There are several too many dots episodes here. That has to do with figuring out the read more thingy . . . anyway, you had best refresh several times, since I've already fixed several of these . . .
Is it possible that Mr. Shiller was only trying to explore this one facet of the issue as opposed to fully explaining how we are to react to the poor pitiful subprime slime who are getting their just deserts? Is it worth considering what are the other costs of driving every bad mortgage into foreclosure?
Based on the headline, I was about to get all medieval about confusing Robert Shiller with Friedrich Schiller, until I noticed that in the body of the post, you spell the economist's name "Shiller", which is correct. So why can't you be consistent? Inquiring (small) minds want to know?
I really question the idea that foreclosure is below changing jobs and sexual difficulties on the stress scale. I would find it truly devastating to lose my home. My kids have grown up here. The dog plays in the back yard. I have spread ten brazillion cubic feet of bark over the years. Perhaps that is why I feel sorrier for the people in foreclosure than most around here.
Also, the only people I know in foreclosure are pretty pathetic. They weren't yuppies or show-offs. They just bought a little house that was still beyond what they could afford with their crappy jobs, and now their kids and dogs have to move a long way out of town to find a cheap rental. I might be less sad if they had been the sort of social climbing big spenders I hear tell of.
But still, I would advocate compassion for people who are suffering. It doesn't mean you have to write them a check. It just means we are all fallible humans and sparing a thought for people in tough circumstances is good for your soul.
How long until 2 guys run into a bank, shout "This is a stick UP!" and the rest of the customers cheer for them to steal every damn nickel from drawers...
We start with the bankers taking away the crack.. we end with Joe Six Pack taking vengeance on the dealers.
however, in some ways Shiller makes a perverse sort of sense. That Tanta even picked up on.
(FWIW, I disagree with Shiller, but bear with me)
Shiller states: "Trying to enforce mortgage contracts may thus have a perverse effect: instead of teaching homeowners that they should respect the contracts they sign, it may incline them to take a cynical view of the whole mess."
Tanta states: "If Shiller is serious that all those other parties are "to blame," then why isn't the obvious solution to throw them out on the street? There seems to be an assumption here that nothing can be done to punish those who are "really" to blame, so we're left managing the psyches of those who can be punished. And that's not cynical?"
This is exactly right if you look at it from a certain perspective
Who in their right mind believes that anybody except the peons are going to get hit with the sh*t of this?
sure, maybe a token person of influence here and there might get a slap on the wrist. but most of those who directly led to this are going to ride off into the sunsets with govt backed gold parachutes and their previous winnings.
even on enlightened sites like CR people argue whether or not the $29B fed giveway was a bailout or not. Of course it was! (of JP Morgan).
so there will be a few reforms, there will be a short lived uproar, and then the taxpayers and overextended homeowners will pay through the nose and we'll go right back to "normal".
and this is allowed because those in power have a platform in which to deride and stereotype these "ruthless" "lazy" homeowners. making the borrowers the scum and the lenders the "poor victims"
I disagree with Shiller's point. But I'm not sure that we shouldn't use the homeowner's plight to cast negative aura on the US Financial Industry.
Is it possible that Mr. Shiller was only trying to explore this one facet of the issue as opposed to fully explaining how we are to react to the poor pitiful subprime slime who are getting their just deserts?
I'm not "blaming" Schiller for talking about psychology. It's actually quite an important and relevant subject.
I'm blaming him for having talked about it badly.
The other side of the "subprime slime" thing is the, in my view, perfectly legitimate failure to sympathize with conspicuous consumers whose vapid little lives are tied up in the square footage of their trophy homes. Not to mention this view that homeownership is important because it makes us all obedient little patriots who will protect our country like we protect our lawns ("Get off there, you whippersnappers!")
So I wonder what gave Shiller the idea to use a quote that plays right into both of those awful stereotypes. I mean, there's 118 years of writing on human psychology since James. He could have at least picked one that wasn't so disgustingly sexist.
This whole thingy revolves around the term 'home ownership'. Gone are the mortgage burning parties.
Does anyone really believe they will someday retire their mortgage? I think not. It would be a bad investment decision. Bad form.
We have evolved into a society of speculators. Home ownership was just another facet. A nation of shills and Shillers playing out a cycle of the human drama.
Long for it as you might, one may not live backwards.
So why can't you be consistent? Inquiring (small) minds want to know?
I theorize that it was a classic Freudian slip. I hate typing "shiller," which has such unfortunate resonances for those of us who live to defend Countrywide. So my unconscious mind fixated on the 19th century (hey! Schiller is just barely 19th century) in order to avoid that psychologically distressing word.
Or I'm just a slovenly typist this morning. Take your pick.
I think Shiller is an incredibly bright guy. So I read this editorial and felt sickening waves of cognitive dissonance wash over me. Thank you, Tanta, for the editorial scopolamine.
"Homeownership is fundamental part of a sense of belonging to a country."
This is idiotic. Maybe, some crazies will define it as a fundamental right.
The group MOST responsible for the mess is economists. Economists were justifying the bubble, during 2004-06, based on fundamental factor such as demand. Every estimate of the housing demand, by an economist, that I have read was 1.65-1.9M Annual Rate. When the actual demand was much lower.
They were also justifying the "innovation" of securitization of debt as a marvelous thing (Greenspan and Bernanke, both economists, were great supporters of the financial innovation that led to the mortgage mess).
Most economists are in the propaganda business.
IF there is one profession in America whose members should be lined up and shot, not that I would advocate that, then that would be economists and not lawyers as most people believe.
conspicuous consumers whose vapid little lives are tied up in the square footage of their trophy homes.
But what would our capitalist society do without conspicuous consumption? We need it. We rely on them to buy the next gen cell phone with email, internet etc. What would we sell if we didn't have vapid products to pawn off on rich folks and rich wannabes?
Are you suggesting that Shiller is afraid of "cynicism" because it could undermine WASP capitalist hegemony?
I was more concerned about the link between homeownership and patriotism lurking here. Shiller writes:
Homeownership is a fundamental part of a sense of belonging to a country.
He did not write "a city" or "a town" or "a community" or "a neighbhorhood" or "a block." He wrote "a country."
You could interpret that to imply that those of us who do not own homes do not have a sufficient sense of "belonging to a country." You could interpret that to mean that if we get kicked out of our homes, we'll all turn into traitors. I don't think Shiller means that, but yes, I think those implications are there and they are sinister. All jingoism is sinister in my book.
I find it hard to believe that after all the jingoistic horror we've been treated to in the last several years since 9/11 about who "belongs to this country" and who does not, Shiller would want to get anywhere close to such a formulation.
(OT), but a little too surprising (even to me) to let it slide.
I saw this 1/2 page ad in my local paper, and found a website so everyone could see it. Looks like somebody in the housing industry is not only will to call a bottom, but put some money where their mouth is.
(The ad specified contracts executed after April 12, 2008.)
I agree both with Tanta's post, and with Yearning that, if the pain does not reach the people in the financial industry responsible, as well as the homeowners responsible, there is going to be a very deserved populist backlash.
Schiller (whose insights on bubble-o-rama I admire) has arrogantly stepped out of his area of expertise and you have rightly called him to task (and it only took 2.4 times as many words as Schiller - pithy by your standards).
Ahhh, what we've all been waiting for,...read on!
So imagine a long line of moving trucks,...kids taken across town,...President Bush's "Home Ownership Society" in reverse,...
I would note the stress of moving is supposed to be in effect whether you're moving up or down: It's the moving that's stressful!
Emma Anne, I think perhaps you're viewing the pain of foreclosure with the events that might lead up to foreclosure, i.e., loss of a job, divorce, etc. The foreclosure comes at the end of a battalion of slings and arrows of outrageous fortune.
I find it hard to believe that after all the jingoistic horror we've been treated to in the last several years since 9/11 about who "belongs to this country" and who does not, Shiller would want to get anywhere close to such a formulation.
Well, he's probably a full blooded American, so we could trust him to be President.
Emma Anne writes:
Also, the only people I know in foreclosure are pretty pathetic. They weren't yuppies or show-offs. They just bought a little house that was still beyond what they could afford with their crappy jobs, and now their kids and dogs have to move a long way out of town to find a cheap rental. I might be less sad if they had been the sort of social climbing big spenders I hear tell of.
That's certainly an accurate description of most of the foreclosures I'm seeing here in the wilds of northeastern CT.
These folks drank the kool aid being purveyed by the powers that be and the MSM.
You win! You win! I had to go look up "scopolamine."
My anti-nausea drug of choice is Compazine. Not just because it works; also because it is used as an anti-psychotic. It's great to go fill a scrip for Compazine; the little pharmacy tech isn't sure whether you're likely to puke all over the counter if he doesn't hurry or start hearing Voices. So, you know, they hurry.
I don't really see alot of people who bought a home they could afford being forclosed upon.
It would be traumatic to lose my entire retirement savings....but less so if I went to Vegas with it.
I don't see people being thrown out on the street who bought ONE house and are making the payments.
In any case, what's the pyschological trauma to being a forced homeowner?
I'd say there as many people who wish they could join the renter class, who can't unload some condo they overpaid for even though they now need and can afford a bigger home.
We need a mush-piece editorial describing how forclosure is a pyschological healing process for those sloughing off the cuffs of serfdom and striking out unto the world now free from the bounds of societal expectations..bla blah blah...
I really question the idea that foreclosure is below changing jobs and sexual difficulties on the stress scale
I don't, actually, because I am convinced that when those surveys were completed, very few respondents had ever been foreclosed, known anyone who was foreclosed, or possibly imagined themselves being foreclosed. So they ranked it low because it seemed so remote.
I suspect you'd get a different answer these days.
While you are criticizing the press, I found the WSJ's recent coverage of the site AngryRenter.com (a petition against the bailout) lacking.
The theme of the article was that the site wasn't sponsored by renters, but rather by a republican think-tank run by people who own homes. It made that out to be a scandal.
It seemed like it would have been easy to write a more insightful piece which said "Renter's aren't the only ones that are against a bailout, many home owners who are not in financial trouble are against it as well. In fact, the angryrenter.com petition was conceived by some angry home owners who are against the bailout."
I think that would have been much more useful and insightful than the "its a scandal that the site isn't really a grass roots movement" coverage from the WSJ.
Mmmm....scopolamine. You ought to try it sometime. There is a significant subset of the population for whom it acts as a psychotomimetic at the usually prescribed dose (I highly recommend that scopolamine patches NOT be used for seasickness in children.) (Per Wikipedia: "The hallucinations produced by scopolamine...are especially real-seeming and create a perception of a new world filled with frenzied, violent energy." Not unlike the housing market right now.)
I really question the idea that foreclosure is below changing jobs and sexual difficulties on the stress scale
Well, foreclosure used to be a relatively closed event, you and the bank and you could hide it from everybody. But loss of a job and sex gets to where people live 99% of their lives, their view of their self worth, (especially that sex thing.)
So many people I know watch those stupid shows on teevee about flipping houses for profit. These infomercials helped fuel the housing crisis. I worked with many poor people who figured this was their chance to get into the game. They're not evildoers, they are victims. The gates always close when they try to enter.
Does the fact that most of these homes are stuffed with merchandise made in China, financed by credit ultimately provided by China, mean that we now find personal worth in owning a piece of China? Tanta's prospective is reality (not realty) based...the rest is psychobabble.
"The pain of this reverse movement could leave a psychological scar that will be with all of us for the rest of our lives."
What Robert Shiller calls a "psychological scar", I call "a great awakening"...to the fact that you Don't Buy Things You Cannot Afford (with a hat tip to the SNL skit of the same name).
It's all how you look at it. Will America be better or worse after this pain/awakening? Is it better for Americans to take out more and more credit trying to Live The American Dream, only to finally find that it wasn't a dream, it was a disguised nightmare? Or is it better for them to have some pain (housing and economy wise), and learn to once again save for emergencies and live within their means?
I think that it's far from a psychologically scarring event...it's the lesson of a lifetime.
The brokerage and lending industry is set up to encourage overborrowing and overbuying. There's a lot of touching naivete out there among buyers, not to mention magical thinking and arithmetical incompetence.
There will also be a lot of people with impaired savings going forward.
OTOH, you have to work out the bad debt and there's a lot to be said for doing it quickly.
So I wonder what gave Shiller the idea to use a quote that plays right into both of those awful stereotypes. I mean, there's 118 years of writing on human psychology since James. He could have at least picked one that wasn't so disgustingly sexist.
But that was also the context James was writing in. Maybe if James wrote that today it would have been gender neutral. That dominance behavior is definitely not solely the providence of men. Will the dents in the ego be enough to derail the will to power? If so, how will our empire muster the collective will to preemptively defend ourselves against perceived threats? I think that is the more serious question that Shiller's piece raises.
IMHO, all bubbles are liquidity driven. No excess liquidity, no bubbles. Whether the bubble is in internet stocks, homes or ag, it doesn't matter.
Our FED and Federal government with their deficit spending, no regulation, debts don't matter attitude ensure bubbles happened. So the guy in bankruptcy is just a guy that has no idea what is going on. Blame the guy if you will, but to a large extent he is just a spec of dust floating in the wind.
To equate the ownership society with patriotism is just as stupid as the guy that over consumes and over spends and ends up in debt (by the way just like our country) up his eye balls with no hope of ever paying off the debt.
Look beyond your hatred of the average consumer and look at the true driving force of the debt in this country.
Jas is spot-on:
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"Homeownership is fundamental part of a sense of belonging to a country."
This is idiotic.
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Yep -- and the kind of idiocy that partly comes from the VERY US-centric viewpoint most Americans of all stripes share (as an immigrant to the US from Europe, I'm lucky that way;-).
Have you EVER heard any of those homeownership paladins acknowledge that is Switzerland the rate of homeownership is just 34%?! Yet the Swiss are a GREAT example of "belonging to a country": across such barriers as multiple different languages, century after century, the Helvetic Confederation has offered examples of nation-country patriotism and "belonging" against all odds (e.g. by being a federal Republic back in times when a monarch, which they always happily lacked, was thought of as a must-have symbol of national unity, to the point that the US Founding Fathers deliberately set up the Presidency as a kind of "ersatz kingship"...!-). Switzerland proves that a democratic, federal, capitalist country-nation can perfectly well thrive without widespread homeownership (and without a central powerful symbolic father figure, without the benefit of a single national language, etc, etc).
Ross OTOH perplexes me:
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Does anyone really believe they will someday retire their mortgage? I think not.
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Hm, why not? I've done so repeatedly in my life...!
Excellent commentary, Tanta, but I must take issue with this: "There is this whole part of our culture that has sprung into being since 1890 that takes a rather severe view of conspicuous consumption"
I hardly think my Quaker ancestors of the 17th through 19th centuries took a more lenient view of conspicuous consumption than I do-- and I'm not exactly a big fan. And failure to pay your debts was cause for expulsion from the meeting.
There is a narrow, but important strand of American culture that has always been repulsed by the equation of monetary and moral values. It runs side by side with the acquisitive strand throughout our history. And although the insistence on spiritual rather than material values is weaker, every so often it wins out. The abolition of slavery and the New Deal weren't the work of Jamesians who measured their worth by what they owned, after all. Or of Bushian party-boy types.
Well, foreclosure used to be a relatively closed event, you and the bank and you could hide it from everybody.
Really?
I have always believed that the real psychological scar caused by FC is that it is indeed now and has always been so very public. You get an NOD or a lis pendens filed in the public records. You get a process server coming out to stick a notice to your front door. You get the sale advertised for three consecutive weeks in the local paper, then you get your home sold on the courthouse steps. Then you have to move out and all the neighbors can see it.
It's certainly rare for anyone to get fired, for instance, in such a spectacularly public fashion. Many people, actually, believe that the public nature of foreclosures is indeed intended to be a kind of puritanical punishment. That isn't really true, of course, but the sense of being humiliated in public is very very real.
Shiller said: "...What would this mean in human terms? Picture a line of moving trucks extending for hundreds of miles: they are taking the furniture of countless families to storage lockers. Picture schoolchildren saying goodbye to their classmates. They arent going on vacation: they are being abruptly moved to the other side of town...."
I've got the picture in my mind right now: The Joad family, only it's a short hop in an SUV instead of the family's farm-truck.
Economists shouldn't write pathos, and this is the proof. The only thing this piece tells me is that the news coverage and the "national discussion" of the entire housing "crisis" has now gone absolutely, totally over-the-top into a state beyond the ridiculous...signifying the makings of a major sentiment low in the housing market.
Would you write a reality piece describing what in fact Schiller appears to be attempting to influence and avoid?
IMO, first, implosion in RE price was denied by the Federal talking heads, and that jawboning failed. That was wave #1 in a series. The MLEC was a cloaking device, and it failed. The current TAF's and the entire panoply of gov't financial sword swallows (bigger than falling knife grabs) is also in the process of failing, simply due to the enormity of the RE price depression, and it's sisters' rout, the CC's, the "auto" loans, the frivolity loans, and the CRE loans.
The spectre is not a misinterpretation of reality-future. IMO, Schiller has continued to be a light-weight in the assessment of this economic reversal.
What I'd like is for you to conjecture what might be behind the curtain that Schiller is opining should not be opened further.
Please speculate; consider this a 4-Square and you're the preacher.
I hope that Tanta or someone else more knowledgeable than I can explain something that I don't understand about this issue. I read about people losing their homes because "their ARM resets to a higher rate". My understanding is that most ARMs reset to LIBOR or 1-year treasuries + 2.75%. Now according to Bloomberg, LIBOR is at 2.5 % and one year treasuries a bit above 2 %. So my calculator tells me that the current rate would be somewhere slightly north of 5%. By what historical standard is this an onerous mortgage rate? My 30-year fixed,which I re-fied in 2003 verry close to the bottom in rates is at 5.875% and I don't find that onerous at all. So where is this coming from?
I saw this 1/2 page ad in my local paper, and found a website so everyone could see it. Looks like somebody in the housing industry is not only will to call a bottom, but put some money where their mouth is.
I think you're a moron. You post things here as gospel without even bothering to check out the facts.
I'm sure you didn't bother to check out the Terms and Conditions of this offer. There are so many loopholes in favor of the homebuilder that it's almost fraud.
You have to use an appraiser on the homebuilder's approved list. Why?
You have to pay for the appraisal yourself. If the homebuilder disputes your first appraisal, you have to pay for a second. If the homebuilder disputes your second appraisal and obtains one itself, the difference between your second and the homebuilder's second appriasals will be split down the middle.
The deal is limited to decline in home price caused by decline in the general real estate market, not the individual home. How would you prove that, if disputed?
It only applies if the home is continuously owner-occupied.
There are very strict and overly stringent time conditions on submission of the appriasal.
It's a total joke. It's craftily written by a lawyer to make sure the homebuilder never has to pay out a dime.
I think Shiller and James both tried too hard to identify specifics when it comes to the essence of personal satisfaction.
I think we all desire successful independence and self-determination.
Society has shifted how we measure our independence by placing less emphasis on our debt.
When Bush talked about the Ownership society he didn't really mean ownership. He meant material possession. It made no difference to him who actually owned the asset, only who possessed it.
Morally, there is little difference between a person on welfare who is dependent on the state and a person who is in debt to their eyeballs and is dependent on their bank.
We all tsk, tsk the person on state welfare and seemingly admire the person on bank welfare.
I think we need to be able to successfully make it on our own in order to be self-satisfied with our lives. On our own means not being in debt.
It seems to me that by focusing only on homes or home ownership, a lot of supposedly smart people are missing the big picture.
Too many Americans got too wreckless with all types of spending, including buying homes they can't afford. They assumed easy credit would always be available, and they didn't count on the cost of living exploding upward while wages stagnate.
They are out of money, out of credit, out of options and out of luck.
It's not just a few Americans who are like this. With various gradations, its tens of millions.
It's not just the poor or lower middle class. The sob stories go way up the socio-economic spectrum.
I think your comments were too kind to Shiller. Given that his views will receive an instant audience, and that many readers will take his writings as "truth" or "insight" without subjecting them to scrutiny, I say that he has been irresponsible. Yes it's an Op-Ed but he should have asked someone such as yourself to offer a counter-view before publishing. If it had been an academic piece subject to peer review it would have been rejected outright with no door left open for re-submission. Sloppy work.
"They just bought a little house that was still beyond what they could afford with their crappy jobs, and now their kids and dogs have to move a long way out of town to find a cheap rental."
This is not me trying to be mean or snarky, truely...so please bear with me:
Where were these families living before they bought a house that they could not afford? If they are losing a house that they could not afford, were where they living before? If they had been living in the house for a long time, "building memories and attachments, etc.", why on earth would the house now be affordable?
And if they had just recently moved from renting, into their newly bought first house, is it so bad for them to go back to renting if they really can't afford the house?
Remember, I'm really not being snarky here. I truly want to know.
Editorial - It took a job influenced move from an area I REALLY loved, and from a house I REALLY loved (it really really was a nice house and area) to make me realize that no matter where we lived:
There were beutiful and wonderful things to love about the area we moved to.
I would be happy and form fond memories from the things that I found out were REALLY important to me...not a "entertainer's house", not my "first little house", not my new car, not my new furniture...but my friends and family.
The American Dream shouldn't be about "things", including owning a house. It should be about happiness, security, charity, and financial freedom. Usually home ownership helps accomplish this. However, when home ownership is a burden, or a farce (as in you can't afford this home yet you bought it anyway), it isn't part of The Dream.
and greedy, rich -- your friends and relatives are telling you how they sold their house in a few years for twice what they paid for it, and you figure, hey, we can all do that.
If you'd like to learn more about the impact of credit crunches on real people, check out Showtime this afternoon - Maxed Out: Hard Times, a documentary film by James Scurlock from 2005.
It's frankly appalling and it doesn't even touch the massive stress introduced into the system by the recent housing problems.
On Sunday May 18th 2008, all services utilizing the central storage system will be taken down to conduct critical maintenance on the storage devices. Services will start being shut down at 11:00, with service restoration commencing at 16:00. All services are expected to be available by 18:00. "
BTW- What was the point of this editorial? I've read it a couple times and I can't figure out what he's trying to get to. It leads me to just wandering about questioning some of the premises.
Such as only FB's only feeling the pain,...I think that mortgage brokers and appraisers are hurting now too, if you consider that their business is drying up and they're waiting for the FBI's knock on the door.
And the battle of public opinion, the House versus the president with the president on the winning side?
I see the debate more clearly now. One side says people who "did the all right things" to own a house should be made whole, despite any mistakes they made out of ignorance, because home ownership is important. The other side says people need to experience the consequences of their actions, regardless of their efforts and intentions.
I think our society has been fat and happy for so long that few understand life is naturally a struggle. Just because some achievement is important does not mean you get it just for trying. Cynicism is not the only alternative to complacence; determination would be a better choice.
Maybe if James wrote that today it would have been gender neutral
I personally doubt that very much. My reading of James is that this isn't just an unfortunate use of the "universal he." James knew perfectly well in 1890 exactly how few of the world's women were even allowed to own property, to have custody of children, or even to have a job that paid a salary they could control. He knew perfectly well he was defining the "Self" in a way that made it difficult to imagine that women and children had "Selves" worth asking about. He was not simply describing a psychological mechanism whereby "people" identify the self with their belongings. He was discussing a normative view, wherein the only functional Self was the one who could have rights of "possession" in other people as well as stuff. In my opinion.
Sarah is of course right that there were plenty of voices before 1890 challenging the view that we are what we own. I am not trying to claim that James necessarily endorsed conspicuous consumption. I simply think he couldn't imagine what kind of sense of self a woman or a child (or, you know, a former slave) could possibly have.
Let's be clear though that there is considerable social cost borne by kids and others who didn't make the bad decisions.
OTOH my parents' generation was pretty darn careful about how much debt they took on. I've been shocked by the advice I've gotten casually from educated peers to take on the biggest mortgage I could.
arroyogrande said: "...And if they had just recently moved from renting, into their newly bought first house, is it so bad for them to go back to renting if they really can't afford the house?
Remember, I'm really not being snarky here. I truly want to know...."
Nope, it wouldn't be so bad. What's truly "bad" is when recession occurs and puts hundreds of thousands/millions of people out of work. People who suddenly find themselves in that situation have money for neither a mortgage payment nor rent-money.
What's happening now in the housing market is far more about housing changing hands from people who honestly couldn't afford what they bought into the hands of people who can. That's unfortunate for some, but hardly a nationwide disaster like a recession or depression would be.
Sells more papers and attracts more viewers and eyeballs to portray it that way, though.
Thanks for the info . . . I apparently just got in before the server went down.
I didn't see another online version of that book, although I may perhaps not have looked very hard. So it's nice to know the links will start working eventually. 1600 GMT?
So, I am making a political statement by renting? Never thought of it that way, but makes sense. I can haz a piece of the ownership society? No thanks.
I am also a renter, you know, and have been since the early 90s. My immersion in the subject of homeownership is a fact of my job, not my deep psychic needs. Of course, as a renter I may have no deep psychic needs. Oh well. Saves on therapy bills as well as the monthly housing nut.
I had no idea that it explained my utter lack of patriotic fervor, of course. But hey! Some people's bugs are other people's features.
Sebastian, are you really that retarded in real life? I mean, was the collapse of NEW just after you bought not a wake-up call? What about BSC? Was that just a movie?
Is the plunge in FFR to 2% almost overnight in response to a problem that doesn't exist? Are 5 million foreclosures a non event? What do you need to convince yourself that the economy is smashed on the rocks? Was the GD just a inconsequential speed bump on the road to greater prosperity?
you sir, are either the biggest dumdshit on earth or a troll. I can't tell which, but given the NEW purchase, I have to assume dumbshit.
He's been political throughout. He's always been "conservative", even in his projection of a housing downturn. Of course, as reality nears, he speaks truth.
Way, way too many have continued to espouse that he's the best. That's hoghooie.
He's a political anchor, a drag on the true understanding of what's next.
This ain't my opinion; it's just a tragic, for the lumpens who follow this guy to see into the future, reality.
Why is it that Tanta is so obtuse about the function of the MSM? The editorial page of the NY Times is just a weathervane. The wind is blowing from a direction called populism -- GET USED TO IT.
We owned our own house for a quarter century, sold it, rented for a couple of years in a retirement destination, decided we were too young for that, and returned to where we came from, where we bought a house. Before we sold the first place, I found the house proud people a little odd, and the 'house is the best investment you'll ever make' crowd tiresome. While we were renting in Santa Fe I found the implicit social contempt for renters (at least in the circles we moved in) stunning (the self-styled avante garde, like the self-styled American left, can be mindbogglingly conservative when caught unawares). Back in the Pacific Northwest, the 'homeownership society' is stil thriving, but I've got tosay that the endgame has started whenever somebody puts a name on the trend, so I don't think it's got much left in the way of legs. Who knows, maybe in a few years, we'll move to 'homeownership is for losers and suckers.' Frankly, we kinda liked renting . . .
That NYT editorial was a tough read. Why does nobody write a sob story about the psychological stress renters have suffered as they watched the prices of homes they could have bought get bid out of sight by fools and their liar loans. First we were housejacked, and now, after all these years of waiting and saving, we see our savings pilfered by inflation and our politicians giving our taxes to the wreckless all for the purpose of keeping them in homes that should be ours by now.
pull my finger--
if you really believe that, you are going to find yourself on the wrong side of history. Don't confuse the impulse to protect the weak the desire to visit justice on the grandees of a previous regime. We haven't had a true populist movement in the U.S. since WWII (no, the civil rights movement was not a populist movement).
Madame Defarge didn't seem too motivated to go work in a soup kitchen or protect the whiners. She stuck to her knitting and watched the heads fall in the basket.
protecting those who whine the loudest is all about politics as usual. The Bushies are actually pretty good at it, if you're tuned into their channel.
Well that's fine, Colin, but you still have to come to terms with the fact that renters are second-class citizens. Always have been, always will be. Sorry 'bout dat, Tanta.
and squatting might make a comeback, coruscation -- in London in the early 1980s a lot of bldg owners tolerated squatters because they kept the place occupied and even fixed it up a little.
The wind is blowing from a direction called populism -- GET USED TO IT.
I'm not obtuse, I'm just old enough to have been through several periods of confident predictions that the fallout of this or that economic mess was going to lead to the populist revolution. Let me go root through the closet and see if I can find my WIN! button.
I'll "get used to it" when I see it, dear. Americans have been sitting around on their butts for quite some time watching their jobs go away, their pensions looted, their infrastructure rot, their cities destroyed by hurricanes, their lives and treasure squandered in pointless wars, their health insurance becoming intolerably expensive and their civil liberties flushed down the nearest toilet. Periodically they get fired up about gay marriage. But by all means, let's convince ourselves that some populist revolution worth having is on the way because of a housing bust.
Call me cynical if you choose to. But I get call you a hopeless romantic. In any event, call me when the barricades go up, and I'll be happy to eat my words.
What I find particularly disgusting is the great lengths the shill(ers) of the PPT are going to in order to sell the biggest conspiratorial misdirection attempt I can ever remember - The bailout of the lenders by the US taxpayer (the Iraq war ranks right up there but won't cost as much).
The dupes will fall for it and it'll be proof that a massive enough blitz by the PPT will always triumph...
Not getting the massive tax breaks and on top of that you still get stuck with the biggest bailout ever.
Grant me a few functional brain cells, please. I never would have gotten "massive tax breaks" by owning a home. Given what I make, my lack of other deductions, and what I would have been willing to pay in annual interest, I doubt I'd have had many years in there in which I'd beat the standard deduction.
And while we're at it, can we explain why this might be "the biggest bailout ever"?
100,000 dead in Myanmar, 30,000 (probably more) in China and Dr. Shiller is drumming up sympathy for people who bought too much house?
By the way, do all of the homeless (not homeoweners turned renters, but honest-to-God homeless) in those disasters no longer identify as Burmese or Chinese?
If you have listened to Shiller on CNBC for any length of time you know that he has always been in the bailout camp. This piece is just a little more overt of an attempt to sway opinion in that direction. Why, it might be because more than most he knows how truly perilous the situation is and is scared now and more frightened by the minute. Or he might have slipped a little koolaid and bought some HB's when everyone was talking up a bottom on the markets a while ago. Who knows....
Thanks for quoting James. Now I recognize my true feelings of lack-of-manliness...
No Yacht.
No horses.
No really, really fat cigars and decanters of brandy.
Damn.
I've seen the psych qualifier for levels of stress. Foreclosure, I think, has to be parsed a bit. Foreclosure of your primary home is a lot more stressful since it strikes to your ability to provide a 'home' for the family and kids. Foreclosure for a flip is probably less stressful...unless, of course, you hocked the primary abode to finance the flip.
And if you want a better author named James, try MR James. Infinitely better.
The most interesting thing about Sebastian's fabulous find of a 5-year home price value guarantee from a homebuilder is...
Of course, it offers no protection against a nightmarishly bad real estate environment.
Because a homebuilder isn't an insurance company or FDIC-insured bank.
In a nightmare environment, the home builder will either be out of business or broke and unable to pay against its promises. Or it will have sold out to some other entity that isn't bound by old promises.
So what exactly, Sebastian, is suppose to protect a homebuilder in that case?
What a pathetic blog this is -- a bunch of policy-wonk wannabes and permabear losers mumbling about "moral hazard." Don't you chumps realize not one 'Merican in ten thousand even knows what moral hazard is, much less cares about it?
The only poster here I have any respect for is Sebastian. Luv the way he crafts those comments to be just stupid enough to be provoke, but not so obvious that he gets ignored. Nice work, Seb! I see you've got the troll franchise here covered, so I'll move on.
Call me cynical if you choose to. But I get call you a hopeless romantic. In any event, call me when the barricades go up, and I'll be happy to eat my words.
Very few popular revolutions have sprung forth from a populous that had plenty to eat and a roof over their heads. I've always considered that the "home ownership society" was one way of placating the masses into another 4 (or 8) years of getting along (without getting up and doing something provocative).
The MSM finally got their nerve/spine back when Katrina mostly destroyed a major city. That destruction took away jobs, food and roofs.
The 2008 Atlantic season kicks loose in 14 days. Personally, I'm not looking forward to another Katrina-esqe storm. We have not fully recovered from the last one.
Weird - we were just debating this on the last post -- so forgive me if I repeat myself, but ..
I fully expect more lazy journalists, politicians and regulators to incessantly throw focus on homebuyers (with either a "poor bastards" or "they got what they deserve" theme) all in the name of not bothering to do the legwork to find, name, and bring to task those who unjustly enriched themselves. Making poor bastards out of all of us.
Unfortunate homebuyers are red herrings to the slaughter, it seems..
Could it be that Shiller's assertions of homeownership equals love of country are a smoke screen for what he really fears. That is that the scars of foreclosure will keep people from jumping in front of the homeownership train in the future. That they'll wait to grab the caboose after the train has passed and slowed down from a lack of suckers to fuel the engine.
No doubt foreclosure is traumatic. But I doubt it will damage a person's sense of belonging to a country or their patriotism. More likely to damage their willingness of paying more than they can afford and trust in financial industry. More likely to cause those foreclosed on to let the hopes and dreams of homebuilders and speculators be foreclosed on just as theirs were.
BTW, is Shiller implying that those in the military who don't purchase a home since they are ordered to move every 18 to 36 months have less of a sense of country than a home ower?
rich-You have a lot of Chutzpah (to use a good New York term) to call Sebastian or anyone else a moron. I used to come here quite a bit in Jan-Mar of this year and your advice in March was to buy all you could of the various Ultrashort ETFs. Well anyone who did so would be down a good 15% or so today.
Could you be right in the long-term? Anything is possible.l But your short-term forecasting sucks to say the least and doesn't entitle you to call anyone a moron.
Gradual home price drop good: Yale's Shiller
"On the other hand, if they fall suddenly and fast then that can bring on recession and that is the worry
right now."
"We want a gradually declining market, we don't want a collapse in our institutions," Shiller said.
Here, here, T-! He deserved skewering, and thank you for obliging!
Roubini and Shiller are wonderful analysts. But, once they start straying from the straight and narrow of macroeconomic risks, bubbles, etc., they quickly stumble.
Thanks for kicking Shiller after his fall. Maybe now he will stick to the straight and narrow path of analysis.
... and bankers are rotting fish in a barrel, or something.
I dunno. I do worry about the social dislocation, effects on kids, damage to people's long-term savings. But cripes, people who take on large amounts of debt to buy big assets that they fondly believe will appreciate are not leaves in the wind. There's a lot of really bad argument out there, ideas that gummint should simply stop foreclosures because bankers are evil. The downside of populism, from William Jennings Bryan through John Edwards, is that for all its commendable sympathy for the downtrodden it falls back on crap analysis and idiotic conspiracy theorizing.
tanta [And while we're at it, can we explain why this might be "the biggest bailout ever"?]
Well, according to many, the largest taxpayer bailout was the S&L bailout. The tally there was around $100bn. Adjusted for inflation from the late '80s it might be ~2.5X that figure. I feel pretty comfortable with the assumption that this bailout will easily eclipse that figure. A simple glance at the HPA chart should be enough to convince you. It's possible that there may be rolling smaller bailouts of the BSC variety with poor visibility into the figures and the grand total won't be known for years afterwards.
Based on the way I see the course of this mess heading with the PPT at the helm, it'll get dumped on GSEs and FHA so the bailout should end up being totalled up by the GAO...
This blog IS peer review of Shiller, Tanta and ourselves.
barely - Close your eyes and hold on tight.
Aheadofthecurve - Rich meant feckless not reckless or wreckless.
Anomalous - So you and Shiller think that "society as a whole" should buy little houses for all the people with crappy jobs who can not afford them??
I agree that a loosey-goosey, "living" contract is better than one of those strict enforcer kind. Let the courts decide what is best for society as a whole.
Rich - your attack on poor Sebastian was mean spirited and gratuitous. Sebastian IS one of the appraisers on the approved list. Do you want to go back to auction appraisals and pay for the highest one? The builder is a good marketeer, risk manager and probably a survivor.
Sarah - My favorite New Deal was the Supreme Court packing. Both acts of "insistence on spiritual values" you cited who were inflicted on us by lawyers and politicians.
Economics is a Social Science that treats the results of human behavior, caused by human feelings, sometimes hurt feelings. This is why it's called the Dismal Science. There is no truth. If you want truth consult a CPA.
Why is it a politicians job to warn people not to buy a house? Should the president tell you to think twice about getting married because your fiancee has indolent tendencies?
"It would guarantee up to $300 billion in mortgages of troubled owner-occupants. But, right now, the bills prospects are bleak, and the troubled homeowners may be left with virtually no help at all."
Shiller is definitely using his reputation to rally for a bailout. I wonder what his motive is? He of all people should be aware of how prices need to fall to affordable levels. I know he was suggesting a few years back about starting a company where people could buy options to protect their value of their homes.
His NYTimes article reads like it was written by a college freshman journalist student....I bet he only put his stamp on it
Shiller might be defending the homeowner to draw attention away from the fact that he earns money from the use of the Case-Shiller home price index. That is he is making money off others misery and he is trying to paint himself as sympathetic to the plight of the distressed homeowner. Anyone listens to this guy talk in more casual spaces knows he doesn't give a shit about homeowners. This is a purely academic exercise for him.
Your rant about Jammes and sexism is sophmoric and shallow. Your political correctness preents comprehension on your part. Self-satisfied historically ignorant bores ranting on about politically correctness are equally as tedious as the pompous Victorian male. (And I speak as someone who was teaching women's studies and being told 'women don't practice in that area of law' when your were in diapers.)
The use of James highlights that the cultural thought of 'ownership is good' is deeply iimbeded in the national psyche and has been for many many many decades, and even centuries. It runs deeper in the US culture than in many European societies as the US was settled by many younger sons and the land-dispossessed who crave ownership of land. The entire history of the US revolves around getting and keeping land.
So yes, Shiller is correct about the cultural meme of owning land. And you are WRONG - go study the history of social thought before you embarass yourself further.
And rather than wasting your time ranting "If Shiller is serious that all those other parties are "to blame," then why isn't the obvious solution to throw them out on the street?", why don't YOU go think up a way to recapture the profits from the big players who created this mess? I can certainly tell you that there is no effective statute or law that will make them regurgitate their profits.
Emma who posted above has it right. The majority of foreclsoures we see here (and I am on the board of the county agency dealing with this mess) are people who are struggling in their awful jobs for meager wages who simply want a place to live, a tiny yard for the kids and dog and to have a place in which to live when they retired where they do NOT have to pay rent. Because wages have been flat or falling in the US for several years due to corporate greed channelling all gains to the upper 5%, the only way they could hope to have a home was by subprime mortgages due to their income and the cost of housing and the DTI.
And if you think owning your own home outright when you retire isn't important, then you try living on the average Soc. Sec. retirement of $1100 and paying rent while paying out over $300-400 in Medicare B, D and Medigap. AAnd the vast majority of the US do NOT have pensions or the income that will allow them to accumulate $500K or more in a 401(k).
Fast Eddie: many of rich's stock market predictions have been feckless and reckless and you would be wrecked if you had followed them. That goes for quite a few others here too (I will refrain from naming names because they know who they are).
Shiller is definitely using his reputation to rally for a bailout. I wonder what his motive is? He of all people should be aware of how prices need to fall to affordable levels.
Maybe he sees the risk of letting all the bad mortgages cycle through foreclosure as worse than modifying the loans to a payment and LTV that keeps these folks in their homes.
Put all those homes on the market and the crashing bubble markets continue for quite some time. What will we do when all those folks scooping up foreclosed homes end up losing money too?
I give points to anyone (rich, sebastian) who is willing to stick their neck out and make educated predictions about the market. With someone who boldly uses the handle "ahead of the curve" I would love to hear what your predictions are for the market.
real psychological scar caused by FC is that it is indeed now and has always been so very public.
While FC may be intensely public, all the it's still possible to hide the fct from most people, unless their actually searching. Few people I know read the public notices and the notices on the door are less obvious now that we have pizza flyers and other ads stuck on our doors. It's far more difficult to hide the loss of a job from the circle of people you actually care about. I couldn't care less about a notice in the paper, but the gossip between friends?
I don't think Shiller deserves this. He is only pointing out that there will be real economic effects from the change in psychology that is occurring.
This is part of a larger trend of the rich getting richer and poor getting poorer that has been going on since 1980 when inflation reversed in favor of capital over the indebted.
It is a recurring theme in societies that when wealth and power get too concentrated at the top, a society breaks down. The Republicans are about to learn what happens when people get fed up with this.
I also like the James quotes. Sure it may be sexist or whatever but it was written in Victorian times. That doesn't mean it isn't true today. You can easily swap man for woman and it is still true, maybe even more true.
Fast Eddie: many of rich's stock market predictions have been feckless and reckless and you would be wrecked if you had followed them. That goes for quite a few others here too (I will refrain from naming names because they know who they are).
What garbage. The only stock market picks I've made were to hold SRS, TWM, and EEV for the long-term, and occasionally to take some profits if they run up. (Don't sell when they're down, but feel free to take profits when they're up.)
Buy the single inverse of these 2X ETFs if you don't want as much risk or volatility.
Over the last year, I'm up about 10-15% in a stock market that's flat to down a little. Stick that in your ear, buddy.
These are the weakest sectors of the stock market and eventually you will do well with this strategy, if you haven't already. Just don't get too greedy and be ready to sell when you've locked in some nice profits and wait to buy back lower.
That's all I've said, consistently, since I've been posting here. I'm more confident in this strategy today than ever.
I can't time this market, and neither can anybody else.
And I speak as someone who was teaching women's studies and being told 'women don't practice in that area of law' when your were in diapers.)
I doubt at least three of those claims. The first Women's Studies program in the U.S. was started long after I gave up diapers, girl friend. I do, however, know some women who taught in the earliest ones. Not a one of them would attempt to patronize me ("Political correctness," fer chrissakes) the way you have. So besides being an asshole, I think you're an exaggerator. And if you still teach, and you encourage other women to talk that anti-feminist self-righteous drivel in public, I hope you get fired.
As far as your fascinating dip into history . . . so the point here is that ownership of land has "always been important"? No. Really. Nobody noticed that until William James? And James' pscyhological theory can be boiled down to an observation on the obvious like that? And Shiller's use of James is just in aid of that kind of fatuousness? Well, forgive me for not realizing that everybody was trying to be that sophomoric ("From the dawn of the Republic, land ownership has been considered a good thing." Blecch.)
Otherwise I'm terribly sorry to hear you're on a county board.
OT, have you read the Master by Colm Toibin, a fictionalize account of James' life? Well written...but man...how depressing. James might have had a mansion but he seemed a lonely selfish guy.
He is only pointing out that there will be real economic effects from the change in psychology that is occurring.
How funny. I see no reference to any "change in psychology." I see, in fact, Shiller using one source from 1890 and one from 1980 to imply that psychology is in fact timeless.
Your own suggestion that you could change the gender in the James quote and it would still make sense--which I'm afraid I think is ludicrous--implies that you think this psychological state is unchanged in the last century, so much so that now we all have it (not just white men!).
In fact, Shiller goes out of his way to deny any particularly "real" economic effects of foreclosures:
No one is likely to starve or sleep on the streets as an immediate result of a foreclosure, and the authorities no longer dump a family's furniture on the sidewalk when it happens. Nonetheless, there is deep trauma.
Well, yes, it's a wretched experience for anyone who goes through it. But in Shiller's terms, the worst that sounds likely to happen is that people get "cynical." But where do you find him discussing the economic consequences of that?
I'm all in favor of economists telling us what the effect of our psychological scars may be on the future economy. I'm just still waiting.
Tim: Fair enough. I don't know if you were here in Feb/Mar, but I stuck my neck out and said that the bearishness was way overdone and the market was going higher. I was met with ridicule from rich, tj & the bear, and several others. I wasn't only talking, I bought shares and call options, virtually all of which are higher (some by 50% or more). Right now, in all honesty, I see the market as more or less sideways. Generally though, I don't focus that much on the overall market; I have a set of particular stocks I keep on my radar and I keep my eye mostly on them.
Rich, I too am up 10% or so y-o-y. If you are, it can't be on the back of buying and holding SRS or TWM which are flat. My point is you are certainly free to disagree with anything I or Sebastian or anyone else says. Where you go over the line is to call anyone a moron.
Shiller deserves this.
It is so pointless and meandering it reads like something I might have wrtten, Homeownership is fundamental part of a sense of belonging to a country.
Maybe the dream of ownership, but all those young men who have died in past wars over property weren't property owners. I know the satisfaction of feeling as if you own a place, but owning something isn't the end all and be all of existence. It might make you feel like a king and then again,...
I AM monarch of all I survey;\t
My right there is none to dispute;\t
From the centre all round to the sea\t
I am lord of the fowl and the brute\t
O Solitude! where are the charms\t
That sages have seen in thy face?\t
Better dwell in the midst of alarms,\t
Than reign in this horrible place.
OT, have you read the Master by Colm Toibin, a fictionalize account of James' life?
I haven't, actually. I had enough James (both of them) in college to last me for a long, long time.
I think I'm off to re-read the elder Galbraith. At least he knew when writing about "the affluent society" that he was dealing with an historical artifact, not an eternal verity. Plus his prose is so much better.
Let's not get hung up on Henry James. It has been this way since our country's beginning. Even before, if sometime in the past century you listened to Bernard Bailyn rattle on about how all the sons of Puritan divines ended up speculating on land grants in the Connecticut Vally. But it was pretty much set in stone when that bleeding heart Thomas Jefferson misunderstood John Locke and botched the transcription of life liberty and property so that it somehow became life liberty and the pursuit of happiness.
And, what kind of refi did he have on the McMansion formerly known as Monticello? I'm tellin' ya, Jefferson was a problem, like one of those sixties liberal professors who considered his grad students fair game--and Jefferson woulda been a pinko, except Karl Marx was still in nappies. Of course, but for Jefferson, we'd all be calling diapers 'nappies' and then what would happen to the idea of the Anglosphere of nations separated by a common tongue?
Colin wrote "We still haven't quite gotten over the Civil War, Canadien, give us time. And pass the popcorn.
Colin, Some of us up here still haven't got over the Plains of Abraham which happened a long time (1759) before your Civil War, heck it was even a long time before the birth of your nation.
... come to think of it is it possible there's a little bit of irony in James' words that was lost on Shiller? Not to mention lost on the intemperate AnnS? It certainly was not lost on 19th century writers that the number of people able to achieve that sort of personhood (yacht?) were few. One of the most basic arguments of efforts to extend the franchise in that century was a challenge to the idea that the only proper citizens were property owners.
What none of the economists want to come out saying is that asset deflation is devastating to an asset-dependent US economy. Inflation is the preferred way out. And everyone is paying for it, from retirees to the prudent savers in the US, from the factory workers in China and India to the oil sheiks in Saudi, etc. It's the moot point now as BB's policy of continuing pumping liquidity to support asset prices already set the stage for inflation. Despite the US slow down and decrease in aggregate demands, commodities will continue to rise because there is just too much dollars out there.
You're right, of course. Let's go back to 1980, a time in which I was also not in nappies, during which it was quite common to hear various economists opine that people's sense of "Self" would be ruined, ruined! I tell you! by government bailouts. Government bailouts were just code words for welfare, and welfare was just a way of creating a permanent dependent underclass. Why, the central key to the American psyche since Plymouth Rock was self-reliance and taking responsibility for your own mistakes! Only some hippie pinko politically-correct chick would suggest that people's so-called "psychological scars" counted for diddlysquat. Why, we were not a nation of Oprahs and Jerry Springers! We were conservative red-blooded Americans, who would never expect public policy to be determined by our sissy little neurotic needs!
The pain of this reverse movement could leave a psychological scar that will be with all of us for the rest of our lives.
Misdirected hyperbole. We start by talking foreclosure and end by trying to extend the fallout to everyone. Let's see, about a third own outright and of those who are being foreclosed on it makes news at 3% or 4%. Not too many think it'll be 20%. So how is the psychological scarring transfered? Through the economy. It will be the shock of losing faith in the economy that leaves the scar, not the putative cause, foreclosure, which in itself is merely the effect of a painful process.
If there is a permanent scar because of this reverse movement, it will because we're crappy at distinguishing the true cause from our fuzzy thinking fallacies.
Of course there are people who expect to pay off their mortgages. The numbers vary some according to source, but it appears that about a third of homeowners don't have a mortgage.
Here in the DFW area, we built our lovely home in 1990 and will have it paid off (early) in less than 3 years. In our neighborhood of approx 50 homes, it's rare to see more than one sell per year. With that kind of stability, I suppose that many of our neighbors are in the same position we are - getting close to or already reaching the point of no more housing debt.
Successful traders have been scientifically proven to produce more testosterone. Mother nature's now very foolish reward. Of course, it doesn't mean they will continue to be successful; it doesn't mean that many will become reckless (wreckless? just wrecked?) in pursuing the next jolt. The researchers proposed that they be diluted by a healthy number of older men and women.
Also, didn't Jefferson die a million bucks in debt? Don't know if that factoid is adjusted for inflation or not; either way, not good.
And if the PPT is not successful, and I don't see how they can be on a permanent basis, they will be losing
a whole lotta money. I think this was tried in Great Dep I, and we all know how that turned out.
Advertising signs that con you
Into thinking you're the one
That can do what's never been done
That can win what's never been won
Meantime life outside goes on
All around you.
Bob Dylan knew more about economic psychologoly, I guess.
I build my investment world around three MAIN beliefs:
1) earnings matter; and although they may not seem to matter at times, there comes a point in every cycle when they matter a lot. That point usually is near the bottom.
2) I said about a year ago, when I first came here, that I felt earnings of U.S. companies were peaking and would start to decline.
3) Earnings up/down cycles tend to be powerful and don't usually reverse quickly.
Earnings were powerfully positive through 2006 and into the 2nd quarter of 2007. We now have had three straight quarters of declining earnings, and I see no catalysts for driving earnings higher for the rest of 2008.
Go here and spend a little time and you can learn a lot. You will see that the weakness in earnings is masked by success of a few giant companies, many of which are pumping up earnings artificially with foreign currency gains.
For example, for the first quarter of 2008, tech still looks strong on the surface. But look closer:
11 of 23 Internet companies have negative earnings (even though industry is up 52% on Google and Yahoo).
68 of 157 Software companies have negative earnings (even though industry is only down 2%.
26 of 62 Hardware companies have negative earnings (industry up 26%)
57 of 136 Semiconductor companies have negative earnings.
43 of 104 Telecom Equip. companies have negative earnings (industry up 29%).
The exploding number of companies with negative earnings is a flashing warning sign. A lot of the strong earnings produced at the tail end of the bull earnings cycle in 2006-07 were illusory. They were tricks enabled by leverage, like buying back common shares with borrowed money. Now, all that excessive leverage is turning to red ink.
Do you know what it's costing all those high burn-rate, money-losing tech companies to raise new capital now?
AN ARM AND A LEG.
I would look to go short the tech sector now, if you have some hair on your chest.
AnnS: "The majority of foreclsoures we see here ... are people who are struggling in their awful jobs for meager wages who simply want a place to live, a tiny yard for the kids and dog and to have a place in which to live when they retired where they do NOT have to pay rent."
You got me with that "tiny yard for the kids" - I'm still wiping the tears off - where can I send my check?
The psychologist William James wrote in 1890 that a mans Self is the sum total of all that he CAN call his, not only his body and his psychic powers, but his clothes and his house, his wife and children, his ancestors and friends, his reputation and works, his lands and horses, and yacht and bank account.
Homeownership is thus an extension of self;
Richard Dawkins wrote that the beaver's dam and the body of water behind it were the beaver's phenotype, the physical manifestation of it's genotype, so the beaver's pond is part of its "self"?
And another thing: home. By using homeownership as a euphemism for controlling property, we are led to believe that everyone who buys a house is buying a "home". Home is where the heart is, were you choose to place your "self".
What the hell, I've got so many psychological scars, what's another one?
" earnings matter; and although they may not seem to matter at times, there comes a point in every cycle when they matter a lot"
I agree, to an extent. Earnings growth rate matters even more. With easier y/y comparisions I am wondering whether earnings growth could come in less negative and provide a boost to the market. Depends largely on how much access to credit remains, through CCs.
Convenient of AOTC to show up at the top of a bear market rally to trumpet his investment prowess. Just like Sebastian, only dropping by when the market's (temporarily) up.
Rich, Misean, AllenM, mp/CB & others here like myself are much more concerned about long-term fundamentals.
Oil is thus an extension of self; if one owns a part of a oil field, one tends to feel at one with that oil field. Policy makers around the world have long known that, and hence have supported the growth of oil.
MAYBE thats why President Bushs Ownership Society theme had such resonance in his 2004 re-election campaign. People instinctively understand that oil conveys good feelings about belonging in our society, and that such feelings matter enormously, not only to our economic success but also to the pleasure we can take in it.
Not to mention this view that homeownership is important because it makes us all obedient little patriots who will protect our country like we protect our lawns
"Homeland Security" anyone?
p.s.: Does everyone despise that department name as much as I do? Sounds like something straight out of Nazi Germany or the Soviet Union.
rich-when you refrain from the insults, you can make some sense.
I have no problem with shorting and have probably come out net positive overall on my shorts, but the big difficulty is that on average the market goes up, so shorts are to some extent like blackjack players in Vegas; they can have good runs sometimes, but the house has a built-in advantage. It is very easy in shorting to be right, but too early. I shorted SBUX in 2004, because I didn't see how they could continue to generate the growth needed to justify their lofty P/E. I was right, but way too early and had to cover and take my losses.
I don't like shorting sectors though. The QQQQ is heavily weighted towards the strongest companies with real earnings, earnings growth and tons of cash. If you want to short tech, why short the Q's especially a 2x? Why not identify the weakest companies and short them?
What's truly "bad" is when recession occurs and puts hundreds of thousands/millions of people out of work. People who suddenly find themselves in that situation have money for neither a mortgage payment nor rent-money.
From BigPicture quoting Merrill Lynch's David Rosenberg
Companies did not cut as many positions as expected, they cut the hours instead. The average work week plunged 0.3% (and, aggregate hours worked were down at an annual rate of 1% in the past three months), which, by the way, would be the equivalent of 400,000 job cuts.
tj-I left because I had several projects that took over all my spare time. And also because the atmosphere here was and is very one sided and too often more interested in ridiculing than debating. People here complain about the MSM, but I find much more presentation of many perspectives there than here.
As for bear market rally, we will see. I see a period of below trend growth with sideways trading rather than the misery and woe that seems to be the consensus here. In that environment, some companies will do very well and others won't. All I hope to do is try to find the former and avoid the latter. I find it helpful to listen to many perspectives, though I don't get too much useful information from the "We're all DOOMED, DOOMED I SAY" crowd.
Nobody likes belonging to "The Ownership Society" when the thing owned is declining in value.
As for the "trauma of foreclosure," it's no worse than the "trauma of your stockbroker selling out your position because you can't meet the margin call."
When I say that you could change the gender in the James quote, I am saying that both men and woman think of their "things" and "relations" as part of themselves. That is why when people get divorced, lose a spouse or lose children, they feel personally diminished. This does not imply that people think of their wives or husbands as chattel. It is only that people are connected to other people as well as their possessions. "No man is a an Island" etc. I don't even see how his could controversial. Isn't it obvious?
I might have been a little sloppy when I spoke of a change in psychology. I think psychology is indeed timeless. Rather I am speaking about a change in psychological state of mind. Obviously that is dependent on the state of affairs. During an economic depressions, there is real psychological depression and this has real economic feedback effects on spending and job creation. On of the main reasons that the US has had economic growth, the past century is a generally positive outlook towards the possibility of improving one's personal state.
Finally, I think there is a lot of implied in this piece that is not said outright. For example, I think he hints at the unfairness of the state of affairs towards unsophisticated home buyers. I have to agree with him. I have many friends who bought near the peak and none of them were trying to get rich quick. They were just desperate to own a home and saw themselves getting priced out and so bought before priced went even higher. He also doesn't state the economic effects of people losing their faith in fairness but that is implied as well.
There are people a lot less sophisticated than my well-educated friends and these generally make up the subprime population. These people thought they were just doing what the white, successful people do. They thought they were getting out of poverty. They were suckers for the lines, "Stop throwing away your money. Start saving by building equity in a house. Someday you will own it outright and not have to pay any living expenses at all etc...". Don't have any sympathy for these people. They were conned by sophisticated bankers who knew better.
BTW, everyone see the chart Russ Winter posted at his site Winter Watch?
From BEA data... "Spending on essentials at record leaving less for discretionary spending." The % of disposable personal income ranged between 48% & 51% from 1980 to 2002, but has since climbed steeply up to nearly 56%.
In that environment, some companies will do very well and others won't.
"Some" companies will always do better, regardless of the circumstances. You're absolutely right, the challenge is picking them. My personal favorites going forward are all energy related.
Tanta,
I enjoyed your post. IMHO all the good and bad things about "ownership" that these people talk about depend on to what extent people live on the edge. This applies to the people doing the lending as well as the borrowing.
I do not think the issue is ownership vs. not non-ownership society. The issue is risk tolerance. If people spend every penny they make, whether buying things or on renting and services, they're going to have problems eventually.
it really pisses me off because we thought the market was going crazy so we decided to wait. now those gamblers who were just too happy to tell us we were the fools, are not going to get stuck with their dumb purchase price/loans... looks like we'll be stuck w/ the same high prices... why is it that the indebted have more power just because there are more of you... this sucks!!!
"No man is a an Island" etc. I don't even see how his could controversial. Isn't it obvious?
Actually, it's a cliche. It's trite. It's one of those observations that is, indeed, merely obvious. Hands up, everyone who believes that Man Is, In Fact, An Island.
And do I expect more from Robert-goddam-Shiller than something that painfully effing trite? Yes, I do. Is that unfair of me? No way.
Look, I'll go ahead and grant you that at least some people derive their primary sense of self, of personhood, by the ownership of houses. I'll grant you that for such people losing those houses is traumatic.
I would ask you what public policy that implies?
As Yves said, lots of people derive their sense of self from their jobs. And the pain of losing one is severe. Are you cool with the government infusing $300 billion into the mortgage and RE industries so that a bunch of brokers don't lose their jobs? So Bear and CFC and so on don't have to lay people off? I'm curious how far this argument can go.
As far as victims of predatory subprime lending go, what exactly is your and Shiller's good liberal sympathy going to do? Magically make a new FHA loan affordable? Make it worth their time to continue to pay on a mortgage for a home that is terribly over-valued? As has already been asked on this thread, what's Shiller's goal here anyway? To get Frank's FHA bill passed? There are no good reasons to support that bill besides the claim that FC leaves "psychological scars"?
So far every "defense" of Shiller I've seen here just makes his "argument" sound trivial.
"They thought they were getting out of poverty. They were suckers for the lines, "Stop throwing away your money. Start saving by building equity in a house"
Or they were setting up a meth lab they could call their own.
If you want to short tech, why short the Q's especially a 2x? Why not identify the weakest companies and short them?
Exactly. The best way to short the weakest tech companies is TWM or its single equivalent, RWM.
You also could do the "growth" versions of TWM, SDK.
The Russell 2000 is tech-heavy and tends to track tech. The same leveraged speculators, mainly hedge funds, work both markets.
Who's insulting who? You're making gross generalizations about my investment advice that are inaccurate. Way too soon for those kind of conclusions, my friend. Let me know how it goes in a year or two.
I NEVER short individual stocks, because as you've seen so many times recently, you just set yourself up for a squeeze. It's much harder to squeeze whole sectors.
As for the market being up most of the time, I don't intend to be short most of the time. Just when the market is jacked up on leveraged steroids and the economy is crumbling at the fastest rate in at least 30 years.
Yale breeds bleeding hearts. Think about the poor unwashed masses (not talking about us, of course!). It is not their fault they are dolts. Help them!!!
"Who's insulting who?" The issue is that you called someone a "moron" and I think you owe him and the readers of this blog an apology. If you had said, "You're wrong and here's why" I would have no problem.
Tanta, you beat me to it. I was just about to pour scorn on the claim of AnnS to have been "teaching women's studies and being told 'women don't practice in that area of law' when your were in diapers".
Not only is AnnS evidently too young to remember, as we do, when the first women's studies programs started, but it seems she doesn't even quite realize that they haven't been around 'forever'.
As to law, when I was at university and considering that career there were still quotas for women-- on the bizarre grounds that since women generally got better grades than men we would quickly become the majority at all the law schools if allowed in on merit. (Imagine! The horror!)
Of course neither quotas nor being told, "Women don't do that!" are anything compared to the real barriers my mother and her generation faced. And the only James I ever heard her express any sympathy for was Alice.
OT: The weirdest thing is happening, yesterday and again today.
Yesterday, in the early evening, the 101 Freeway heading in both directions into and out of Santa Barbara, CA, were nearly deserted. Today, in Ojai, CA, there were nearly no tourists.
Whilst this may be attributable to the unseasonable heatwave in the mountains, here 102, my division sales mgr smart friend walked the shops asking if this were unusual. The response has been, "It's been slow all month."
I've always wished everyone else would go away. Over the last 2 days, my wish has come true.
If I may be so bold, the US economy is in a freefall. The consequences? A pony for everyone.
This will have gone full circle once Bush declares that renters, much like atheists, are also capable of loving their country (because it was really touch and go on this before he stepped up and said it).
why is it that the indebted have more power just because there are more of you... this sucks!!!
The indebted are not in the majority. About 31% of people own their home outright with no mortgage and 32% rent. That leaves a mere 37% as indebted.
Don't worry, these attempts to prop up the market will fail miserably, just like all the attempts in the four years leading up to the Great Depression. Just be a little more patient.
Shiller barely caricatures some of the stuff that we long-term renters have been subjected to about our presumed feckless unreliability, and on and on. If the article represents his true views on the subject of homeownership, then I certainly hope he will rethink the matter.
However, Shiller might actually have done something of a service with this piece by reminding us of the numerous wedge issues that have been used to manipulate us as "consumers" and to identify that role with citizenship.
And thanks to Tanta for taking up the subject. But for her intro, which prompted my curiosity, I for one would never have paid attention to this (I had seen but not read Shiller's article in the paper this morning.), given the newly burgeoning piles on my desk.
Some random thoughts on the above posts and Dr. Shiller's article:
1) Cathy G's comments bring to light and interesting question: She built her dream home, whether she knows it or not, on the tribulations of her fellow Texans. By 1990, the FDIC had wiped out the TX banking system and pulled the rug on any and everyone that had levered themselves into "possession." That she's been fortunate enough to pay off her home in 20 years is simply the flip-side of those that bought in 2005-7. I've yet to see policies suggesting she and her fortunate ilk should be penalized. But if we're going to subsidize those getting hurt by house prices and we're not going to penalize those that benefit from it, then we've got a dangerously asymetric policy response that will necessarily lead to moral hazard and continued resource misallocation.
2) There's been mention of the odd value judgements ascribed to "renters" and "owners." A personal anecdote: Since I spend a great deal of time in and am married to a woman from London, I was an "owner" of a small apartment there for years. Recently we sold and now rent. People used to be very impressed when they learned I owned an apartment. Now, I don't even get a blink of the eye when I tell people I rent. The irony is - I owned a one bedroom 900 sq ft flat and now rent a 2500 sq ft 3 bedroom victorian home. Nonetheless, in the minds of most everyone I know - I've traded down!
3) There are broadly two types of "losers" from the housing fallout. The first are those w/o the financial sophistication to understand what they got into. The second are MBS (etc.) investors who bought securities that the brokers knew to be toxic, but rep'ed to be fine. Everyone else was part of the problem... I'll go out on a limb and say that most of the former group don't speak English (I would point you to where the earliest delinquencies started popping up - CA Central Valley and TX MX border) and most of the latter should not be managing money for a fee.
4) I would like to note that, like others, I find Shiller's unstated assertion that renters are less a part of their community than owners disgraceful at best. His comments do, however, add academic gravitas to help grease the political skids to transfer income from tax paying renters to tax saving (via the Mtg Interest deduction) "owners." Considering this is about the most regressive income transfer the US has ever embarked on, I would guess the politicians are looking for all the intellectual cover they can get. Too bad the best Ivy League economists can come up with is this perverse.
Tanta. I am just saying that the lenders and investors (the sophisticated ones who knew better) should not be treated better than the homeowners. If you want to claim that we should just let the marketplace and bankruptcy courts work their magic, fine, I am with you there. However we both know that this is not going to happen. The banking industry has a strong enough influence over the government, that they will get some kind of bailout. Bernanke has already tipped his hand when Bear blew up, that he is not going to let the economy liquidate the way Paul Volcker did in 1981.
So given that the bailout is coming, the question is: should we also help homeowners? I am just saying that I think we have to. That is not saying that I think we should. We shouldn't have saved Bear Stearns but we did.
Saving Bear Stearns and Countrywide and throwing Joe Six-pack to the wolves is unfair enough to make people really start to question our entire way of life and government. (But maybe I am giving poor dumb American's too much credit.) And Bear Stearns already happened. The question now is what to do next.
I am a renter and I would be thrilled if the government decided to take a hands off approach. Sure, it might lead to a depression but then we could all start and build a more just and intelligent system. But Bernanke and the Fed are "all Keynesians now" and so this talk is not terribly relevant to what is actually going to transpire.
That is one skillful acid pen you wield. I think that your righteous indignation is richly deserved here. His article seems like a clumsy attempt to empathize with 'the people' and has a pungent aroma of haughtiness.
You are bit like that Greek guy, running around exposing the foolishness of the so called wise...
Speaking of the 19th century and women's studies, it has belatedly occurred to me that Mitchell's Gone With the Wind has a more nuanced view of landownership and the self.
Amen to Jay, halfway up the comments list, who wrote:
"Why does nobody write a sob story about the psychological stress renters have suffered as they watched the prices of homes they could have bought get bid out of sight by fools and their liar loans."
We have rented in LA for three years and cannot even move to a new apartment (ours sucks) because in the last three years, rent has gone up $300-400/month while employers tend to give a raise of, what, 4%? If they like you? And don't even talk to me about real estate, oy vey. Down here "foreclosed" means "I'll cut you a really good deal ... $650K."
Slightly off topic, but yeah. This Shiller guy can bite me.
Squatting is on the rise across the United States as foreclosures surge, eviction notices mount and homes go unsold for months, complicating the worst U.S. housing slump in a quarter century and forcing real-estate brokers to enlist the help of law enforcement and courts to sell empty houses. The Raw Story | Foreclosure surge a cash cow for professional squatters
I am really surprised to see such a passionate raillery against middle class mentality.
Dr. Shiller's comment reminds me of some of the revionist Freudians." The trouble with the revisionist Freudians is not that they would give up art for the psychoanalytic good society, but that they pretend that it is already there". To Shiller, the "home ownship" seems to be the road to the psychoanalytic good society. What a naive understanding of human nature. What a debasement of humanity.
Depending on the state, renters get 30 days or 45 notice before they are out on the street if the landlord wants them to move out... even IF the renter is paying their rent on time.
Mortgage debtors on the other hand get about 1 year to keep staying in the bank's house... even AFTER the mortgage debtor stops paying their mortgage entirely.
I think you are being a little too hard on Shiller. Although a little muddled, he's not saying anything more complicated than: 1) homeownership is actually a social good with positive externalities in terms of building community and making people more conservative (not necessarily politically but in terms of lifestyle and feeling like they are stakeholders in the system), and 2) The negative feedback loops associated with allowing massive numbers of foreclosures implicate more than just accelerating home price declines (from abandoned homes, stripped copper, trash outs, etc.), but that there is also real damage to the national psyche (the death of the "American dream"), which is a negative externality.
On both counts, I think Shiller is basically right. The social damage from the great unwinding of the housing bubble is going to be catastrophic and will greatly exceed the strictly financial losses.
"But what would our capitalist society do without conspicuous consumption? We need it. We rely on them to buy the next gen cell phone with email, internet etc. What would we sell if we didn't have vapid products to pawn off on rich folks and rich wannabes?"
Well, houses ... and a house costs two hundred times as much as an iPhone with eighteen-month contract; it costs significantly more than if its walls were built out of Whole Foods premium organic cheese.
I'm always a bit surprised by people putting 'HDTVs and Hummers' in the same category, where the price ratio is about the same as 'electric shavers and HDTVs'. Cars are expensive, building work is expensive, buying houses is expensive-expensive. I'm an enthusiastic buyer of fancy computers, and have spent since 1995 about the price of a new VW Golf.
If you are worried about cynicism- look at the pricing of medical services. If you are uninsured you often get charged multiples of what the providers--labs, hospitals, and doctors--have agreed to accept from insurance companies. And the pricing structure is not clearly disclosed ahead of time.
If there ever were a case of true market failure or price gouging this is it.
For Christ's sake, Tanta, open your mind. At least he's trying to expand and enlighten the debate.
You moan and groan and expound in 10,000 word whine-fests because you narcissistically love the sound of your own (blog) voice.
Your coming down in such a manner on the central figure in getting the world to understand the housing disaster is just petty is just such arrogant blowhardery.
I respect your analysis. God, I hate your massive "bubble" ego.
So the bottom line for us females who are not into women's studies of the time when Tanta wore diapers, is what exactly??
The quote from James applies to men so I guess the idiotorial by Shiller implicitly means that women don't have a deep patriotic psychological attachment to their property of course, as a reflection of our lack of masculinity i.e. lack of self. Charming. Do females that are in foreclosure qualify for the same benefits, given their difference in psychological pain?
Hmmm... never mind, I think I could endure the psychological pain of reading sexist crap but am not in the mood right now.
Based on the figures that Shiller cites - and considering the relative stress value of foreclosure vs. pregnancy - it seems the government could get a lot more stress-reduction bang for the buck handing out contraception than mortgage bailouts.
Now, that may be good policy or bad, but regardless, I don't think I want my tax dollars being invested based on bureaucrats asking shrinks whether it is worse to be knocked up or kicked out.
The whole idea of quantifying stresses to make economic decisions is hopeless. There are just some things upon which you should not give economists data: it makes them dangerous.
I, too, thought the Shiller editorial strange and poorly argued. He maybe should have gotten more editorial assistance from the Times. The fascination was in who wrote it and the impulse as to why.
(a) While I sympathize with many home owners now in dire straights, I am conflicted by relief programs and think they should not be extended without evidence that the homeowner can sustain his/her new obligations and potentially repay the consideration in some fashion. Shiller might have been leading to the arguement that strapped homeowners will repay charity with civic virtues but he didn't quite make the leap. I don't know any social science that actually supports this.
(b) Regarding the sanctity of contracts... There is too little solid council to consumers at the time they take on serious financial obligations (including private student loans, mortgages, insurance, credit cards and other stuff). Consumers commonly lack the power/ skill/ judgment to negotiate terms in such situations. This I do believe. Contracts are supposed to be something both sides enter into equally knowing and that's much of what gives them their moral force (besides their legal force). When knowledge/ power/ drafting is skewed to the corporate side and terms/ implications are largely incomprehensible to the non-corporate side, there is a predatory situation going on and that weakens the moral force of the contract (if not the legal force). I wonder if that was what Shiller meant. Again, he didn't reach it for me.
(c) Of all entities, probably the banks are most responsible for this debacle. The Economist mag. has a series of articles on banking this issue that are interesting. That seems to be their bottom line take of the situation.
I think its worth noting that the vast majority of the increased forclosures is coming from folks who had very little invested in "home ownership" whether financially or emotionally. We really are not talking about people who spend years living in a home, raising kids, and being part of the community. Long time owners who didn't act like pigs are untouched by all of this.
We are talking about recent buyers, buyers who really never should have been able to get out of the rental market, or owners/buyers who refinanced themselves to death. Does that sound like a group with great emotional investment in their house?
Yes, there is lots of blame to go around, but its not as if there is a depression. In fact, the official stats don't indicate a recession yet. Unemployment is 5%; people getting foreclosed upon today still have their health and a job but a toxic mortgage. This is a completely different situation than the traditional foreclosure that is driven by job loss, divorce, or health issues.
Where is the trauma in being told to get out of a house that you moved into in the last three years and were never able to pay off anyway? That is what we are talking about.
Shiller seems like a smart guy in the interviews I've seen and a couple journal articles I've read. On the other hand the piece he wrote is bad. Was he having a bad day?
Either it's just sentimental drivel, which I won't discount, or he is writing using a lot of what we call "shorthand" here on Capitol Hill. Shorthand can seem like sentimental drivel when it's read literally.
A number of comments have tried to unpack the shorthand:
sdtfs: "It will be the shock of losing faith in the economy that leaves the scar, not the putative cause, foreclosure, which in itself is merely the effect of a painful process."
Shiller brings up contracts because he cares about them. It's his default view that contracts are sacred because they provide a stable environment that encourages investment which leads to growth. Now he's backing off that view to persuade the rest of the contract believers (Market Fundamentalists as Soros calls them) that they should also consider alternate (external) costs that get in the way of his big objective, which is growth (or at least stability).
Shiller is crap in describing these costs. This is where the sentimental drivel comes in. I'm hoping it's all dreary shorthand: "Cynical" is about a decrease in the velocity of money.
"Country" is about people failing to sacrifice current happiness for a greater future happiness because they have lost faith in the economy.
Finally, he's saying the risks are big enough that the rules should be changed in the middle of the game.
By the way, I just bought (very responsibly) for the first time. And despite everything being just peachy, every time I stick my head out of the ground, someone's proposing to bail me out. This totally deforms my participation in the market and makes me think I should be more reckless.
First of all, NONE of these proposals is actually about helping homeowners. They are ALL about keeping them like little hamsters in a cage running on that little wheel, paying in cash on a mortgage that the lender should never have made in the first place, that is for FAR more than the house is worth now, much less what it is going to be worth in a couple of years. They are ALL about bailing out the banks. He is just trying to ride the supposedly oncoming populist wave to justify the ends. Every single foreclosure hurts the banks more than it hurts the homeowner.
Secondly, if we want to get into psychology, the good that supposedly comes from home ownership is the good of a community where the participants have roots, care about their neighbors, a history and relationships. If damage has been done to the american psyche, it has been in treating a home like an 'investment' to be traded away in a heartbeat for a move 'up'. The damage has been done creating a society where we live in cities when we are young, moved to suburban ghettos full of diapers and 'stroller nazis' for 15-25 years, and then carted off to florida when the kids are grown, dumping the costs of education on those least able to afford it.
This mobility works really well for the corporate types who want to move labor at their convenience, leaving empty, soulless communities in their wake.
What scares him the most is the pithy quote about fear of cynicism.
And i do feel enormous sympathy for the people caught up in this and losing their homes through this bitter process of foreclosure. If we care about them, then we would argue to help them in the transition. Rental assistance, moving assistance, credit rebuilding assistance would help ease the stress for these people far cheaper and far more effectively than finding ways to keep sucking the very life out of them to pay for mortgages they cannot afford.
How do we address law and order when the number of criminals is so daunting? We start with the kingpins!
What is the status of the ongoing FBI investigations?
Why hasn't Mozilo, Prince, Thain, Congresswoman Richardson, et al traded in their street clothes for an orange jumper? Richardson's "experience" is a confession to loan fraud, PERIOD.
Per WAMU; they probably traded the mortgage for treasuries prior to foreclosure. WAMU was just "servicing" the loan.
By the time the public wakes up to find their retirement accounts missing and their currency collapsed most of these criminals will have faked their deaths or made residences outside the US. The least we could do is to convict and disgorge these violent criminals so their unjust compensation is "trickled down" here in America.
Tanta, Are you interested in including a link to various bail out programs and their costs:
TSLF
Stimulus package (Purchase by Fannie, Freddie and FHA of toxic waste)
Frank's new bill
etc.
The list should also include pension and other investment funds that have been decimated by these criminals.
Let's not forget the PBGC!
see multi-billion dollar hit taken by Arkansas Teachers, Colorado Police and Firemen
We could also develop a campaign for your readers to demand action from the FBI. With any luck their decimated retirement/investment accounts will help with motivation.
We should also begin discussing a US bankruptcy plan before WWIII.
Bring it on.
You knew I'd have to try to figure out how to use the Read More thingy eventually . . ..
too many dots.
too many dots.
There are several too many dots episodes here. That has to do with figuring out the read more thingy . . . anyway, you had best refresh several times, since I've already fixed several of these . . .
I'm prepared to bashed for this....
Is it possible that Mr. Shiller was only trying to explore this one facet of the issue as opposed to fully explaining how we are to react to the poor pitiful subprime slime who are getting their just deserts? Is it worth considering what are the other costs of driving every bad mortgage into foreclosure?
Tanta, your links to James' stuff don't work . . .. .
Tanta, your links to James' stuff don't work . . .. .
As far as I can determine, it's not my links; that website just went down.
Perhaps I sent them too many readers and it crashed their server . . .
"But efficiency arguments don't apply to housing since we are sentimental about it."
If efficiency arguments are sector specific then we do not need economists.
Based on the headline, I was about to get all medieval about confusing Robert Shiller with Friedrich Schiller, until I noticed that in the body of the post, you spell the economist's name "Shiller", which is correct. So why can't you be consistent? Inquiring (small) minds want to know?
I really question the idea that foreclosure is below changing jobs and sexual difficulties on the stress scale. I would find it truly devastating to lose my home. My kids have grown up here. The dog plays in the back yard. I have spread ten brazillion cubic feet of bark over the years. Perhaps that is why I feel sorrier for the people in foreclosure than most around here.
Also, the only people I know in foreclosure are pretty pathetic. They weren't yuppies or show-offs. They just bought a little house that was still beyond what they could afford with their crappy jobs, and now their kids and dogs have to move a long way out of town to find a cheap rental. I might be less sad if they had been the sort of social climbing big spenders I hear tell of.
But still, I would advocate compassion for people who are suffering. It doesn't mean you have to write them a check. It just means we are all fallible humans and sparing a thought for people in tough circumstances is good for your soul.
Cynical is dead on right...
How long until 2 guys run into a bank, shout "This is a stick UP!" and the rest of the customers cheer for them to steal every damn nickel from drawers...
We start with the bankers taking away the crack.. we end with Joe Six Pack taking vengeance on the dealers.
Remember Bonnie and Clyde?
Story with 'verified-by reporter' loan amount details.
FORECLOSURE; A Buyer's Market, a Seller's Pain - NY Times
good post... ... ... ...
however, in some ways Shiller makes a perverse sort of sense. That Tanta even picked up on.
(FWIW, I disagree with Shiller, but bear with me)
Shiller states:
"Trying to enforce mortgage contracts may thus have a perverse effect: instead of teaching homeowners that they should respect the contracts they sign, it may incline them to take a cynical view of the whole mess."
Tanta states:
"If Shiller is serious that all those other parties are "to blame," then why isn't the obvious solution to throw them out on the street? There seems to be an assumption here that nothing can be done to punish those who are "really" to blame, so we're left managing the psyches of those who can be punished. And that's not cynical?"
This is exactly right if you look at it from a certain perspective
Who in their right mind believes that anybody except the peons are going to get hit with the sh*t of this?
sure, maybe a token person of influence here and there might get a slap on the wrist. but most of those who directly led to this are going to ride off into the sunsets with govt backed gold parachutes and their previous winnings.
even on enlightened sites like CR people argue whether or not the $29B fed giveway was a bailout or not. Of course it was! (of JP Morgan).
so there will be a few reforms, there will be a short lived uproar, and then the taxpayers and overextended homeowners will pay through the nose and we'll go right back to "normal".
and this is allowed because those in power have a platform in which to deride and stereotype these "ruthless" "lazy" homeowners. making the borrowers the scum and the lenders the "poor victims"
I disagree with Shiller's point. But I'm not sure that we shouldn't use the homeowner's plight to cast negative aura on the US Financial Industry.
Tanta,
What did you mean by "a rather sinister light".
Are you suggesting that Shiller is afraid of "cynicism" because it could undermine WASP capitalist hegemony?
Is it possible that Mr. Shiller was only trying to explore this one facet of the issue as opposed to fully explaining how we are to react to the poor pitiful subprime slime who are getting their just deserts?
I'm not "blaming" Schiller for talking about psychology. It's actually quite an important and relevant subject.
I'm blaming him for having talked about it badly.
The other side of the "subprime slime" thing is the, in my view, perfectly legitimate failure to sympathize with conspicuous consumers whose vapid little lives are tied up in the square footage of their trophy homes. Not to mention this view that homeownership is important because it makes us all obedient little patriots who will protect our country like we protect our lawns ("Get off there, you whippersnappers!")
So I wonder what gave Shiller the idea to use a quote that plays right into both of those awful stereotypes. I mean, there's 118 years of writing on human psychology since James. He could have at least picked one that wasn't so disgustingly sexist.
FORECLOSURE; A Buyer's Market, a Seller's Pain - NY Times
was the link
This whole thingy revolves around the term 'home ownership'. Gone are the mortgage burning parties.
Does anyone really believe they will someday retire their mortgage? I think not. It would be a bad investment decision. Bad form.
We have evolved into a society of speculators. Home ownership was just another facet. A nation of shills and Shillers playing out a cycle of the human drama.
Long for it as you might, one may not live backwards.
A most excellent post, Tanta.
So why can't you be consistent? Inquiring (small) minds want to know?
I theorize that it was a classic Freudian slip. I hate typing "shiller," which has such unfortunate resonances for those of us who live to defend Countrywide. So my unconscious mind fixated on the 19th century (hey! Schiller is just barely 19th century) in order to avoid that psychologically distressing word.
Or I'm just a slovenly typist this morning. Take your pick.
I think Shiller is an incredibly bright guy. So I read this editorial and felt sickening waves of cognitive dissonance wash over me. Thank you, Tanta, for the editorial scopolamine.
--
My reaction when I first read it...
"The Scars of Losing a Home"
"Homeownership is fundamental part of a sense of belonging to a country."
This is idiotic. Maybe, some crazies will define it as a fundamental right.
The group MOST responsible for the mess is economists. Economists were justifying the bubble, during 2004-06, based on fundamental factor such as demand. Every estimate of the housing demand, by an economist, that I have read was 1.65-1.9M Annual Rate. When the actual demand was much lower.
They were also justifying the "innovation" of securitization of debt as a marvelous thing (Greenspan and Bernanke, both economists, were great supporters of the financial innovation that led to the mortgage mess).
Most economists are in the propaganda business.
IF there is one profession in America whose members should be lined up and shot, not that I would advocate that, then that would be economists and not lawyers as most people believe.
Jas
economists are often bad psychologists who like math.
conspicuous consumers whose vapid little lives are tied up in the square footage of their trophy homes.
But what would our capitalist society do without conspicuous consumption? We need it. We rely on them to buy the next gen cell phone with email, internet etc. What would we sell if we didn't have vapid products to pawn off on rich folks and rich wannabes?
Are you suggesting that Shiller is afraid of "cynicism" because it could undermine WASP capitalist hegemony?
I was more concerned about the link between homeownership and patriotism lurking here. Shiller writes:
Homeownership is a fundamental part of a sense of belonging to a country.
He did not write "a city" or "a town" or "a community" or "a neighbhorhood" or "a block." He wrote "a country."
You could interpret that to imply that those of us who do not own homes do not have a sufficient sense of "belonging to a country." You could interpret that to mean that if we get kicked out of our homes, we'll all turn into traitors. I don't think Shiller means that, but yes, I think those implications are there and they are sinister. All jingoism is sinister in my book.
I find it hard to believe that after all the jingoistic horror we've been treated to in the last several years since 9/11 about who "belongs to this country" and who does not, Shiller would want to get anywhere close to such a formulation.
(OT), but a little too surprising (even to me) to let it slide.
I saw this 1/2 page ad in my local paper, and found a website so everyone could see it. Looks like somebody in the housing industry is not only will to call a bottom, but put some money where their mouth is.
(The ad specified contracts executed after April 12, 2008.)
Site Map | John Wieland Homes
Sebastia
I agree both with Tanta's post, and with Yearning that, if the pain does not reach the people in the financial industry responsible, as well as the homeowners responsible, there is going to be a very deserved populist backlash.
Well done, Tanta.
Schiller (whose insights on bubble-o-rama I admire) has arrogantly stepped out of his area of expertise and you have rightly called him to task (and it only took 2.4 times as many words as Schiller - pithy by your standards).
You leave me hopeful this Sunday morning.
Ahhh, what we've all been waiting for,...read on!
So imagine a long line of moving trucks,...kids taken across town,...President Bush's "Home Ownership Society" in reverse,...
I would note the stress of moving is supposed to be in effect whether you're moving up or down: It's the moving that's stressful!
Emma Anne, I think perhaps you're viewing the pain of foreclosure with the events that might lead up to foreclosure, i.e., loss of a job, divorce, etc. The foreclosure comes at the end of a battalion of slings and arrows of outrageous fortune.
Humans arent a rational organism, they are rationalizing organisms.
Pandagon :: A land of unsaleable Canyoneros :: May :: 2008
on the psychology of SUV drivers vs snooty Prius drivers hoocoodanode gas prices were going up. Should we gloat for living within our means ?
I find it hard to believe that after all the jingoistic horror we've been treated to in the last several years since 9/11 about who "belongs to this country" and who does not, Shiller would want to get anywhere close to such a formulation.
Well, he's probably a full blooded American, so we could trust him to be President.
Emma Anne writes:
Also, the only people I know in foreclosure are pretty pathetic. They weren't yuppies or show-offs. They just bought a little house that was still beyond what they could afford with their crappy jobs, and now their kids and dogs have to move a long way out of town to find a cheap rental. I might be less sad if they had been the sort of social climbing big spenders I hear tell of.
That's certainly an accurate description of most of the foreclosures I'm seeing here in the wilds of northeastern CT.
These folks drank the kool aid being purveyed by the powers that be and the MSM.
Thank you, Tanta, for the editorial scopolamine.
You win! You win! I had to go look up "scopolamine."
My anti-nausea drug of choice is Compazine. Not just because it works; also because it is used as an anti-psychotic. It's great to go fill a scrip for Compazine; the little pharmacy tech isn't sure whether you're likely to puke all over the counter if he doesn't hurry or start hearing Voices. So, you know, they hurry.
I don't really see alot of people who bought a home they could afford being forclosed upon.
It would be traumatic to lose my entire retirement savings....but less so if I went to Vegas with it.
I don't see people being thrown out on the street who bought ONE house and are making the payments.
In any case, what's the pyschological trauma to being a forced homeowner?
I'd say there as many people who wish they could join the renter class, who can't unload some condo they overpaid for even though they now need and can afford a bigger home.
We need a mush-piece editorial describing how forclosure is a pyschological healing process for those sloughing off the cuffs of serfdom and striking out unto the world now free from the bounds of societal expectations..bla blah blah...
I really question the idea that foreclosure is below changing jobs and sexual difficulties on the stress scale
I don't, actually, because I am convinced that when those surveys were completed, very few respondents had ever been foreclosed, known anyone who was foreclosed, or possibly imagined themselves being foreclosed. So they ranked it low because it seemed so remote.
I suspect you'd get a different answer these days.
While you are criticizing the press, I found the WSJ's recent coverage of the site AngryRenter.com (a petition against the bailout) lacking.
The theme of the article was that the site wasn't sponsored by renters, but rather by a republican think-tank run by people who own homes. It made that out to be a scandal.
It seemed like it would have been easy to write a more insightful piece which said "Renter's aren't the only ones that are against a bailout, many home owners who are not in financial trouble are against it as well. In fact, the angryrenter.com petition was conceived by some angry home owners who are against the bailout."
I think that would have been much more useful and insightful than the "its a scandal that the site isn't really a grass roots movement" coverage from the WSJ.
as to cynicism:
we are taught from birth that more,faster,and bigger = success.
when we see that the only ones getting more are the ones who sold us the idea in the first place.
of course people are cynical. they just realized that the American dream is just another way of saying screw or be screwed.
While you are criticizing the press
Of course I love to criticize the press, and I do it as long as fred lets me get away with it.
But Shiller is not "the press." He is a distinguished and very important economist.
That is why, like mort_fin, I thought this editorial was pretty scary.
Mmmm....scopolamine. You ought to try it sometime. There is a significant subset of the population for whom it acts as a psychotomimetic at the usually prescribed dose (I highly recommend that scopolamine patches NOT be used for seasickness in children.) (Per Wikipedia: "The hallucinations produced by scopolamine...are especially real-seeming and create a perception of a new world filled with frenzied, violent energy." Not unlike the housing market right now.)
I really question the idea that foreclosure is below changing jobs and sexual difficulties on the stress scale
Well, foreclosure used to be a relatively closed event, you and the bank and you could hide it from everybody. But loss of a job and sex gets to where people live 99% of their lives, their view of their self worth, (especially that sex thing.)
Precisely, Shiller is not the press and deserves what he got for his arrogance.
So many people I know watch those stupid shows on teevee about flipping houses for profit. These infomercials helped fuel the housing crisis. I worked with many poor people who figured this was their chance to get into the game. They're not evildoers, they are victims. The gates always close when they try to enter.
Does the fact that most of these homes are stuffed with merchandise made in China, financed by credit ultimately provided by China, mean that we now find personal worth in owning a piece of China? Tanta's prospective is reality (not realty) based...the rest is psychobabble.
"The pain of this reverse movement could leave a psychological scar that will be with all of us for the rest of our lives."
What Robert Shiller calls a "psychological scar", I call "a great awakening"...to the fact that you Don't Buy Things You Cannot Afford (with a hat tip to the SNL skit of the same name).
It's all how you look at it. Will America be better or worse after this pain/awakening? Is it better for Americans to take out more and more credit trying to Live The American Dream, only to finally find that it wasn't a dream, it was a disguised nightmare? Or is it better for them to have some pain (housing and economy wise), and learn to once again save for emergencies and live within their means?
I think that it's far from a psychologically scarring event...it's the lesson of a lifetime.
So I wonder what gave Shiller the idea to use a quote that plays right into both of those awful stereotypes. I mean, there's 118 years of writing on human psychology since James. He could have at least picked one that wasn't so disgustingly sexist.
But that was also the context James was writing in. Maybe if James wrote that today it would have been gender neutral. That dominance behavior is definitely not solely the providence of men. Will the dents in the ego be enough to derail the will to power? If so, how will our empire muster the collective will to preemptively defend ourselves against perceived threats? I think that is the more serious question that Shiller's piece raises.
IMHO, all bubbles are liquidity driven. No excess liquidity, no bubbles. Whether the bubble is in internet stocks, homes or ag, it doesn't matter.
Our FED and Federal government with their deficit spending, no regulation, debts don't matter attitude ensure bubbles happened. So the guy in bankruptcy is just a guy that has no idea what is going on. Blame the guy if you will, but to a large extent he is just a spec of dust floating in the wind.
To equate the ownership society with patriotism is just as stupid as the guy that over consumes and over spends and ends up in debt (by the way just like our country) up his eye balls with no hope of ever paying off the debt.
Look beyond your hatred of the average consumer and look at the true driving force of the debt in this country.
Jas is spot-on:
"""
"Homeownership is fundamental part of a sense of belonging to a country."
This is idiotic.
"""
Yep -- and the kind of idiocy that partly comes from the VERY US-centric viewpoint most Americans of all stripes share (as an immigrant to the US from Europe, I'm lucky that way;-).
Have you EVER heard any of those homeownership paladins acknowledge that is Switzerland the rate of homeownership is just 34%?! Yet the Swiss are a GREAT example of "belonging to a country": across such barriers as multiple different languages, century after century, the Helvetic Confederation has offered examples of nation-country patriotism and "belonging" against all odds (e.g. by being a federal Republic back in times when a monarch, which they always happily lacked, was thought of as a must-have symbol of national unity, to the point that the US Founding Fathers deliberately set up the Presidency as a kind of "ersatz kingship"...!-). Switzerland proves that a democratic, federal, capitalist country-nation can perfectly well thrive without widespread homeownership (and without a central powerful symbolic father figure, without the benefit of a single national language, etc, etc).
Ross OTOH perplexes me:
"""
Does anyone really believe they will someday retire their mortgage? I think not.
"""
Hm, why not? I've done so repeatedly in my life...!
Excellent commentary, Tanta, but I must take issue with this: "There is this whole part of our culture that has sprung into being since 1890 that takes a rather severe view of conspicuous consumption"
I hardly think my Quaker ancestors of the 17th through 19th centuries took a more lenient view of conspicuous consumption than I do-- and I'm not exactly a big fan. And failure to pay your debts was cause for expulsion from the meeting.
There is a narrow, but important strand of American culture that has always been repulsed by the equation of monetary and moral values. It runs side by side with the acquisitive strand throughout our history. And although the insistence on spiritual rather than material values is weaker, every so often it wins out. The abolition of slavery and the New Deal weren't the work of Jamesians who measured their worth by what they owned, after all. Or of Bushian party-boy types.
Well, foreclosure used to be a relatively closed event, you and the bank and you could hide it from everybody.
Really?
I have always believed that the real psychological scar caused by FC is that it is indeed now and has always been so very public. You get an NOD or a lis pendens filed in the public records. You get a process server coming out to stick a notice to your front door. You get the sale advertised for three consecutive weeks in the local paper, then you get your home sold on the courthouse steps. Then you have to move out and all the neighbors can see it.
It's certainly rare for anyone to get fired, for instance, in such a spectacularly public fashion. Many people, actually, believe that the public nature of foreclosures is indeed intended to be a kind of puritanical punishment. That isn't really true, of course, but the sense of being humiliated in public is very very real.
Shiller said: "...What would this mean in human terms? Picture a line of moving trucks extending for hundreds of miles: they are taking the furniture of countless families to storage lockers. Picture schoolchildren saying goodbye to their classmates. They arent going on vacation: they are being abruptly moved to the other side of town...."
I've got the picture in my mind right now: The Joad family, only it's a short hop in an SUV instead of the family's farm-truck.
Economists shouldn't write pathos, and this is the proof. The only thing this piece tells me is that the news coverage and the "national discussion" of the entire housing "crisis" has now gone absolutely, totally over-the-top into a state beyond the ridiculous...signifying the makings of a major sentiment low in the housing market.
Sebastia
Tanta,
Would you write a reality piece describing what in fact Schiller appears to be attempting to influence and avoid?
IMO, first, implosion in RE price was denied by the Federal talking heads, and that jawboning failed. That was wave #1 in a series. The MLEC was a cloaking device, and it failed. The current TAF's and the entire panoply of gov't financial sword swallows (bigger than falling knife grabs) is also in the process of failing, simply due to the enormity of the RE price depression, and it's sisters' rout, the CC's, the "auto" loans, the frivolity loans, and the CRE loans.
The spectre is not a misinterpretation of reality-future. IMO, Schiller has continued to be a light-weight in the assessment of this economic reversal.
What I'd like is for you to conjecture what might be behind the curtain that Schiller is opining should not be opened further.
Please speculate; consider this a 4-Square and you're the preacher.
Amen, sister, tell us.
Forgot to say, though, that I really liked this piece, and appreciated the links to the critique of Goolsbee.
I hope that Tanta or someone else more knowledgeable than I can explain something that I don't understand about this issue. I read about people losing their homes because "their ARM resets to a higher rate". My understanding is that most ARMs reset to LIBOR or 1-year treasuries + 2.75%. Now according to Bloomberg, LIBOR is at 2.5 % and one year treasuries a bit above 2 %. So my calculator tells me that the current rate would be somewhere slightly north of 5%. By what historical standard is this an onerous mortgage rate? My 30-year fixed,which I re-fied in 2003 verry close to the bottom in rates is at 5.875% and I don't find that onerous at all. So where is this coming from?
Sebastian,
I think you're a moron. You post things here as gospel without even bothering to check out the facts.
I'm sure you didn't bother to check out the Terms and Conditions of this offer. There are so many loopholes in favor of the homebuilder that it's almost fraud.
You have to use an appraiser on the homebuilder's approved list. Why?
You have to pay for the appraisal yourself. If the homebuilder disputes your first appraisal, you have to pay for a second. If the homebuilder disputes your second appraisal and obtains one itself, the difference between your second and the homebuilder's second appriasals will be split down the middle.
The deal is limited to decline in home price caused by decline in the general real estate market, not the individual home. How would you prove that, if disputed?
It only applies if the home is continuously owner-occupied.
There are very strict and overly stringent time conditions on submission of the appriasal.
It's a total joke. It's craftily written by a lawyer to make sure the homebuilder never has to pay out a dime.
I think Shiller and James both tried too hard to identify specifics when it comes to the essence of personal satisfaction.
I think we all desire successful independence and self-determination.
Society has shifted how we measure our independence by placing less emphasis on our debt.
When Bush talked about the Ownership society he didn't really mean ownership. He meant material possession. It made no difference to him who actually owned the asset, only who possessed it.
Morally, there is little difference between a person on welfare who is dependent on the state and a person who is in debt to their eyeballs and is dependent on their bank.
We all tsk, tsk the person on state welfare and seemingly admire the person on bank welfare.
I think we need to be able to successfully make it on our own in order to be self-satisfied with our lives. On our own means not being in debt.
Sebastian...I agree.....Oh....and all those empty houses helps a little too.
(I have told my City's Finance guy that all the taxes that aren't being paid on the empty houses is all the media's fault)
It seems to me that by focusing only on homes or home ownership, a lot of supposedly smart people are missing the big picture.
Too many Americans got too wreckless with all types of spending, including buying homes they can't afford. They assumed easy credit would always be available, and they didn't count on the cost of living exploding upward while wages stagnate.
They are out of money, out of credit, out of options and out of luck.
It's not just a few Americans who are like this. With various gradations, its tens of millions.
It's not just the poor or lower middle class. The sob stories go way up the socio-economic spectrum.
I think your comments were too kind to Shiller. Given that his views will receive an instant audience, and that many readers will take his writings as "truth" or "insight" without subjecting them to scrutiny, I say that he has been irresponsible. Yes it's an Op-Ed but he should have asked someone such as yourself to offer a counter-view before publishing. If it had been an academic piece subject to peer review it would have been rejected outright with no door left open for re-submission. Sloppy work.
"They just bought a little house that was still beyond what they could afford with their crappy jobs, and now their kids and dogs have to move a long way out of town to find a cheap rental."
This is not me trying to be mean or snarky, truely...so please bear with me:
Where were these families living before they bought a house that they could not afford? If they are losing a house that they could not afford, were where they living before? If they had been living in the house for a long time, "building memories and attachments, etc.", why on earth would the house now be affordable?
And if they had just recently moved from renting, into their newly bought first house, is it so bad for them to go back to renting if they really can't afford the house?
Remember, I'm really not being snarky here. I truly want to know.
Editorial - It took a job influenced move from an area I REALLY loved, and from a house I REALLY loved (it really really was a nice house and area) to make me realize that no matter where we lived:
The American Dream shouldn't be about "things", including owning a house. It should be about happiness, security, charity, and financial freedom. Usually home ownership helps accomplish this. However, when home ownership is a burden, or a farce (as in you can't afford this home yet you bought it anyway), it isn't part of The Dream.
I think Shiller's perspective was to a society as a whole not on an individual basis.
and greedy, rich -- your friends and relatives are telling you how they sold their house in a few years for twice what they paid for it, and you figure, hey, we can all do that.
Selling out. Hank, Ben, Bair & the rest of the PPT must have had a talk w/ Shiller.
With enough people, and some with a shred of credibility helps, the bailout WLL happen. It's piling on in the bailout camp.
rich said: "...They are out of money, out of credit, out of options and out of luck.
It's not just a few Americans who are like this. With various gradations, its tens of millions.
It's not just the poor or lower middle class. The sob stories go way up the socio-economic spectrum...."
You shouldn't write pathos, either.
Sebastian
If you'd like to learn more about the impact of credit crunches on real people, check out Showtime this afternoon - Maxed Out: Hard Times, a documentary film by James Scurlock from 2005.
It's frankly appalling and it doesn't even touch the massive stress introduced into the system by the recent housing problems.
You're reminded of the stories of people who sank their savings into the stock mkt right before the 1929 crash.
Tanta,
regarding the University of York site:
On Sunday May 18th 2008, all services utilizing the central storage system will be taken down to conduct critical maintenance on the storage devices. Services will start being shut down at 11:00, with service restoration commencing at 16:00. All services are expected to be available by 18:00. "
Just to keep bacondreams happy.
OT - I think we've seen the lowpoint in existing home sales.
BTW- What was the point of this editorial? I've read it a couple times and I can't figure out what he's trying to get to. It leads me to just wandering about questioning some of the premises.
Such as only FB's only feeling the pain,...I think that mortgage brokers and appraisers are hurting now too, if you consider that their business is drying up and they're waiting for the FBI's knock on the door.
And the battle of public opinion, the House versus the president with the president on the winning side?
And what's wrong with well founded cynicism?
Tanta, awesome post.
I see the debate more clearly now. One side says people who "did the all right things" to own a house should be made whole, despite any mistakes they made out of ignorance, because home ownership is important. The other side says people need to experience the consequences of their actions, regardless of their efforts and intentions.
I think our society has been fat and happy for so long that few understand life is naturally a struggle. Just because some achievement is important does not mean you get it just for trying. Cynicism is not the only alternative to complacence; determination would be a better choice.
rich-You said "Too many Americans got wreckless". I think you meant "reckless". They are not "wreckless" but "wrecked".
And anyone, please, how is an ARM resetting to 5 or 5.25% onerous? Inquiring minds want to know...
Maybe if James wrote that today it would have been gender neutral
I personally doubt that very much. My reading of James is that this isn't just an unfortunate use of the "universal he." James knew perfectly well in 1890 exactly how few of the world's women were even allowed to own property, to have custody of children, or even to have a job that paid a salary they could control. He knew perfectly well he was defining the "Self" in a way that made it difficult to imagine that women and children had "Selves" worth asking about. He was not simply describing a psychological mechanism whereby "people" identify the self with their belongings. He was discussing a normative view, wherein the only functional Self was the one who could have rights of "possession" in other people as well as stuff. In my opinion.
Sarah is of course right that there were plenty of voices before 1890 challenging the view that we are what we own. I am not trying to claim that James necessarily endorsed conspicuous consumption. I simply think he couldn't imagine what kind of sense of self a woman or a child (or, you know, a former slave) could possibly have.
Sebastian
My balls itch. The last time that happened was in 2003.
Let's be clear though that there is considerable social cost borne by kids and others who didn't make the bad decisions.
OTOH my parents' generation was pretty darn careful about how much debt they took on. I've been shocked by the advice I've gotten casually from educated peers to take on the biggest mortgage I could.
arroyogrande said: "...And if they had just recently moved from renting, into their newly bought first house, is it so bad for them to go back to renting if they really can't afford the house?
Remember, I'm really not being snarky here. I truly want to know...."
Nope, it wouldn't be so bad. What's truly "bad" is when recession occurs and puts hundreds of thousands/millions of people out of work. People who suddenly find themselves in that situation have money for neither a mortgage payment nor rent-money.
What's happening now in the housing market is far more about housing changing hands from people who honestly couldn't afford what they bought into the hands of people who can. That's unfortunate for some, but hardly a nationwide disaster like a recession or depression would be.
Sells more papers and attracts more viewers and eyeballs to portray it that way, though.
Sebastia
think Shiller's perspective was to a society as a whole not on an individual basis.
Then he is engaging in sociology, not psychology.
Or, of course, he's engaging in politics and calling it psychology. I dunno.
Yearning to Learn writes:
economists are often bad psychologists who like math.
I believe Schiller's wife a psychologist. This piece might've sprung from a (wine infused?) dinner conversation.
regarding the University of York site
Thanks for the info . . . I apparently just got in before the server went down.
I didn't see another online version of that book, although I may perhaps not have looked very hard. So it's nice to know the links will start working eventually. 1600 GMT?
rich | 05.18.08 - 1:30 pm | #
You forgot the:
The Home is not covered,...Any act or omission of a resident of the home, as determined in the sole discretion of
Wieland
Any act? Like say, eating dinner?
So, I am making a political statement by renting? Never thought of it that way, but makes sense. I can haz a piece of the ownership society? No thanks.
Best regards,
So, I am making a political statement by renting?
I am also a renter, you know, and have been since the early 90s. My immersion in the subject of homeownership is a fact of my job, not my deep psychic needs. Of course, as a renter I may have no deep psychic needs. Oh well. Saves on therapy bills as well as the monthly housing nut.
I had no idea that it explained my utter lack of patriotic fervor, of course. But hey! Some people's bugs are other people's features.
Sebastian, are you really that retarded in real life? I mean, was the collapse of NEW just after you bought not a wake-up call? What about BSC? Was that just a movie?
Is the plunge in FFR to 2% almost overnight in response to a problem that doesn't exist? Are 5 million foreclosures a non event? What do you need to convince yourself that the economy is smashed on the rocks? Was the GD just a inconsequential speed bump on the road to greater prosperity?
you sir, are either the biggest dumdshit on earth or a troll. I can't tell which, but given the NEW purchase, I have to assume dumbshit.
Tanta, I thing you've got James about right.
He never could understand his brother's books and said so. Often.
My renting serves my psychic need for rootlessness. Not sure we can build a political movement on that, though.
I vote for "politics".
He's been political throughout. He's always been "conservative", even in his projection of a housing downturn. Of course, as reality nears, he speaks truth.
Way, way too many have continued to espouse that he's the best. That's hoghooie.
He's a political anchor, a drag on the true understanding of what's next.
This ain't my opinion; it's just a tragic, for the lumpens who follow this guy to see into the future, reality.
Why is it that Tanta is so obtuse about the function of the MSM? The editorial page of the NY Times is just a weathervane. The wind is blowing from a direction called populism -- GET USED TO IT.
Tanta
Sorry for not posting the link but it states:
Regular service will resume on Sunday May 18th at 18:00 EST
York University Outage
Yearning to Learn writes:
economists are often bad psychologists who like math.
And psychologists are usually bad scientists who don't understand math or science.
populism meaning what -- protecting people with ranch houses in the suburbs?
So, I am making a political statement by renting?.
Squatters think they're making a political statement.
Of course Sebastian is a troll. I know. It takes one to know one. ;>)
We owned our own house for a quarter century, sold it, rented for a couple of years in a retirement destination, decided we were too young for that, and returned to where we came from, where we bought a house. Before we sold the first place, I found the house proud people a little odd, and the 'house is the best investment you'll ever make' crowd tiresome. While we were renting in Santa Fe I found the implicit social contempt for renters (at least in the circles we moved in) stunning (the self-styled avante garde, like the self-styled American left, can be mindbogglingly conservative when caught unawares). Back in the Pacific Northwest, the 'homeownership society' is stil thriving, but I've got tosay that the endgame has started whenever somebody puts a name on the trend, so I don't think it's got much left in the way of legs. Who knows, maybe in a few years, we'll move to 'homeownership is for losers and suckers.' Frankly, we kinda liked renting . . .
populism meaning what --
Protecting whoever whines loudest.
what I thought, pull!
One of the nice parts of renting is that most of my assets are not tied up in something that's suddenly illiquid.
That NYT editorial was a tough read. Why does nobody write a sob story about the psychological stress renters have suffered as they watched the prices of homes they could have bought get bid out of sight by fools and their liar loans. First we were housejacked, and now, after all these years of waiting and saving, we see our savings pilfered by inflation and our politicians giving our taxes to the wreckless all for the purpose of keeping them in homes that should be ours by now.
SEBass-
great comeback to rich after he highlighted (once again) an example of your poor analysis with the housing insurance.
pull my finger--
if you really believe that, you are going to find yourself on the wrong side of history. Don't confuse the impulse to protect the weak the desire to visit justice on the grandees of a previous regime. We haven't had a true populist movement in the U.S. since WWII (no, the civil rights movement was not a populist movement).
Madame Defarge didn't seem too motivated to go work in a soup kitchen or protect the whiners. She stuck to her knitting and watched the heads fall in the basket.
protecting those who whine the loudest is all about politics as usual. The Bushies are actually pretty good at it, if you're tuned into their channel.
Well that's fine, Colin, but you still have to come to terms with the fact that renters are second-class citizens. Always have been, always will be. Sorry 'bout dat, Tanta.
and squatting might make a comeback, coruscation -- in London in the early 1980s a lot of bldg owners tolerated squatters because they kept the place occupied and even fixed it up a little.
The wind is blowing from a direction called populism -- GET USED TO IT.
I'm not obtuse, I'm just old enough to have been through several periods of confident predictions that the fallout of this or that economic mess was going to lead to the populist revolution. Let me go root through the closet and see if I can find my WIN! button.
I'll "get used to it" when I see it, dear. Americans have been sitting around on their butts for quite some time watching their jobs go away, their pensions looted, their infrastructure rot, their cities destroyed by hurricanes, their lives and treasure squandered in pointless wars, their health insurance becoming intolerably expensive and their civil liberties flushed down the nearest toilet. Periodically they get fired up about gay marriage. But by all means, let's convince ourselves that some populist revolution worth having is on the way because of a housing bust.
Call me cynical if you choose to. But I get call you a hopeless romantic. In any event, call me when the barricades go up, and I'll be happy to eat my words.
What I find particularly disgusting is the great lengths the shill(ers) of the PPT are going to in order to sell the biggest conspiratorial misdirection attempt I can ever remember - The bailout of the lenders by the US taxpayer (the Iraq war ranks right up there but won't cost as much).
The dupes will fall for it and it'll be proof that a massive enough blitz by the PPT will always triumph...
Sorry everyone, I didn't realize until a subsequent set of comments that I am dealing with a troll. Forgive me for feeding it.
tanta, a renter? You're taking a double hit. Not getting the massive tax breaks and on top of that you still get stuck with the biggest bailout ever.
Who are the suckers?
Not getting the massive tax breaks and on top of that you still get stuck with the biggest bailout ever.
Grant me a few functional brain cells, please. I never would have gotten "massive tax breaks" by owning a home. Given what I make, my lack of other deductions, and what I would have been willing to pay in annual interest, I doubt I'd have had many years in there in which I'd beat the standard deduction.
And while we're at it, can we explain why this might be "the biggest bailout ever"?
100,000 dead in Myanmar, 30,000 (probably more) in China and Dr. Shiller is drumming up sympathy for people who bought too much house?
By the way, do all of the homeless (not homeoweners turned renters, but honest-to-God homeless) in those disasters no longer identify as Burmese or Chinese?
If you have listened to Shiller on CNBC for any length of time you know that he has always been in the bailout camp. This piece is just a little more overt of an attempt to sway opinion in that direction. Why, it might be because more than most he knows how truly perilous the situation is and is scared now and more frightened by the minute. Or he might have slipped a little koolaid and bought some HB's when everyone was talking up a bottom on the markets a while ago. Who knows....
Thanks for quoting James. Now I recognize my true feelings of lack-of-manliness...
No Yacht.
No horses.
No really, really fat cigars and decanters of brandy.
Damn.
I've seen the psych qualifier for levels of stress. Foreclosure, I think, has to be parsed a bit. Foreclosure of your primary home is a lot more stressful since it strikes to your ability to provide a 'home' for the family and kids. Foreclosure for a flip is probably less stressful...unless, of course, you hocked the primary abode to finance the flip.
And if you want a better author named James, try MR James. Infinitely better.
The most interesting thing about Sebastian's fabulous find of a 5-year home price value guarantee from a homebuilder is...
Of course, it offers no protection against a nightmarishly bad real estate environment.
Because a homebuilder isn't an insurance company or FDIC-insured bank.
In a nightmare environment, the home builder will either be out of business or broke and unable to pay against its promises. Or it will have sold out to some other entity that isn't bound by old promises.
So what exactly, Sebastian, is suppose to protect a homebuilder in that case?
You moron...
So what exactly, Sebastian, is suppose to protect a homebuyer in that case?
BWAHAHAHAHAHA!! GOTCHA!!
What a pathetic blog this is -- a bunch of policy-wonk wannabes and permabear losers mumbling about "moral hazard." Don't you chumps realize not one 'Merican in ten thousand even knows what moral hazard is, much less cares about it?
The only poster here I have any respect for is Sebastian. Luv the way he crafts those comments to be just stupid enough to be provoke, but not so obvious that he gets ignored. Nice work, Seb! I see you've got the troll franchise here covered, so I'll move on.
BuhBye!
Call me cynical if you choose to. But I get call you a hopeless romantic. In any event, call me when the barricades go up, and I'll be happy to eat my words.
Very few popular revolutions have sprung forth from a populous that had plenty to eat and a roof over their heads. I've always considered that the "home ownership society" was one way of placating the masses into another 4 (or 8) years of getting along (without getting up and doing something provocative).
The MSM finally got their nerve/spine back when Katrina mostly destroyed a major city. That destruction took away jobs, food and roofs.
The 2008 Atlantic season kicks loose in 14 days. Personally, I'm not looking forward to another Katrina-esqe storm. We have not fully recovered from the last one.
see ya.... don't let the door smack you on the ass on the way out.
We have not fully recovered from the last one.
From what I understand, you guys have not really even partially recovered from katrina.
Weird - we were just debating this on the last post -- so forgive me if I repeat myself, but ..
I fully expect more lazy journalists, politicians and regulators to incessantly throw focus on homebuyers (with either a "poor bastards" or "they got what they deserve" theme) all in the name of not bothering to do the legwork to find, name, and bring to task those who unjustly enriched themselves. Making poor bastards out of all of us.
Unfortunate homebuyers are red herrings to the slaughter, it seems..
We still haven't quite gotten over the Civil War, Canadien, give us time. And pass the popcorn.
Could it be that Shiller's assertions of homeownership equals love of country are a smoke screen for what he really fears. That is that the scars of foreclosure will keep people from jumping in front of the homeownership train in the future. That they'll wait to grab the caboose after the train has passed and slowed down from a lack of suckers to fuel the engine.
No doubt foreclosure is traumatic. But I doubt it will damage a person's sense of belonging to a country or their patriotism. More likely to damage their willingness of paying more than they can afford and trust in financial industry. More likely to cause those foreclosed on to let the hopes and dreams of homebuilders and speculators be foreclosed on just as theirs were.
BTW, is Shiller implying that those in the military who don't purchase a home since they are ordered to move every 18 to 36 months have less of a sense of country than a home ower?
rich-You have a lot of Chutzpah (to use a good New York term) to call Sebastian or anyone else a moron. I used to come here quite a bit in Jan-Mar of this year and your advice in March was to buy all you could of the various Ultrashort ETFs. Well anyone who did so would be down a good 15% or so today.
Could you be right in the long-term? Anything is possible.l But your short-term forecasting sucks to say the least and doesn't entitle you to call anyone a moron.
Here's his priority now:
'... we don't want a collapse in our institutions," Shiller said.'
at
Gradual home price drop good: Yale's Shiller
| Reuters
Gradual home price drop good: Yale's Shiller
"On the other hand, if they fall suddenly and fast then that can bring on recession and that is the worry
right now."
"We want a gradually declining market, we don't want a collapse in our institutions," Shiller said.
Here, here, T-! He deserved skewering, and thank you for obliging!
Roubini and Shiller are wonderful analysts. But, once they start straying from the straight and narrow of macroeconomic risks, bubbles, etc., they quickly stumble.
Thanks for kicking Shiller after his fall. Maybe now he will stick to the straight and narrow path of analysis.
... and bankers are rotting fish in a barrel, or something.
I dunno. I do worry about the social dislocation, effects on kids, damage to people's long-term savings. But cripes, people who take on large amounts of debt to buy big assets that they fondly believe will appreciate are not leaves in the wind. There's a lot of really bad argument out there, ideas that gummint should simply stop foreclosures because bankers are evil. The downside of populism, from William Jennings Bryan through John Edwards, is that for all its commendable sympathy for the downtrodden it falls back on crap analysis and idiotic conspiracy theorizing.
tanta [And while we're at it, can we explain why this might be "the biggest bailout ever"?]
Well, according to many, the largest taxpayer bailout was the S&L bailout. The tally there was around $100bn. Adjusted for inflation from the late '80s it might be ~2.5X that figure. I feel pretty comfortable with the assumption that this bailout will easily eclipse that figure. A simple glance at the HPA chart should be enough to convince you. It's possible that there may be rolling smaller bailouts of the BSC variety with poor visibility into the figures and the grand total won't be known for years afterwards.
Based on the way I see the course of this mess heading with the PPT at the helm, it'll get dumped on GSEs and FHA so the bailout should end up being totalled up by the GAO...
So why no mention from Schiller of responsible people who sacrificed and rented so they could responsibly afford a home?
I know that has a psychological impact (not having room for pets etc...). Not to mention society's stigma for "non-homeowners".
This blog IS peer review of Shiller, Tanta and ourselves.
barely - Close your eyes and hold on tight.
Aheadofthecurve - Rich meant feckless not reckless or wreckless.
Anomalous - So you and Shiller think that "society as a whole" should buy little houses for all the people with crappy jobs who can not afford them??
I agree that a loosey-goosey, "living" contract is better than one of those strict enforcer kind. Let the courts decide what is best for society as a whole.
Rich - your attack on poor Sebastian was mean spirited and gratuitous. Sebastian IS one of the appraisers on the approved list. Do you want to go back to auction appraisals and pay for the highest one? The builder is a good marketeer, risk manager and probably a survivor.
Sarah - My favorite New Deal was the Supreme Court packing. Both acts of "insistence on spiritual values" you cited who were inflicted on us by lawyers and politicians.
Economics is a Social Science that treats the results of human behavior, caused by human feelings, sometimes hurt feelings. This is why it's called the Dismal Science. There is no truth. If you want truth consult a CPA.
Party boy with no mortgage.
Why is it a politicians job to warn people not to buy a house? Should the president tell you to think twice about getting married because your fiancee has indolent tendencies?
"It would guarantee up to $300 billion in mortgages of troubled owner-occupants. But, right now, the bills prospects are bleak, and the troubled homeowners may be left with virtually no help at all."
Shiller is definitely using his reputation to rally for a bailout. I wonder what his motive is? He of all people should be aware of how prices need to fall to affordable levels. I know he was suggesting a few years back about starting a company where people could buy options to protect their value of their homes.
His NYTimes article reads like it was written by a college freshman journalist student....I bet he only put his stamp on it
Shiller might be defending the homeowner to draw attention away from the fact that he earns money from the use of the Case-Shiller home price index. That is he is making money off others misery and he is trying to paint himself as sympathetic to the plight of the distressed homeowner. Anyone listens to this guy talk in more casual spaces knows he doesn't give a shit about homeowners. This is a purely academic exercise for him.
Tanta
Your rant about Jammes and sexism is sophmoric and shallow. Your political correctness preents comprehension on your part. Self-satisfied historically ignorant bores ranting on about politically correctness are equally as tedious as the pompous Victorian male. (And I speak as someone who was teaching women's studies and being told 'women don't practice in that area of law' when your were in diapers.)
The use of James highlights that the cultural thought of 'ownership is good' is deeply iimbeded in the national psyche and has been for many many many decades, and even centuries. It runs deeper in the US culture than in many European societies as the US was settled by many younger sons and the land-dispossessed who crave ownership of land. The entire history of the US revolves around getting and keeping land.
So yes, Shiller is correct about the cultural meme of owning land. And you are WRONG - go study the history of social thought before you embarass yourself further.
And rather than wasting your time ranting "If Shiller is serious that all those other parties are "to blame," then why isn't the obvious solution to throw them out on the street?", why don't YOU go think up a way to recapture the profits from the big players who created this mess? I can certainly tell you that there is no effective statute or law that will make them regurgitate their profits.
Emma who posted above has it right. The majority of foreclsoures we see here (and I am on the board of the county agency dealing with this mess) are people who are struggling in their awful jobs for meager wages who simply want a place to live, a tiny yard for the kids and dog and to have a place in which to live when they retired where they do NOT have to pay rent. Because wages have been flat or falling in the US for several years due to corporate greed channelling all gains to the upper 5%, the only way they could hope to have a home was by subprime mortgages due to their income and the cost of housing and the DTI.
And if you think owning your own home outright when you retire isn't important, then you try living on the average Soc. Sec. retirement of $1100 and paying rent while paying out over $300-400 in Medicare B, D and Medigap. AAnd the vast majority of the US do NOT have pensions or the income that will allow them to accumulate $500K or more in a 401(k).
Fast Eddie: many of rich's stock market predictions have been feckless and reckless and you would be wrecked if you had followed them. That goes for quite a few others here too (I will refrain from naming names because they know who they are).
Shiller is definitely using his reputation to rally for a bailout. I wonder what his motive is? He of all people should be aware of how prices need to fall to affordable levels.
Maybe he sees the risk of letting all the bad mortgages cycle through foreclosure as worse than modifying the loans to a payment and LTV that keeps these folks in their homes.
Put all those homes on the market and the crashing bubble markets continue for quite some time. What will we do when all those folks scooping up foreclosed homes end up losing money too?
Aheadofthecurve
I give points to anyone (rich, sebastian) who is willing to stick their neck out and make educated predictions about the market. With someone who boldly uses the handle "ahead of the curve" I would love to hear what your predictions are for the market.
real psychological scar caused by FC is that it is indeed now and has always been so very public.
While FC may be intensely public, all the it's still possible to hide the fct from most people, unless their actually searching. Few people I know read the public notices and the notices on the door are less obvious now that we have pizza flyers and other ads stuck on our doors. It's far more difficult to hide the loss of a job from the circle of people you actually care about. I couldn't care less about a notice in the paper, but the gossip between friends?
I don't think Shiller deserves this. He is only pointing out that there will be real economic effects from the change in psychology that is occurring.
This is part of a larger trend of the rich getting richer and poor getting poorer that has been going on since 1980 when inflation reversed in favor of capital over the indebted.
It is a recurring theme in societies that when wealth and power get too concentrated at the top, a society breaks down. The Republicans are about to learn what happens when people get fed up with this.
I also like the James quotes. Sure it may be sexist or whatever but it was written in Victorian times. That doesn't mean it isn't true today. You can easily swap man for woman and it is still true, maybe even more true.
What garbage. The only stock market picks I've made were to hold SRS, TWM, and EEV for the long-term, and occasionally to take some profits if they run up. (Don't sell when they're down, but feel free to take profits when they're up.)
Buy the single inverse of these 2X ETFs if you don't want as much risk or volatility.
Over the last year, I'm up about 10-15% in a stock market that's flat to down a little. Stick that in your ear, buddy.
These are the weakest sectors of the stock market and eventually you will do well with this strategy, if you haven't already. Just don't get too greedy and be ready to sell when you've locked in some nice profits and wait to buy back lower.
That's all I've said, consistently, since I've been posting here. I'm more confident in this strategy today than ever.
I can't time this market, and neither can anybody else.
And I speak as someone who was teaching women's studies and being told 'women don't practice in that area of law' when your were in diapers.)
I doubt at least three of those claims. The first Women's Studies program in the U.S. was started long after I gave up diapers, girl friend. I do, however, know some women who taught in the earliest ones. Not a one of them would attempt to patronize me ("Political correctness," fer chrissakes) the way you have. So besides being an asshole, I think you're an exaggerator. And if you still teach, and you encourage other women to talk that anti-feminist self-righteous drivel in public, I hope you get fired.
As far as your fascinating dip into history . . . so the point here is that ownership of land has "always been important"? No. Really. Nobody noticed that until William James? And James' pscyhological theory can be boiled down to an observation on the obvious like that? And Shiller's use of James is just in aid of that kind of fatuousness? Well, forgive me for not realizing that everybody was trying to be that sophomoric ("From the dawn of the Republic, land ownership has been considered a good thing." Blecch.)
Otherwise I'm terribly sorry to hear you're on a county board.
Dear Tanta
OT, have you read the Master by Colm Toibin, a fictionalize account of James' life? Well written...but man...how depressing. James might have had a mansion but he seemed a lonely selfish guy.
Hope you have a great day!
Best regards,
AnnS | 05.18.08 - 3:16 pm | #
Reading your post I am struck by your rather poor use of grammar.
Or is it:
Reading your post , I am struck by your rather poor use of grammar.
He is only pointing out that there will be real economic effects from the change in psychology that is occurring.
How funny. I see no reference to any "change in psychology." I see, in fact, Shiller using one source from 1890 and one from 1980 to imply that psychology is in fact timeless.
Your own suggestion that you could change the gender in the James quote and it would still make sense--which I'm afraid I think is ludicrous--implies that you think this psychological state is unchanged in the last century, so much so that now we all have it (not just white men!).
In fact, Shiller goes out of his way to deny any particularly "real" economic effects of foreclosures:
No one is likely to starve or sleep on the streets as an immediate result of a foreclosure, and the authorities no longer dump a family's furniture on the sidewalk when it happens. Nonetheless, there is deep trauma.
Well, yes, it's a wretched experience for anyone who goes through it. But in Shiller's terms, the worst that sounds likely to happen is that people get "cynical." But where do you find him discussing the economic consequences of that?
I'm all in favor of economists telling us what the effect of our psychological scars may be on the future economy. I'm just still waiting.
Tim: Fair enough. I don't know if you were here in Feb/Mar, but I stuck my neck out and said that the bearishness was way overdone and the market was going higher. I was met with ridicule from rich, tj & the bear, and several others. I wasn't only talking, I bought shares and call options, virtually all of which are higher (some by 50% or more). Right now, in all honesty, I see the market as more or less sideways. Generally though, I don't focus that much on the overall market; I have a set of particular stocks I keep on my radar and I keep my eye mostly on them.
Rich, I too am up 10% or so y-o-y. If you are, it can't be on the back of buying and holding SRS or TWM which are flat. My point is you are certainly free to disagree with anything I or Sebastian or anyone else says. Where you go over the line is to call anyone a moron.
Shiller deserves this.
It is so pointless and meandering it reads like something I might have wrtten,
Homeownership is fundamental part of a sense of belonging to a country.
Maybe the dream of ownership, but all those young men who have died in past wars over property weren't property owners. I know the satisfaction of feeling as if you own a place, but owning something isn't the end all and be all of existence. It might make you feel like a king and then again,...
I AM monarch of all I survey;\t
My right there is none to dispute;\t
From the centre all round to the sea\t
I am lord of the fowl and the brute\t
O Solitude! where are the charms\t
That sages have seen in thy face?\t
Better dwell in the midst of alarms,\t
Than reign in this horrible place.
loss of respect by an individual for a contract is lost when the same rules aren't applied to corporations
no amt of explaining, rationalizing, or cajoling can restore that lost trust in the fairness of the system
pride in (home) ownership, 19th or 21th century style, is thus eroded, regardless of expressed expectations of what is the right thing to do
the slippery slope slide - down, has begun
it'll be a difficult drop to stop
can it be done?
i believe so, but only if america is allowed to grow up
tell us the truth, be transparent, and we can all come through this
good luck to us all
OT, have you read the Master by Colm Toibin, a fictionalize account of James' life?
I haven't, actually. I had enough James (both of them) in college to last me for a long, long time.
I think I'm off to re-read the elder Galbraith. At least he knew when writing about "the affluent society" that he was dealing with an historical artifact, not an eternal verity. Plus his prose is so much better.
Let's not get hung up on Henry James. It has been this way since our country's beginning. Even before, if sometime in the past century you listened to Bernard Bailyn rattle on about how all the sons of Puritan divines ended up speculating on land grants in the Connecticut Vally. But it was pretty much set in stone when that bleeding heart Thomas Jefferson misunderstood John Locke and botched the transcription of life liberty and property so that it somehow became life liberty and the pursuit of happiness.
And, what kind of refi did he have on the McMansion formerly known as Monticello? I'm tellin' ya, Jefferson was a problem, like one of those sixties liberal professors who considered his grad students fair game--and Jefferson woulda been a pinko, except Karl Marx was still in nappies. Of course, but for Jefferson, we'd all be calling diapers 'nappies' and then what would happen to the idea of the Anglosphere of nations separated by a common tongue?
Colin wrote "We still haven't quite gotten over the Civil War, Canadien, give us time. And pass the popcorn.
Colin, Some of us up here still haven't got over the Plains of Abraham which happened a long time (1759) before your Civil War, heck it was even a long time before the birth of your nation.
... come to think of it is it possible there's a little bit of irony in James' words that was lost on Shiller? Not to mention lost on the intemperate AnnS? It certainly was not lost on 19th century writers that the number of people able to achieve that sort of personhood (yacht?) were few. One of the most basic arguments of efforts to extend the franchise in that century was a challenge to the idea that the only proper citizens were property owners.
What none of the economists want to come out saying is that asset deflation is devastating to an asset-dependent US economy. Inflation is the preferred way out. And everyone is paying for it, from retirees to the prudent savers in the US, from the factory workers in China and India to the oil sheiks in Saudi, etc. It's the moot point now as BB's policy of continuing pumping liquidity to support asset prices already set the stage for inflation. Despite the US slow down and decrease in aggregate demands, commodities will continue to rise because there is just too much dollars out there.
Let's not get hung up on Henry James.
You're right, of course. Let's go back to 1980, a time in which I was also not in nappies, during which it was quite common to hear various economists opine that people's sense of "Self" would be ruined, ruined! I tell you! by government bailouts. Government bailouts were just code words for welfare, and welfare was just a way of creating a permanent dependent underclass. Why, the central key to the American psyche since Plymouth Rock was self-reliance and taking responsibility for your own mistakes! Only some hippie pinko politically-correct chick would suggest that people's so-called "psychological scars" counted for diddlysquat. Why, we were not a nation of Oprahs and Jerry Springers! We were conservative red-blooded Americans, who would never expect public policy to be determined by our sissy little neurotic needs!
I was there; I remember this.
The pain of this reverse movement could leave a psychological scar that will be with all of us for the rest of our lives.
Misdirected hyperbole. We start by talking foreclosure and end by trying to extend the fallout to everyone. Let's see, about a third own outright and of those who are being foreclosed on it makes news at 3% or 4%. Not too many think it'll be 20%. So how is the psychological scarring transfered? Through the economy. It will be the shock of losing faith in the economy that leaves the scar, not the putative cause, foreclosure, which in itself is merely the effect of a painful process.
If there is a permanent scar because of this reverse movement, it will because we're crappy at distinguishing the true cause from our fuzzy thinking fallacies.
Ross -
Of course there are people who expect to pay off their mortgages. The numbers vary some according to source, but it appears that about a third of homeowners don't have a mortgage.
Here in the DFW area, we built our lovely home in 1990 and will have it paid off (early) in less than 3 years. In our neighborhood of approx 50 homes, it's rare to see more than one sell per year. With that kind of stability, I suppose that many of our neighbors are in the same position we are - getting close to or already reaching the point of no more housing debt.
Successful traders have been scientifically proven to produce more testosterone. Mother nature's now very foolish reward. Of course, it doesn't mean they will continue to be successful; it doesn't mean that many will become reckless (wreckless? just wrecked?) in pursuing the next jolt. The researchers proposed that they be diluted by a healthy number of older men and women.
Also, didn't Jefferson die a million bucks in debt? Don't know if that factoid is adjusted for inflation or not; either way, not good.
And if the PPT is not successful, and I don't see how they can be on a permanent basis, they will be losing
a whole lotta money. I think this was tried in Great Dep I, and we all know how that turned out.
Advertising signs that con you
Into thinking you're the one
That can do what's never been done
That can win what's never been won
Meantime life outside goes on
All around you.
Bob Dylan knew more about economic psychologoly, I guess.
CathyG--we paid off our house early a coupla 5 months ago.
So we can still afford to drive. . .
Aheadofthecurve
I agree
I build my investment world around three MAIN beliefs:
1) earnings matter; and although they may not seem to matter at times, there comes a point in every cycle when they matter a lot. That point usually is near the bottom.
2) I said about a year ago, when I first came here, that I felt earnings of U.S. companies were peaking and would start to decline.
3) Earnings up/down cycles tend to be powerful and don't usually reverse quickly.
Earnings were powerfully positive through 2006 and into the 2nd quarter of 2007. We now have had three straight quarters of declining earnings, and I see no catalysts for driving earnings higher for the rest of 2008.
Go here and spend a little time and you can learn a lot. You will see that the weakness in earnings is masked by success of a few giant companies, many of which are pumping up earnings artificially with foreign currency gains.
The Wall Street Journal Online - WSJ.com Log In
For example, for the first quarter of 2008, tech still looks strong on the surface. But look closer:
11 of 23 Internet companies have negative earnings (even though industry is up 52% on Google and Yahoo).
68 of 157 Software companies have negative earnings (even though industry is only down 2%.
26 of 62 Hardware companies have negative earnings (industry up 26%)
57 of 136 Semiconductor companies have negative earnings.
43 of 104 Telecom Equip. companies have negative earnings (industry up 29%).
The exploding number of companies with negative earnings is a flashing warning sign. A lot of the strong earnings produced at the tail end of the bull earnings cycle in 2006-07 were illusory. They were tricks enabled by leverage, like buying back common shares with borrowed money. Now, all that excessive leverage is turning to red ink.
Do you know what it's costing all those high burn-rate, money-losing tech companies to raise new capital now?
AN ARM AND A LEG.
I would look to go short the tech sector now, if you have some hair on your chest.
AnnS: "The majority of foreclsoures we see here ... are people who are struggling in their awful jobs for meager wages who simply want a place to live, a tiny yard for the kids and dog and to have a place in which to live when they retired where they do NOT have to pay rent."
You got me with that "tiny yard for the kids" - I'm still wiping the tears off - where can I send my check?
The psychologist William James wrote in 1890 that a mans Self is the sum total of all that he CAN call his, not only his body and his psychic powers, but his clothes and his house, his wife and children, his ancestors and friends, his reputation and works, his lands and horses, and yacht and bank account.
Homeownership is thus an extension of self;
Richard Dawkins wrote that the beaver's dam and the body of water behind it were the beaver's phenotype, the physical manifestation of it's genotype, so the beaver's pond is part of its "self"?
And another thing: home. By using homeownership as a euphemism for controlling property, we are led to believe that everyone who buys a house is buying a "home". Home is where the heart is, were you choose to place your "self".
What the hell, I've got so many psychological scars, what's another one?
" earnings matter; and although they may not seem to matter at times, there comes a point in every cycle when they matter a lot"
I agree, to an extent. Earnings growth rate matters even more. With easier y/y comparisions I am wondering whether earnings growth could come in less negative and provide a boost to the market. Depends largely on how much access to credit remains, through CCs.
Convenient of AOTC to show up at the top of a bear market rally to trumpet his investment prowess. Just like Sebastian, only dropping by when the market's (temporarily) up.
Rich, Misean, AllenM, mp/CB & others here like myself are much more concerned about long-term fundamentals.
Oil is thus an extension of self; if one owns a part of a oil field, one tends to feel at one with that oil field. Policy makers around the world have long known that, and hence have supported the growth of oil.
MAYBE thats why President Bushs Ownership Society theme had such resonance in his 2004 re-election campaign. People instinctively understand that oil conveys good feelings about belonging in our society, and that such feelings matter enormously, not only to our economic success but also to the pleasure we can take in it.
Not to mention this view that homeownership is important because it makes us all obedient little patriots who will protect our country like we protect our lawns
"Homeland Security" anyone?
p.s.: Does everyone despise that department name as much as I do? Sounds like something straight out of Nazi Germany or the Soviet Union.
rich-when you refrain from the insults, you can make some sense.
I have no problem with shorting and have probably come out net positive overall on my shorts, but the big difficulty is that on average the market goes up, so shorts are to some extent like blackjack players in Vegas; they can have good runs sometimes, but the house has a built-in advantage. It is very easy in shorting to be right, but too early. I shorted SBUX in 2004, because I didn't see how they could continue to generate the growth needed to justify their lofty P/E. I was right, but way too early and had to cover and take my losses.
I don't like shorting sectors though. The QQQQ is heavily weighted towards the strongest companies with real earnings, earnings growth and tons of cash. If you want to short tech, why short the Q's especially a 2x? Why not identify the weakest companies and short them?
What's truly "bad" is when recession occurs and puts hundreds of thousands/millions of people out of work. People who suddenly find themselves in that situation have money for neither a mortgage payment nor rent-money.
From BigPicture quoting Merrill Lynch's David Rosenberg
Companies did not cut as many positions as expected, they cut the hours instead. The average work week plunged 0.3% (and, aggregate hours worked were down at an annual rate of 1% in the past three months), which, by the way, would be the equivalent of 400,000 job cuts.
tj-I left because I had several projects that took over all my spare time. And also because the atmosphere here was and is very one sided and too often more interested in ridiculing than debating. People here complain about the MSM, but I find much more presentation of many perspectives there than here.
As for bear market rally, we will see. I see a period of below trend growth with sideways trading rather than the misery and woe that seems to be the consensus here. In that environment, some companies will do very well and others won't. All I hope to do is try to find the former and avoid the latter. I find it helpful to listen to many perspectives, though I don't get too much useful information from the "We're all DOOMED, DOOMED I SAY" crowd.
Nobody likes belonging to "The Ownership Society" when the thing owned is declining in value.
As for the "trauma of foreclosure," it's no worse than the "trauma of your stockbroker selling out your position because you can't meet the margin call."
Tanta:
When I say that you could change the gender in the James quote, I am saying that both men and woman think of their "things" and "relations" as part of themselves. That is why when people get divorced, lose a spouse or lose children, they feel personally diminished. This does not imply that people think of their wives or husbands as chattel. It is only that people are connected to other people as well as their possessions. "No man is a an Island" etc. I don't even see how his could controversial. Isn't it obvious?
I might have been a little sloppy when I spoke of a change in psychology. I think psychology is indeed timeless. Rather I am speaking about a change in psychological state of mind. Obviously that is dependent on the state of affairs. During an economic depressions, there is real psychological depression and this has real economic feedback effects on spending and job creation. On of the main reasons that the US has had economic growth, the past century is a generally positive outlook towards the possibility of improving one's personal state.
Finally, I think there is a lot of implied in this piece that is not said outright. For example, I think he hints at the unfairness of the state of affairs towards unsophisticated home buyers. I have to agree with him. I have many friends who bought near the peak and none of them were trying to get rich quick. They were just desperate to own a home and saw themselves getting priced out and so bought before priced went even higher. He also doesn't state the economic effects of people losing their faith in fairness but that is implied as well.
There are people a lot less sophisticated than my well-educated friends and these generally make up the subprime population. These people thought they were just doing what the white, successful people do. They thought they were getting out of poverty. They were suckers for the lines, "Stop throwing away your money. Start saving by building equity in a house. Someday you will own it outright and not have to pay any living expenses at all etc...". Don't have any sympathy for these people. They were conned by sophisticated bankers who knew better.
BTW, everyone see the chart Russ Winter posted at his site Winter Watch
?
From BEA data... "Spending on essentials at record leaving less for discretionary spending." The % of disposable personal income ranged between 48% & 51% from 1980 to 2002, but has since climbed steeply up to nearly 56%.
In that environment, some companies will do very well and others won't.
"Some" companies will always do better, regardless of the circumstances. You're absolutely right, the challenge is picking them. My personal favorites going forward are all energy related.
Tanta,
I enjoyed your post. IMHO all the good and bad things about "ownership" that these people talk about depend on to what extent people live on the edge. This applies to the people doing the lending as well as the borrowing.
I do not think the issue is ownership vs. not non-ownership society. The issue is risk tolerance. If people spend every penny they make, whether buying things or on renting and services, they're going to have problems eventually.
it really pisses me off because we thought the market was going crazy so we decided to wait. now those gamblers who were just too happy to tell us we were the fools, are not going to get stuck with their dumb purchase price/loans... looks like we'll be stuck w/ the same high prices... why is it that the indebted have more power just because there are more of you... this sucks!!!
"No man is a an Island" etc. I don't even see how his could controversial. Isn't it obvious?
Actually, it's a cliche. It's trite. It's one of those observations that is, indeed, merely obvious. Hands up, everyone who believes that Man Is, In Fact, An Island.
And do I expect more from Robert-goddam-Shiller than something that painfully effing trite? Yes, I do. Is that unfair of me? No way.
Look, I'll go ahead and grant you that at least some people derive their primary sense of self, of personhood, by the ownership of houses. I'll grant you that for such people losing those houses is traumatic.
I would ask you what public policy that implies?
As Yves said, lots of people derive their sense of self from their jobs. And the pain of losing one is severe. Are you cool with the government infusing $300 billion into the mortgage and RE industries so that a bunch of brokers don't lose their jobs? So Bear and CFC and so on don't have to lay people off? I'm curious how far this argument can go.
As far as victims of predatory subprime lending go, what exactly is your and Shiller's good liberal sympathy going to do? Magically make a new FHA loan affordable? Make it worth their time to continue to pay on a mortgage for a home that is terribly over-valued? As has already been asked on this thread, what's Shiller's goal here anyway? To get Frank's FHA bill passed? There are no good reasons to support that bill besides the claim that FC leaves "psychological scars"?
So far every "defense" of Shiller I've seen here just makes his "argument" sound trivial.
"They thought they were getting out of poverty. They were suckers for the lines, "Stop throwing away your money. Start saving by building equity in a house"
Or they were setting up a meth lab they could call their own.
Exactly. The best way to short the weakest tech companies is TWM or its single equivalent, RWM.
You also could do the "growth" versions of TWM, SDK.
The Russell 2000 is tech-heavy and tends to track tech. The same leveraged speculators, mainly hedge funds, work both markets.
Who's insulting who? You're making gross generalizations about my investment advice that are inaccurate. Way too soon for those kind of conclusions, my friend. Let me know how it goes in a year or two.
I NEVER short individual stocks, because as you've seen so many times recently, you just set yourself up for a squeeze. It's much harder to squeeze whole sectors.
As for the market being up most of the time, I don't intend to be short most of the time. Just when the market is jacked up on leveraged steroids and the economy is crumbling at the fastest rate in at least 30 years.
Yale breeds bleeding hearts. Think about the poor unwashed masses (not talking about us, of course!). It is not their fault they are dolts. Help them!!!
"Who's insulting who?" The issue is that you called someone a "moron" and I think you owe him and the readers of this blog an apology. If you had said, "You're wrong and here's why" I would have no problem.
AOTC,
Check this out:
Decession or Depression?
Tanta, you beat me to it. I was just about to pour scorn on the claim of AnnS to have been "teaching women's studies and being told 'women don't practice in that area of law' when your were in diapers".
Not only is AnnS evidently too young to remember, as we do, when the first women's studies programs started, but it seems she doesn't even quite realize that they haven't been around 'forever'.
As to law, when I was at university and considering that career there were still quotas for women-- on the bizarre grounds that since women generally got better grades than men we would quickly become the majority at all the law schools if allowed in on merit. (Imagine! The horror!)
Of course neither quotas nor being told, "Women don't do that!" are anything compared to the real barriers my mother and her generation faced. And the only James I ever heard her express any sympathy for was Alice.
Look, it's OK to bail out sniffling owners if we make low-class renter scum pay for it.
OT: The weirdest thing is happening, yesterday and again today.
Yesterday, in the early evening, the 101 Freeway heading in both directions into and out of Santa Barbara, CA, were nearly deserted. Today, in Ojai, CA, there were nearly no tourists.
Whilst this may be attributable to the unseasonable heatwave in the mountains, here 102, my division sales mgr smart friend walked the shops asking if this were unusual. The response has been, "It's been slow all month."
I've always wished everyone else would go away. Over the last 2 days, my wish has come true.
If I may be so bold, the US economy is in a freefall. The consequences? A pony for everyone.
This will have gone full circle once Bush declares that renters, much like atheists, are also capable of loving their country (because it was really touch and go on this before he stepped up and said it).
The indebted are not in the majority. About 31% of people own their home outright with no mortgage and 32% rent. That leaves a mere 37% as indebted.
Don't worry, these attempts to prop up the market will fail miserably, just like all the attempts in the four years leading up to the Great Depression. Just be a little more patient.
Tanta,
I, for one, admire your blog and hope you continue to do what you're doing in spite of the ongoing onslaught of trolls.
Shiller barely caricatures some of the stuff that we long-term renters have been subjected to about our presumed feckless unreliability, and on and on. If the article represents his true views on the subject of homeownership, then I certainly hope he will rethink the matter.
However, Shiller might actually have done something of a service with this piece by reminding us of the numerous wedge issues that have been used to manipulate us as "consumers" and to identify that role with citizenship.
And thanks to Tanta for taking up the subject. But for her intro, which prompted my curiosity, I for one would never have paid attention to this (I had seen but not read Shiller's article in the paper this morning.), given the newly burgeoning piles on my desk.
Some random thoughts on the above posts and Dr. Shiller's article:
1) Cathy G's comments bring to light and interesting question: She built her dream home, whether she knows it or not, on the tribulations of her fellow Texans. By 1990, the FDIC had wiped out the TX banking system and pulled the rug on any and everyone that had levered themselves into "possession." That she's been fortunate enough to pay off her home in 20 years is simply the flip-side of those that bought in 2005-7. I've yet to see policies suggesting she and her fortunate ilk should be penalized. But if we're going to subsidize those getting hurt by house prices and we're not going to penalize those that benefit from it, then we've got a dangerously asymetric policy response that will necessarily lead to moral hazard and continued resource misallocation.
2) There's been mention of the odd value judgements ascribed to "renters" and "owners." A personal anecdote: Since I spend a great deal of time in and am married to a woman from London, I was an "owner" of a small apartment there for years. Recently we sold and now rent. People used to be very impressed when they learned I owned an apartment. Now, I don't even get a blink of the eye when I tell people I rent. The irony is - I owned a one bedroom 900 sq ft flat and now rent a 2500 sq ft 3 bedroom victorian home. Nonetheless, in the minds of most everyone I know - I've traded down!
3) There are broadly two types of "losers" from the housing fallout. The first are those w/o the financial sophistication to understand what they got into. The second are MBS (etc.) investors who bought securities that the brokers knew to be toxic, but rep'ed to be fine. Everyone else was part of the problem... I'll go out on a limb and say that most of the former group don't speak English (I would point you to where the earliest delinquencies started popping up - CA Central Valley and TX MX border) and most of the latter should not be managing money for a fee.
4) I would like to note that, like others, I find Shiller's unstated assertion that renters are less a part of their community than owners disgraceful at best. His comments do, however, add academic gravitas to help grease the political skids to transfer income from tax paying renters to tax saving (via the Mtg Interest deduction) "owners." Considering this is about the most regressive income transfer the US has ever embarked on, I would guess the politicians are looking for all the intellectual cover they can get. Too bad the best Ivy League economists can come up with is this perverse.
Tanta. I am just saying that the lenders and investors (the sophisticated ones who knew better) should not be treated better than the homeowners. If you want to claim that we should just let the marketplace and bankruptcy courts work their magic, fine, I am with you there. However we both know that this is not going to happen. The banking industry has a strong enough influence over the government, that they will get some kind of bailout. Bernanke has already tipped his hand when Bear blew up, that he is not going to let the economy liquidate the way Paul Volcker did in 1981.
So given that the bailout is coming, the question is: should we also help homeowners? I am just saying that I think we have to. That is not saying that I think we should. We shouldn't have saved Bear Stearns but we did.
Saving Bear Stearns and Countrywide and throwing Joe Six-pack to the wolves is unfair enough to make people really start to question our entire way of life and government. (But maybe I am giving poor dumb American's too much credit.) And Bear Stearns already happened. The question now is what to do next.
I am a renter and I would be thrilled if the government decided to take a hands off approach. Sure, it might lead to a depression but then we could all start and build a more just and intelligent system. But Bernanke and the Fed are "all Keynesians now" and so this talk is not terribly relevant to what is actually going to transpire.
Willima James had a very nice house in Cambridge.
http://www.psychologicalscience.org/anniversary/images/William%20James%20House.jpg
It's near the library & Harvard - in that neighborhood it would go for about a million.
That is one skillful acid pen you wield. I think that your righteous indignation is richly deserved here. His article seems like a clumsy attempt to empathize with 'the people' and has a pungent aroma of haughtiness.
You are bit like that Greek guy, running around exposing the foolishness of the so called wise...
Speaking of the 19th century and women's studies, it has belatedly occurred to me that Mitchell's Gone With the Wind has a more nuanced view of landownership and the self.
Something about a good catfight in the morning that's so invigorating!
Amen to Jay, halfway up the comments list, who wrote:
"Why does nobody write a sob story about the psychological stress renters have suffered as they watched the prices of homes they could have bought get bid out of sight by fools and their liar loans."
We have rented in LA for three years and cannot even move to a new apartment (ours sucks) because in the last three years, rent has gone up $300-400/month while employers tend to give a raise of, what, 4%? If they like you? And don't even talk to me about real estate, oy vey. Down here "foreclosed" means "I'll cut you a really good deal ... $650K."
Slightly off topic, but yeah. This Shiller guy can bite me.
Squatting is on the rise across the United States as foreclosures surge, eviction notices mount and homes go unsold for months, complicating the worst U.S. housing slump in a quarter century and forcing real-estate brokers to enlist the help of law enforcement and courts to sell empty houses.
The Raw Story | Foreclosure surge a cash cow for professional squatters
I am really surprised to see such a passionate raillery against middle class mentality.
Dr. Shiller's comment reminds me of some of the revionist Freudians." The trouble with the revisionist Freudians is not that they would give up art for the psychoanalytic good society, but that they pretend that it is already there". To Shiller, the "home ownship" seems to be the road to the psychoanalytic good society. What a naive understanding of human nature. What a debasement of humanity.
Depending on the state, renters get 30 days or 45 notice before they are out on the street if the landlord wants them to move out... even IF the renter is paying their rent on time.
Mortgage debtors on the other hand get about 1 year to keep staying in the bank's house... even AFTER the mortgage debtor stops paying their mortgage entirely.
Tell me this is fair.
I think you are being a little too hard on Shiller. Although a little muddled, he's not saying anything more complicated than: 1) homeownership is actually a social good with positive externalities in terms of building community and making people more conservative (not necessarily politically but in terms of lifestyle and feeling like they are stakeholders in the system), and 2) The negative feedback loops associated with allowing massive numbers of foreclosures implicate more than just accelerating home price declines (from abandoned homes, stripped copper, trash outs, etc.), but that there is also real damage to the national psyche (the death of the "American dream"), which is a negative externality.
On both counts, I think Shiller is basically right. The social damage from the great unwinding of the housing bubble is going to be catastrophic and will greatly exceed the strictly financial losses.
"But what would our capitalist society do without conspicuous consumption? We need it. We rely on them to buy the next gen cell phone with email, internet etc. What would we sell if we didn't have vapid products to pawn off on rich folks and rich wannabes?"
Well, houses ... and a house costs two hundred times as much as an iPhone with eighteen-month contract; it costs significantly more than if its walls were built out of Whole Foods premium organic cheese.
I'm always a bit surprised by people putting 'HDTVs and Hummers' in the same category, where the price ratio is about the same as 'electric shavers and HDTVs'. Cars are expensive, building work is expensive, buying houses is expensive-expensive. I'm an enthusiastic buyer of fancy computers, and have spent since 1995 about the price of a new VW Golf.
If you are worried about cynicism- look at the pricing of medical services. If you are uninsured you often get charged multiples of what the providers--labs, hospitals, and doctors--have agreed to accept from insurance companies. And the pricing structure is not clearly disclosed ahead of time.
If there ever were a case of true market failure or price gouging this is it.
For Christ's sake, Tanta, open your mind. At least he's trying to expand and enlighten the debate.
You moan and groan and expound in 10,000 word whine-fests because you narcissistically love the sound of your own (blog) voice.
Your coming down in such a manner on the central figure in getting the world to understand the housing disaster is just petty is just such arrogant blowhardery.
I respect your analysis. God, I hate your massive "bubble" ego.
So the bottom line for us females who are not into women's studies of the time when Tanta wore diapers, is what exactly??
The quote from James applies to men so I guess the idiotorial by Shiller implicitly means that women don't have a deep patriotic psychological attachment to their property of course, as a reflection of our lack of masculinity i.e. lack of self. Charming. Do females that are in foreclosure qualify for the same benefits, given their difference in psychological pain?
Hmmm... never mind, I think I could endure the psychological pain of reading sexist crap but am not in the mood right now.
Give'em hell Tanta. Take no prisoners. Trample the weak and hurdle the dead. I'm sticking with you, except the sexist drivel.
Based on the figures that Shiller cites - and considering the relative stress value of foreclosure vs. pregnancy - it seems the government could get a lot more stress-reduction bang for the buck handing out contraception than mortgage bailouts.
Now, that may be good policy or bad, but regardless, I don't think I want my tax dollars being invested based on bureaucrats asking shrinks whether it is worse to be knocked up or kicked out.
The whole idea of quantifying stresses to make economic decisions is hopeless. There are just some things upon which you should not give economists data: it makes them dangerous.
I, too, thought the Shiller editorial strange and poorly argued. He maybe should have gotten more editorial assistance from the Times. The fascination was in who wrote it and the impulse as to why.
(a) While I sympathize with many home owners now in dire straights, I am conflicted by relief programs and think they should not be extended without evidence that the homeowner can sustain his/her new obligations and potentially repay the consideration in some fashion. Shiller might have been leading to the arguement that strapped homeowners will repay charity with civic virtues but he didn't quite make the leap. I don't know any social science that actually supports this.
(b) Regarding the sanctity of contracts... There is too little solid council to consumers at the time they take on serious financial obligations (including private student loans, mortgages, insurance, credit cards and other stuff). Consumers commonly lack the power/ skill/ judgment to negotiate terms in such situations. This I do believe. Contracts are supposed to be something both sides enter into equally knowing and that's much of what gives them their moral force (besides their legal force). When knowledge/ power/ drafting is skewed to the corporate side and terms/ implications are largely incomprehensible to the non-corporate side, there is a predatory situation going on and that weakens the moral force of the contract (if not the legal force). I wonder if that was what Shiller meant. Again, he didn't reach it for me.
(c) Of all entities, probably the banks are most responsible for this debacle. The Economist mag. has a series of articles on banking this issue that are interesting. That seems to be their bottom line take of the situation.
I think its worth noting that the vast majority of the increased forclosures is coming from folks who had very little invested in "home ownership" whether financially or emotionally. We really are not talking about people who spend years living in a home, raising kids, and being part of the community. Long time owners who didn't act like pigs are untouched by all of this.
We are talking about recent buyers, buyers who really never should have been able to get out of the rental market, or owners/buyers who refinanced themselves to death. Does that sound like a group with great emotional investment in their house?
Yes, there is lots of blame to go around, but its not as if there is a depression. In fact, the official stats don't indicate a recession yet. Unemployment is 5%; people getting foreclosed upon today still have their health and a job but a toxic mortgage. This is a completely different situation than the traditional foreclosure that is driven by job loss, divorce, or health issues.
Where is the trauma in being told to get out of a house that you moved into in the last three years and were never able to pay off anyway? That is what we are talking about.
Shiller seems like a smart guy in the interviews I've seen and a couple journal articles I've read. On the other hand the piece he wrote is bad. Was he having a bad day?
Either it's just sentimental drivel, which I won't discount, or he is writing using a lot of what we call "shorthand" here on Capitol Hill. Shorthand can seem like sentimental drivel when it's read literally.
A number of comments have tried to unpack the shorthand:
sdtfs: "It will be the shock of losing faith in the economy that leaves the scar, not the putative cause, foreclosure, which in itself is merely the effect of a painful process."
Shiller brings up contracts because he cares about them. It's his default view that contracts are sacred because they provide a stable environment that encourages investment which leads to growth. Now he's backing off that view to persuade the rest of the contract believers (Market Fundamentalists as Soros calls them) that they should also consider alternate (external) costs that get in the way of his big objective, which is growth (or at least stability).
Shiller is crap in describing these costs. This is where the sentimental drivel comes in. I'm hoping it's all dreary shorthand: "Cynical" is about a decrease in the velocity of money.
"Country" is about people failing to sacrifice current happiness for a greater future happiness because they have lost faith in the economy.
Finally, he's saying the risks are big enough that the rules should be changed in the middle of the game.
By the way, I just bought (very responsibly) for the first time. And despite everything being just peachy, every time I stick my head out of the ground, someone's proposing to bail me out. This totally deforms my participation in the market and makes me think I should be more reckless.
First of all, NONE of these proposals is actually about helping homeowners. They are ALL about keeping them like little hamsters in a cage running on that little wheel, paying in cash on a mortgage that the lender should never have made in the first place, that is for FAR more than the house is worth now, much less what it is going to be worth in a couple of years. They are ALL about bailing out the banks. He is just trying to ride the supposedly oncoming populist wave to justify the ends. Every single foreclosure hurts the banks more than it hurts the homeowner.
Secondly, if we want to get into psychology, the good that supposedly comes from home ownership is the good of a community where the participants have roots, care about their neighbors, a history and relationships. If damage has been done to the american psyche, it has been in treating a home like an 'investment' to be traded away in a heartbeat for a move 'up'. The damage has been done creating a society where we live in cities when we are young, moved to suburban ghettos full of diapers and 'stroller nazis' for 15-25 years, and then carted off to florida when the kids are grown, dumping the costs of education on those least able to afford it.
This mobility works really well for the corporate types who want to move labor at their convenience, leaving empty, soulless communities in their wake.
What scares him the most is the pithy quote about fear of cynicism.
He's afraid the hamsters might get wise and quit.
And i do feel enormous sympathy for the people caught up in this and losing their homes through this bitter process of foreclosure. If we care about them, then we would argue to help them in the transition. Rental assistance, moving assistance, credit rebuilding assistance would help ease the stress for these people far cheaper and far more effectively than finding ways to keep sucking the very life out of them to pay for mortgages they cannot afford.
Read all 210 comments ..message received Virtue of Homeownership: arrogance or ignorance did not see a lot of humility here.
Michael LittleBig
GREAT post! Thanks. Wanted to look up the William James quote myself but didn't have time to do so. Best.
The American holocaust or a rebirth of slavery?
gas chambers = home (financial suicide)
master = mortgage debt
If America was not bankrupt before the housing/credit crisis it is now:
Morally
Figuratively
Financially
Economically
Socially
Legally
How do we address law and order when the number of criminals is so daunting? We start with the kingpins!
What is the status of the ongoing FBI investigations?
Why hasn't Mozilo, Prince, Thain, Congresswoman Richardson, et al traded in their street clothes for an orange jumper? Richardson's "experience" is a confession to loan fraud, PERIOD.
Per WAMU; they probably traded the mortgage for treasuries prior to foreclosure. WAMU was just "servicing" the loan.
By the time the public wakes up to find their retirement accounts missing and their currency collapsed most of these criminals will have faked their deaths or made residences outside the US. The least we could do is to convict and disgorge these violent criminals so their unjust compensation is "trickled down" here in America.
Tanta, Are you interested in including a link to various bail out programs and their costs:
TSLF
Stimulus package (Purchase by Fannie, Freddie and FHA of toxic waste)
Frank's new bill
etc.
The list should also include pension and other investment funds that have been decimated by these criminals.
Let's not forget the PBGC!
see multi-billion dollar hit taken by Arkansas Teachers, Colorado Police and Firemen
http://michaelblomquist.com/casespending/07CV06923MRP/Document120.pdf
see truth on the markets bookmark/defense
We could also develop a campaign for your readers to demand action from the FBI. With any luck their decimated retirement/investment accounts will help with motivation.
We should also begin discussing a US bankruptcy plan before WWIII.