other one while is thinking about walk away from his investment property, still is trying developing other personal business plan.
Here you have it. Smart People with college degree or master degree are talking about walk away in working place openly.
Hey, it is business, nothing personal.
Her other coworker did not think of these two are morally challenged.
So far, these two are just thinking and talking about talk away, no action yet.
Walk Away meme is out of closet, "Although there is nothing wrong with it." Seinfield said so.

☺☺Bob Dobbs writes:
"...the people who made the bubble possible, and inflated it, feel no shame."

My sentiments exactly.

The bankers have really outsmarted themselves on this one. Robert Reich explains what a royal mess they have made:

"If the market were working, lenders would automatically refinance most of these loans. After all, it’s better for them to have someone in a house paying a mortgage than being stuck with an empty house and nobody paying anything. But as we now know, the loans were repackaged with other loans into securities which were then resold to other investors. So the original lenders no longer have the authority or the incentive to do the refinancing. Hence, there's no market that will automatically do the refinancing. That’s why we need carrots and sticks: A new bankruptcy law that would give distressed homeowners the power to go into bankruptcy to get refinanced if investors don't respond..."

Of course it was bankers, in all their infinite wisdom, who lobbied to change the bankrupcy laws.

No adjustment in debt can be reached unless the burdens of debt can be naturally reduced through bankruptcies. The response of the FED and Treasury thus far has been identical to that of the Hoover administration--intervening to protect the debt structure by buttressing the banks with Federal funds. A theoretically flexible economic structure thus becomes rigid at a vital point. The debt burden remains undiminished and households bow under the weight of debt. Then they spend less, business slows, and the whole negative feedback loop is set in motion. The crisis intensifies.

The bankers have made an incredible mess of things, and now the adults are going to have to come in and clean things up.

In California a huge number of homes were bought with the intention of flipping. I have been going to open houses for over 2 years. The majority of the recent built homes I have been in - no one ever lived in. Person bought it from builder with intention to flip. In some cases the home was flip to another flipper so we now have 2 owners, and neither ever lived in the house.
I also see homes where person did move in, but there is not a lot of furniture and/or the furniture does not match the house. ie, person bought but did not intend to keep the house.
What we have is a lot of homes have been bought where the owner thought of the home as an investment. Someone who bought with this thinking would need a lot more skin in the house to try to keep it.

JLR:
You miss my point.
My point is walking away from one's home is becoming more and more a business decision and socially acceptible. That is all.

I avoided commenting on either of the previous Roubini threads, in part because in some ways, the disagreement is not really economic as such, but one of possibilities and perspectives. The possibility of the sort of economic collapse seen all too often in other countries, but one that Americans have never experienced. The same sort of way that when I was growing up, America was in the process of losing its first war.

To an extent, and a reasonable one, Calculated Risk represents the past decades of American society, a society that considered itself a world leader in manufacturing, innovation, and for lack of a better word, wealth creation. This is why so much of the analysis here, very solid analysis, uses experience from the past decades.

But as can be statistically seen, the America and the Americans of 1960, or even 1980, no longer exist. Those Americans tended to have savings, certain core values learned during the trying times of the 1930s, and a certain appreciation that wealth could never arise from debt.

The America of 2008 is something else - for example, how many real estate professionals 'own' a home? How many of those real estate professionals or financial industry workers have savings adequate to fund one year of mortgage payments? How many of them will be able to find work paying even 2/3 of their current income if necessary? How many of the literally tens of thousands of employees per major financial institution likely to lose their jobs will be able to use their skills to earn enough money to keep paying the mortgage on a house which is worth less than the mortgage?

The bubble in America is not what many people think, at least in my eyes.

The bubble is that everyone in the America of today thinks that the America of 1978 was in much worse shape. That belief is wrong.

America has been living off memories and marketing for a generation, to the extent that for many, real problems requiring real skills in a real world are no longer possible to grasp.

Many Americans will have no option about becoming 'ruthless' or walking away. They have no money saved, and when they lose their job, they will be unable to find work which pays as well (those being the fortunate ones). I may add, the world will also be shocked to discover this truth, which is one reason European banks are being so close-mouthed about their losses - America is about to lose its mythical role as El Dorado, a fact which will translate into real losses for those who believed in something which was a vision of the past, not of the present.

None of this is really surprising, actually, it is merely that the last decades of 'growth' have been based on using savings to meet the needs of today, without worrying unduly about tomorrow. And of course, by borrowing from anyone willing to lend the money - to the tune of 2 billion dollars a day from non-Americans, who are just starting to understand what 'stiffing' someone actually means.

Unfortunately, tomorrow becomes today at some point.

Wiley E. Coyote moment is about right - and Acme's factories are in China.

But the Acme brand name is worth billions and billions, some may retort. Marketing and memories - those cartoons are two generations old at this point.

I know people who are trying to walk away since last fall but the process is being delayed due to a bottle neck in the system. Its in the Sacramento area. Watch out if you plan to invest there it looks pretty ominous for the summer. As for other people with fixed payments I feel that as more people realize that they can't get a HELOC and use their home as an ATM they will most definitely walk away. I know of many people who are just waiting to pay down their HELOC and walk because.

It seems to me that every time the banks have a writedaown, the market has a celebratory 'the worst is over'. How long can they keep on believing the worst is over when new writedowns keep on coming? Are investors being idiots?

I agree with rent-to-own. And I see Iraq and endless oil as a last attempt to try and save the dream. The blue collar middle class is mostly composed of those with easily replaceable job skills.
I believe that they entered a place where they could "know and not know" at the same time. A conflict position which often leads to impaired judgement. They knew and not knew the "american dream" was going to end.
I don't believe that all the people who signed off on dodgy mortgages were duped.
Like the spinster who gets seduced by the traveling salesmen, they just wanted to live the dream once. Before it was too late. Whatever the consequences.
So yes I think there will be plenty of walking away...after all it was just a dream

Here is a story from one of America's successful manufacturing companies -

'Bright Wood sells window and door components and trim pieces across North America....
‘There’s just no market,” said CEO Dallas Stovall. ‘Nobody is building anything.”

“A few hours after Toni Martinez started her shift at Bright Wood’s plant 13 in Madras her supervisor pulled her aside. ‘I said, ‘Am I getting laid off?’ recalled Martinez. She was, as have hundreds of others in recent months at Bright Wood, central Oregon’s third largest private employer.”

“‘There’s just so much panic in the housing market, someone way down the totem pole like me has to pay part of the price,’ said Martinez.”

“She doesn’t anticipate being able to find anything that pays as well as her $12 an hour Bright Wood job, which allowed her to buy a house for the first time. She’s considering going back to property management. Anything to pay the bills, she said.”

“‘Everybody’s scared,’ she said, ‘because if you’re like me, you have a house and car payment and you start thinking, ‘What are you going to do?’”
Home-building slide hurts rural Oregon - OregonLive.com

From
The Housing Bubble Blog 

I think it would be useful to look at how much 'manufacturing' in America was directly related to housing - for example, much of the entire lumber industry, from the chainsaws and trucks to the final product. Or how, apparently, it is 'manufacturing' to put data on a CD/DVD manufactured in another country. And how when that data is transferred, the value of that manufacturing is likely the wholesale price of an album or film. Of course, this sort of manufacturing is occurring world wide (it is called a personal computer, after all), and yet, countries where it is quite common (Thailand or Malaysia come to mind) do not seem to have their manufacturing prowess measured this way.

As a comment to anatomist -
it has been very difficult to find a number that describes the number of 'investment' properties, since if there was any area that fraud seems to have been rampant (and clearly tolerated, considering just how extensive American data bases are), it was in the 'owner occupied' mortgage arena.

This problem is certainly known and recognized as such, but its scale is very difficult to determine, since the current data is obviously corrupted. I think 50% walking is likely too high, but read the information above - she is likely to 'walk,' along with all of her other laid-off co-workers, because there is no other job that will pay her enough to keep her house.

However, it is not that 50% of the people with houses in America will walk, it is 50% that have mortgages, or perhaps the 50% that have mortgages that clearly mean that they will not be able to continue to pay them in the future. Roubini tends to be careful, and I don't think he is seriously talking about ca. 100-150 million homeless Americans.

But along side that solvent risk-averse American, at the same time, there was always the buoyant American whose confidence in a second chance was as firm as his finances were shaky. I remember the borrower of 1980 as being more of a mixed bag, perhaps. Somebody voted for Reagan; it wasn't me.
- Tanta

It wasn't me, either, but in support of what you say I remember that I couldn't help feeling a little excited when he was elected. I knew things were likely to change for the worse, but I was still excited by the prospect of change. I realized then that there really was something different about the American mentality.

Maybe our disasters have not been long enough or deep enough-- or simply not disastrous enough-- but we seem to lack the healthy suspicion of change that other peoples have. Every few years turns our most carefully developed systems on their head in the name of 'innovation'.

It's not wise, or sustainable, but it seems to be a deep part of our national character.

Lots of good thoughts; however, looking at the Fed numbers, 40+% of the Alt A were 'cashouts' which means that people are upsidedown in their houses and have already made a lot of money on them. If you bought a house for 250, cashed out for 350 and then had the house go to 200 (or anyother numbers), you would be crazy not to keep your 100k and walk-- moral issues aside-- and it is mostly 'aside' when money is the issue.

An antitode for happy talk is the latest from Fleckenstein

"The big money on the short side is going to be made when the bullish folks now awaiting the promised land realizes they're trying to look past not just some small ravine but a chasm as wide as the Grand Canyon."

The market's worst is yet to come - MSN Money 

The air of entitlement is amazing. Parents have fueled it by turning a college education into a modern status symbol.

well, frankly, the generation that could get a well-paying job with just a high school education died off a while ago. an education beyond high school is not only necessary today in most cases, but required to even get a phone screen.

i am on the curriculum committee for where i teach, and i can tell you that we talk about this a lot. and we try to offer not only degree programs, but certificate programs too in more "blue collar" areas like IT (networking etc), HR, and project management.

so if you're a good parent, you know this and you're trying to get your kid the best education you can...or THINK that you can. having been around this for almost 20 years, i'll share a secret with you: the ivy schools teach from the same texts everyone else does and famous profs don't teach undergrad. the only thing you get is access to the alumni network, and that's more important in grad school. so get into a decent undergrad place and save the dough for grad school if that is your path. if not, frankly, then get out of your decent UG with great grades.

if you're kid isn't too bright (not that anyone's kid is!) then make sure a solid certificate or tech school is the ticket. we all can't be rocket scientists or, god forbid, quants.

Interesting point about 'walking away' being cast in potentially optimistic terms. Or as just a minor pothole on the road to success. Or as a solution to a problem which has nothing to do with personal responsibility.

Being somewhat out of touch with the American Dream as it plays out today in the land protected by Homeland Security ('it is not a country, it is a home'), the idea that people could just walk away from their troubles is deeply disturbing, because it would fit so perfectly into the Hollywood script which has replaced reality for many Americans.

At least now, in part, I understand the revulsion connected with the idea of 'walking away' for many. And why it is worthwhile to oppose. Previously, I had mainly seen it as self-interest on the part of those with something to lose - somewhat like the debate about John Yoo and tenure raging among law professors. The consensus seemingly being that tenure should not be revoked from anyone without a truly grave reason - the responsibility Yoo bears for the innocent people tortured by the American government apparently doesn't even reach the bar of disbarment. How low we have sunk is often hard to fathom.

I truly had not realized just how attractively the media could play the idea of walking away from your troubles, since that is a basic ingredient of much what is currently going wrong in the U.S.

Sadly, it doesn't really surprise me - in middle age, everything seems to be in decline anyways, especially when looking back on those times when you could get 15% interest on your saved earnings and gas cost under a buck when you could find it. Ah, the good old days.

I'm becoming more convinced that the commodity bubble is being fueled by speculation. The higher prices give rise to hoarding, which lead in turn to shortages, which give proof that the bubble is fueled by fundamentals....
Bob_in_MA | Homepage | 04.21.08 - 9:02 am | #

Bob,
I have mentioned it before...Dryfly mentioned it,How many farmers are setting on 50-100k bushels of grain to get a higher price? Just remember the .gov only gets estimates. If dryfly was right and the guy he knows has 100k,I know my uncle has roughly 80k,the neighbor across the street has 50k,how much is actually out there???

I have a feeling the commodities unwind is gonna get pretty nasty.

Chris

☺☺"...so the 90% or so of joe averages are going to do what they're parents did: they're going to just pay the mortgage, cut back to do so if necessary, and try to ride this out. BK is a stigma for most, as so is not paying your bills. it's their HOME..."--ipodius | 04.21.08 - 8:18 am | #

Sounds a lot like Edmund Burke to me:

"The greatest political thinker of the late 18C, Edmund Burke, had demonstrated that stable governments depend not on force but on habit--the ingrained, far from stupid obedience to the laws and ways of the country as they have been and are."--Jacques Barzun, "From Dawn to Decadence"

Barzun goes on to say this, which also may be pertinent to the current discussion:

"It follows that to replace by fiat one set of forms with another, thought up by some improver, no matter how intelligent, ends in disaster. To expect such a scheme to prosper is unreasonable because habits do not form overnight. Change is inevitable and often desirable, but it serves a good purpose only when gradual--evolution, not revolution, yields betterment, if only because at any time a people is composed of several generations."

The Arizona Republic discovers 'jingle mail'

Read that article and tell me... does it sound like a bought-and-paid for press release from the realtors' PR agency or what?

Check out this quote at the end of the article:

"People should hang in there as long as they can, ask for help and try to work with their lender," said Margie O'Campo De Castillo of Arizona Dream Realty. "Foreclosures are dragging down our housing market, and unnecessary foreclosures are selfish and unfair to the homeowners struggling to pay."

and this one:

According to industry analysts, before you walk away from a mortgage:

• Think about your neighbors, whose home values may be affected if your home is foreclosed on.

Wow Chris. Maybe I should start thinking about the winter get-away now That's happening in the summer places here too. There are a lot of people out there with the means, they were just smart enought NOT to get involved in the fiasco by paying too much. After all, everyone forgets that's how you save money and have money...by not paying too much.

You can't find one 30-something in twenty who can even visualize what the effects of simultaneous 10% unemployment and 15% inflation might be. It just doesn't fit into their worldview.

You know mook the people the in 30's were the same way after the 20's. but they, um, got through it and came out the other side. your assessment of humanity is pretty depressing and i think completely incorrect. people are resourceful and rise to the occassion when needed. this generation will do the same.

Thank you, CR, for taking care of the walking away issue this time, instead of Tanta.

☺☺"America has been living off memories and marketing for a generation, to the extent that for many, real problems requiring real skills in a real world are no longer possible to grasp."--NoVa | 04.21.08 - 9:13 am | #

Beautifully put, but the tale is as old as mankind itself:

"Men are so simple and so much inclined to obey immediate needs that a deceiver will never lack victims for his deceptions."--Niccolo Machiavelli, "The Prince"

but if you can make the payment do so and you'll come out the other side

Try preaching this 'hold on' strategy to people who bought e.g. CSCO stock about 8 years ago -- they are still waiting, although CSCO is not exactly a crap company.

It would be more than foolish to continue paying off a loan on an asset that is now worth significiantly less than the outstanding principal, and will stay that way for years to come. Why not get out: 1) your monthly outlay for housing will be lower, often a LOT lower, and 2) instead you can invest that money in assets that have a chance to appreciate, e.g. stock or mutual funds, or just roll it into CDs.

I'm with eh.

If you are somewhat upside-down on a loan or you can easily afford your mortgage, that's one thing. But if you overpaid due to the market conditions and your $500K home is now worth $350K but you are still paying a $500K mortgage, why on earth would you hang with it?

It's a noble thing to insist on paying one's debts no matter how disadvantageous, but at some point you have to put your self-interest first... particularly if you have a family.

size up their huge payments on an underwater house, and decide that keeping the house ain't worth it will be larger than most in the mainstream can bring themselves to believe

I totally agree. But this isn't walking away. This is financial and lands sqaurely in the "these loans should have never been written" camp. that's my point. instead of the meme being "no lending standards" it is "walk-aways". in my mind, this loss of property is merely reflective of the fact that these people should have never been given loans in the first place. so what we're seeing now is the homeowner percentage returning to normal. that will be painful.

i might add to that i secently saw a nice goggle-based map of all the foreclosures in boston over the last couple of months. i paused with sadness as i saw where they were: heavily poorer and minority areas. you don't see foreclosures in beacon hill, the back bay or the south end. what does that tell you? it tell me that the money made from these loose loans was more important than putting people in houses they could really afford. now that's a crime in my book.

And if they're forced out, those are former neighbors.

that's what makes that bit about, 'think about your neighbors' so incredibly risible. Are those neighbors gonna help keep me in my neg-am option-ARM loan? No? Then FARK THEM!

ipodius:

having been around this for almost 20 years, i'll share a secret with you: the ivy schools teach from the same texts everyone else does and famous profs don't teach undergrad. the only thing you get is access to the alumni network, and that's more important in grad school.

Whoa, whoa, whoa. Yes, I agree that Ivies are overrated in many respect (having gone to two of them and now working at one). But this blanket generalization is just false.

First of all, the undergraduate claim is outdated. Many profs are much more involved in undergraduate education these days, if for no other reason that NSF makes a big deal of it in grant evaluations. Furthermore, at Dartmouth (which is an Ivy), the famous professors do nothing but teach undergrad; the graduate program has always been second tier to the undergraduate at that school.

Second, while the Ivies may use the same texts as everyone else (particularly because they are using the texts that our professors wrote), texts are such a minor portion of the education curriculum. In fact, the major complaint from our students is that we assign an expensive text and then never use it. Either we have lecture notes that are much more up-to-date than the texts, or (in the case of my department, Computer Science), all of the education really takes place in carefully designed student projects.

Finally, the alum network is a big deal to undergraduates. When I was at Dartmouth in the 90s, this was how everyone with a bachelors got into business on Wall Street. It also greatly affects how employers look at your students. When I worked at a SLAC in Dallas, I had to beg top employers to look at my students (despite having a competitive program, and employers being satisfied when they did take the chance on us). Now, at an Ivy, they beg me. A lot of that is the result of alums in the HR departments of these companies.

The reasons why Ivies are overrated (and what I tell prospective students) is because, despite what I said above, there are a number of non-Ivy schools that do the same and do it just as well. This includes both private and state schools.
However, evaluating a college program needs to be a tad more nuanced than what you claim above.

Try preaching this 'hold on' strategy to people who bought e.g. CSCO stock about 8 years ago -- they are still waiting, although CSCO is not exactly a crap company.

Just stop it already on that. A house is NOT a stock, doesn't behave the same way, and the fundamentals that govern price are completely and utterly different. Ciso can find itself bankrupt and my house will still be sitting where it is as long as living memory will permit.

That entire argument is specious.

"daddyo writes:
Our friend Dick Bove at Punk Ziegel was just on CNBC, and his closing quote was "The banks are just not in trouble."

I think he is right. They are just not in trouble, they are dead-men-walking.

Walker...lol....sorry, but the education at ivies is no different than the education anywhere else. the value is in the alum network. i read your post smiling because, even if you hadn't said so, i would have guessed that you were tied to one.

there is no magic happening at ivies and, i might add, the issue is non-innovation and stagnation. i'm sorry, but my history and career has only shown me that, for the most part, those attending ivies or on the staff have always been told that they are more intelligent, abler, and educated better so they believe it.

Btw, when i was in b-school (NOT at that institution across the river) the head of my program took me aside and said "i taught at the place across the river for 15 years. i left because it was suffocating and i couldn't stand it. let me tell you that you, and some of your classmates, are as good and mostly better than anything that ever walked through their doors. take that with you when you leave and remember that they have nothing on you and, in fact, probably have less".

Do you teach at Tuck?

I think that "willfully junking the property" is different from "walking away." Some (I don't have any numbers) defaulting borrowers remove and presumably sell all the appliances and some of the fixtures in the house they are losing, greatly damaging the value of the collateral. A realtor in Southeast Florida told me of one debtor who even removed the switch plates, which can't be worth much more than a dollar or so each, and probably a lot less.

there is no magic happening at ivies and, i might add, the issue is non-innovation and stagnation

I am not arguing with you on this point.

What I am arguing with you is your reasons for why they are not so good. When I read your post, it made me think of stuff that I have heard from stereotypical business school professors when they talk about education. While Ivies do not necessarily give you value add, you are identifying the wrong value metrics in education, particularly in the engineering and tech industries. Yes, the University of Texas can give just as good an education as my school, but you need to understand the proper reasons why this is true.

And I am in the engineering school at Cornell, for what it is worth.

jm, chinas exports are just 7% of their GDP, and if china would use 160b of its money for a stimulus the stimulus would last in china for years instead of one quarter in us

I have to admit, I don't understand the big focus on "walkaways" versus straight up defaults due to an inability to pay. In either case the bank is stuck with a property that might be worth less than the amount borrowed. I understand that there's a PR and perception component to all of this. It's easier for a bank to say "It's not our fault!" if someone is a walk-away instead of a default.

However, the outcome is still the same. Moreover, we can't model or predict this sort of behavior. So what's the point in arguing about it other than entertainment purposes? ( btw, that's a perfectly valid reason for an dispute. )

In a former life, my colleagues and I referred to this as "Academic Masturbation". It's self-gratifying but doesn't really do anyone else any good .

Tanta said: "...along side that solvent risk-averse American, at the same time, there was always the buoyant American whose confidence in a second chance was as firm as his finances were shaky."

That is the most profound thing I have read in a month. But I don't necessarily agree with the idea that walking away is necessarily reprehensible. A mortgage is a contract. There may be times when a breach of that contract is efficient for one party; social norms shouldn't impede efficient market activity. If the lender doesn't want you to walk away, it is incumbent upon them to draft terms and require conditions that protect them.

And while we're at it - let's recognize that there is an important political exercise being played about how we name the walking-away phenomenon:

Jingle mail [which, I wish folks would emphasize - is only a metaphor], if referred to as "ruthless default", sustains lenders' efforts to cast a moral stigma around walking away. If you call it "efficient breach", it sounds far less repugnant. "Walking away" is probably somewhere in between. Over the next few months, there will be a fight in the marketplace of political opinion over what to call this phenomenon. The name that's chosen will affect the policy responses we get out of Washington.

My point is this: if, as a lender, you want to prevent walk-aways, you have two options: (1) you rebrand it in order to turn it into a normatively bad thing, allowing lenders to portray themselves a victims; or (2) you contract in a way to prevent it.

One of these options requires being responsible and planning ahead... and the other plays into the quintessential American culture of victimhood. This is instructive when estimating which option has been more popular.

I'm with Sebastian: the fact that the US savings rate is in the toilet because of the RE bubble and the widespread availability of consumer credit doesn't have anything to do with whether debt can be useful tool for accumulating wealth through successful investments.

One can reject "debt is wealth" without having to believe that all debt is bad.

Bob_in_MA | Homepage | 04.21.08 - 11:21 am |

Bob,
I typed out a response up two threads to your grain questions...
I am also trying to get some other answers...

Chris

I just watched the Roubini interview and posted the following on that site:

"You can take the Italian out of fascist Italy, but you can't take the fascism out of the Italian immigrant.

"Seriously, anybody who buys a new car on time without a down payment is "under water" from the moment of purchase until the car loan is almost paid off. So why does being under water on a home loan call for government intervention?

"And if foreclosures cause neighborhoods to become run down, thereby lowering other house prices, why is that a federal problem? State or local governments can and should take care of such problems without federal financial help. Sheesh! Doesn't anybody remember the 10th Amendment and what it means?"

To which I might add the following from James Madison's Federalist 45:

"The powers delegated by the proposed Constitution to the federal government, are few and defined. Those which are to remain in the State governments are numerous and indefinite. The former will be exercised principally on external objects, as war, peace, negotiation, and foreign commerce; with which last the power of taxation will, for the most part, be connected. The powers reserved to the several States will extend to all the objects which, in the ordinary course of affairs, concern the lives, liberties, and properties of the people, and the internal order, improvement, and prosperity of the State."

oh, forgot to add that I don't know many people who got rich off real estate by buying and flipping. For every one of those folks there's got to be at least 50 who got burned.

There is almost never such a thing as getting rich quick.