Democrats & Liberals Archives

This Is Your Nation. This Your Nation on Credit. CRACK! Sizzle. Any Questions?

Our fiscal policy is in bad shape, but that should be no surprise to us, given our own fiscal tendencies. We are brought up nowadays in an economy that encourages us to get indebted and stay indebted.

To millions of Americans today, the lure of easy credit is impossible to resist when first presented, and impossible to recover from after everything is said and done. Is it any wonder we tolerate our government's fiscal insanity? Our problem in Washington is that the folks there either think like us, or reflect our thinking along these lines.

If you want a real scary read, you should catch this book. In the interest (no pun intended) of full disclosure, I have not seen the film that it is a companion to, but I think it makes some stark and rather good points about our modern problems with debt.

It is a cultural problem, and a psychological problem, and until we own up to that, we're not going to face what we're doing to ourselves and our country.

I'm a debtor myself, with student loans gathering interest every day. I can't say that they make my life more enjoyable, though I value the education they got me. That said, I've had little experience with credit cards, and don't really want much experience. I had few debts, if any, before I went to college. I mainly operated on a cash basis.

Part of my support for living expenses was loans. One thing I do remember a lot of are the credit card offers. Every time I checked my P.O. box in college, there were a ton of them. I never signed up. I did get an in-store card for the Bookstore at my college. My experience with that turned out somewhat negative. I paid off the Accounts Receiveable, and went back to cash.

The last few years have been rather rocky for reasons beyond my control, so there are some black marks on my credit record. Yet guess what: I still get plenty of credit card applications. This is not an accident. This is the state of the credit card business, and the way America's high-interest short term lenders operate. You want to get more credit card offers, higher limits? Don't prove that you can pay, prove that you can't.

In the book, Elizabeth Warren, author of The Two Income Trap finds out to her surprise that the most common indicator of whether you would go bankrupt was not that you bought too many Prada shoes, or had too many credit cards, as she joked in one part, but whether you were female, and then whether you had a child. It is the basic costs, healthcare, housing, and education that were causative factors. Incomes simply hadn't kept up with these demands. Debt becomes necessary to survive, to provide for one's children, to support one's family.

The section in which these facts come up relates to something else: the Bankruptcy Reform Act, which made it harder to get out of debt for millions of Americans. During the Clinton Administration, she was able to successfuly argue Clinton into vetoing it. Of course, the next time around, it was the Bush administration who got it.

This was the man who told Americans to go shopping, rather than argue for sacrifice, for savings, or asking for higher taxes to fund all the fun things he was going to get us: our very own war, a medicare drug benefit (how do you push this, and then deride public healthcare as too socialist?), and more pork than you could shake a chop at. Do you really think he was going to tell the rest of America not to go into more debt and make sure they stay there for the forseeable future?

There's an emergent psychological effect to the disconnect between income and commitments. It's especially seductive if even paying for basic things, like home, healthcare, and education carries you beyond your means. If you have to live on credit to live, where's the sin in living a little better, taking on a little more debt? If somebody's willing to hand it to you, even if you can't really afford it in the long run, why look the gift horse in the mouth? Debt is addictive, because we're taught that if we can get what we want, we should get what we want. The only means valued in our culture, are the immediate ones.

Nowhere is this more apparent than in the military. Leaving aside the rather glaring deficit, it would interest many to know that our military runs its procurement off of credit cards, supposedly because it's more efficient than a system that would require more stringent standards for working out what was being bought, at what cost, etc, etc. Unsurprisingly, the military is now full of debtors, and there's tons of waste in the system.

Which brings me to what is probably the big question: Why is America so saturated with debt, national and otherwise?

The simple truth is that we no longer have a true market economy. With the ability to pay off debt no longer a requirement to acquire more of it, businesses can charge more than they could if people had to pay from real funds, and make more products and sell them where otherwise the economics would not allow it. They can also pay their employees less, with less complaints from them, since the credit cards provide the long term cushion for the debt necessary to keep things going. There are limits, though, both to employment and to employability, and when people crash with these kinds of debts, they crash hard. While it's fair to ask for discipline out of people, the system and our culture encourage otherwise, and that is an influence, a pull, on our national psyche we cannot ignore.

The simple truth is, we need to tighten up lending laws, and undo the bankruptcy reform(or rather, do some true reform), and be prepared for people to start availing themselves of this option in good numbers. Since the market no longer operates by itself on a cash basis, we need to regulate these methods of financing to prevent and discourage predatory practices, to get consumers better informed of the risk that they take. If this means that consumers start to feel the bite of their insufficient incomes, so much the better; the market can only set wages correctly for the jobs if people have a decent idea of what their means are.

The American Dream has become a mirage, when our prosperity is an illusion based on the average American being leveraged to their eyeballs. Only when we wake up to the real state of things, so far as that can happen, can the growth we experience be true growth, the recessions we experience be true signals of what needs improvement, and the market function properly to set wages and prices.

A more integrated view of debt then lets us look at the debts we take out as a country in a different light. Economic scarcity forces us to assign priorities, to work out what is best, what is the most efficient (moreover, effective) use of our resources. A country that chronically builds up debt beyond its means will not feel compelled so much to think out what its own interests are, to rationally set the levels of taxation it will accept and not accept.

So long as a disconnect exists between what we pay for government and what we get, then we will not properly guage what our tax dollars are worth to us, and thereby what's worth doing with them. Both parties can gain from a realistic appraisal of the cost of government by the folks who shoulder it. If people are happy with the costs, and we have a balance budget, it's easier to argue as a liberal that they should support government as it is, or perhaps a little bigger. Conservatives wishing to shrink government will benefit from people having a clearer appraisal of what it costs them, and an easy to understand mark for refusing further spending. Both parties can lose, too, but they're both suffering for the fiscal insanity worse, and setting up their fellow Americans to suffer worse for it in the future.

Three of the pillars of our political system are life, liberty, and the pursuit of happiness. Our founding fathers set up laws that were friendly to debtors wishing to get out from underneath their burdens, for the very reason that a crushing debt can shorten the first, limit the second, and obviously interfere with the third. This can also be applied to our government as a whole. We, as invididuals, and as a society, need to return to a more intuitive and more sensible sense of economics, and not merely follow pie in the sky desires to the point of absurdity. We need to learn limits and better, more realistic economic planning before hard experience sees fit to give us a lesson in it.

The time has come for America to stop borrowing trouble.

Posted by Stephen Daugherty at August 10, 2007 1:43 AM
Comments
Comment #228961

It is about time a Democrat, any Democrat, began weighing the consequences of debt in our nation. In August of 2004 I wrote a prophetic article in the 3rd Party and Independent’s column entitled, National Debt: The All Important Vote. I began that article with the fact of the time that our total national debt was 37 trillion dollars. Our federal debt at the time was 7 trillion, 328 billion dollars. Today, just 36 months later, it is more than 8 trillion 800 billion dollars.

And maximum consumer interest rates have climbed from 24% to now 32% for “high risk” credit card users. Mortgage defaults are growing rapidly, the sub-prime mortgage industry crisis is so bad, it is having global financial consequences from Japan to Australia.

It is like a single pinpoint of a ray of hope amidst the Milky Way’s light, that a democrat is actually willing to publicly state that debt is a problem. A welcome and refreshing departure from Republicans who argue debt is not a problem.

Posted by: David R. Remer at August 10, 2007 4:29 PM
Comment #228975

SD
“…before hard experience gives us a lesson in it.” Too late. Seen the stock market lately?


What is not mentioned in most of the discussion on this topic including your piece is the main underlying problem. Certainly there are those living beyond their means,certainly Madison Ave. and easy credit availability play a role but these factors are more like syptoms .The underlying problem is that the working/middle class does not get paid enough.Workers wages have not kept pace with productivity increases.This is not an accident. There has been a concerted ,organized effort to keep it that way.There are several ways this has been accomplished. Examples: The legal and political assault on the ability of trade unions to pressure for wage increases,one sided trade agreements,uncontrolled immigration,and more.A tax system that favors the owning class over the middle class is another force.
Another method to keep middle class incomes stagmant is the Federal Reserve policy of inflation control. When prices are increasing due to such things like energy price increases the Feds response is to tighten interest rates with the express purpose of increasing unemployment thereby holding down wage growth.Us folks on the front line against inflation often fall back on credit to make ends meet.
If for example,that little part time job you had in college paid $15 an hour instead of $7 chances are your college debt would most likely be less.
There is a price to pay for these policies. We are seeing some of it now with the housing bubble burst. People are not defaulting because they want to. People are not defaulting because they are stupid. Bottom line is wages did not keep up with housing prices. Because people need homes those shacky morgage deals were the only alternative out there. And now we all pay the price for depressed wages.

Posted by: BillS at August 10, 2007 6:13 PM
Comment #228984

How many of these defaulted loans are ‘APR’ types of loans that people refinanced to get lower payments with no concern about the future crunch when the costs went back up?

And who’s fault is it for them taking those loans out again?

Posted by: Rhinehold at August 10, 2007 7:39 PM
Comment #228987

DR
Where have you been. Dems have been expressing alarm about the national debt since Bush’s reckless
tax cuts for the wealthy. The last time the budget was balanced and the debt was being paid down was under a Dem president with a fiscal program approved by a Dem congress.We get it.

Rhinehold
Good queation. No doubt some. Also there were speculators leverageing several home purchases expecting to turn them for profit. My underlying premise is still valid. The price of housing rose and the wage rates did not.

Posted by: BillS at August 10, 2007 8:13 PM
Comment #228991

BillS said,

We are seeing some of it now with the housing bubble burst. People are not defaulting because they want to. People are not defaulting because they are stupid. Bottom line is wages did not keep up with housing prices.

Although I don’t disagree incomes haven’t kept up I’m going to have to disagree with you on this one Bill. There are a lot of people out there who had no business purchasing a house and a lot of people out there willing to pay too much for a house because they thought or were told it would go up in value forever. Unless you are very astute with leveraging debt you have no business being in some of the loans offered out there. Thankfully, some of them are being taken off the market. The problem is as Stephen suggested easy credit, not a lack of income. Unscrupulous lenders had to know people would likely default but told them they could afford it anyway.

By expanding credit to those who traditionally couldn’t get it in the first place or didn’t have the discipline to say no to a “principal-optional jumbo loan” defaults have predictably soared.

Posted by: chris2x at August 10, 2007 9:07 PM
Comment #228992

The definition of middle-class has expanded with the times. I can’t help but think many of us can feel a little entitled. I mean, did our parents drive the cars many of us do with cell phones interrupting our three-dollar coffee enjoyment at our age? Today’s cars are way better and relatively cheaper than when our parents were our age and yet many of us still need to buy a new $30,000 car when our finances tell us we should be buying a 5-year old Corolla.

There was an article in Money magazine a couple of years ago that blew my mind. The article was about how boomers might brace for one of the greatest wealth transfers in history. It featured a family in Santa Barbara. The father’s father had just died leaving him property in Santa Cruz and a tax shelter worth around $400,000. How should they handle the inheritance? The mother was a lawyer who made $130,000, the father was getting a graduated degree in landscape architecture at Cornell (I guess he was flying back east all the time?!), they lived in a million plus dollar home, and she drove a BMW with a $500/mo payment. They were flummoxed and felt bad that they hadn’t been able to save much money for the boys college. Really. The parents thought a way to save money was to buy a new $50,000 dollar car outright with the inheritance and not have a car payment!

Here’s the clincher. The guy’s deceased father owned a house in Santa Cruz, CA (near the beach) and had saved $400,000 working as a meter reader for the local utility, PG&E.

I have trouble with positive cash flow and I am a bit of a tightwad. My wife and I certainly need to be earning more to live in the SF Bay Area. But I have always saved money for the future and I am relatively debt free. I won’t be buying a house anytime soon either.

Posted by: chris2x at August 10, 2007 9:12 PM
Comment #228997

chrisx2

I live in the Bay Area also. I looked at a fixer for 514 thousand the other day. Many folks from other parts of the country cannot believe prices here.
After ww2 wages were high,unions were strong and there was a trade surplus. . Pretty much if you had a job you could buy a home.The GI bill helped much but decent wages helped more.
There are silly examples like you sighted but mostly the chorus claimming Americans do not save enough are blamming the victum.

Posted by: BillS at August 10, 2007 10:21 PM
Comment #228999

Where were you looking for 514? That’s good.

Yes, the example I gave was silly. The irony of a meter man saving more than the lawyer I thought was illustrative.

I understand the middle class is getting squeezed but you cannot discount the effect of an over-consumptive, must-have-it-now society. In the Bay Area they aren’t making anymore land. Still, house prices shot up 350% in about seven years… in an already expensive Bay Area! After WWII houses were going for what, 3 to 5X salaries. Now, a home costs at least 6 to 8X the median salary? Grocery costs as a share of income are down than back then but more people eat out now. Cars are cheaper and better but people still by a car that is priced to high, costs more to insure, and costs more to maintain. We bring it on ourselves.

Of course, there are a lot of people in the Bay Area who don’t make anything near the median income. I don’t know how they make it, especially with kids.

And as the rest of the world rushes to catch up to the U.S. in standard of living and the economy continues to globalize we will continue to feel the squeeze. I’m not sure how to ameliorate that except to make it easier to unionize labor and tell the moneyed elite to pay their fair share. It would be nice if those benefiting most from society would support universal health care for example.

Posted by: chris2x at August 10, 2007 11:09 PM
Comment #229000

David R. Remer-
I’ve literally been arguing for fiscal sanity from day one, actually, though I’ll admit there’s been a lot in the past few years to bring the dreadful economic problems closer to home.

Bill S-
The latest troubles? They’re nothing. I’m talking wrath of God economic downturns.

Rhinehold-
The problem is, the system is made intentionally more complex than the average person is able to understand, especially the poor, relatively uneducated people in this book. How can we expect folks to understand financing you probably need a degree to comprehend, such that they make good decisions?

There will always be those who blow their money for no good reason. That said, It’s one thing for the market to undermine fools, but what about people just trying to get by, raise their kids, keep their bills straight.

The current system is rigged to be parasitic on those who can’t afford to get out of debt. What possible purpose does this serve? They’re acting like loan sharks. There use to be laws against this, but now no more. We wante credit we din’t have, so we changed them.

Posted by: Stephen Daugherty at August 10, 2007 11:13 PM
Comment #229001

BillS and chris2x,

“I looked at a fixer for 514 thousand the other day. Many folks from other parts of the country cannot believe prices here.”

“Where were you looking for 514? That’s good.”

In 1978 I lived in a 3 bedroom apt. in the Richmond district for $475.00 a month. It was at Avenue 42 and Balboa.
How much do you think that property would rent for today?

Back to the subject at hand. 5 years ago my house in downtown Phoenix was worth $95,000, my tax assessment for 2008 on the same house will be $204,000.

Will someone please tell me what’s wrong with this picture.

Posted by: Rocky at August 11, 2007 12:08 AM
Comment #229002

SD
Usery laws etc. were noy chamged because people wanted more opportunities to get burned.They were changed because of industry lobbying.
It remains to be seen how far reaching this downturn is going to be.What happens when good credit risk start walking away from homes that are worth less than they owe.Lets pray that Bush made at least one good appointment in Bernake.The Fed is moving to supply “liqidity” to the financial markets. I lack those economic degrees you mentioned but doesn’t that mean they are just printing more money?
Point I hoped to make is there is a downside to keeping wages flat and it also effects the rich. We are in this together,like it or not.

Posted by: Bills at August 11, 2007 1:05 AM
Comment #229005

Stephen,

It does not take an economics degree to know that APR home loans are the quickest way to lose your house. Now we have ‘interest only’ loans. Isn’t that what we use to call ‘rent’?

Seriously, these are basic economics that we should be teaching people before they go out and get houses. What happened to our economics classes in High School? What happened to teaching people that credit is not ‘free money’ and that debt is a BAD thing?

Chrisx2 mentioned that his example was ‘silly’. The problem is, it ISN’T. It’s actually very indicative of what our lack of what passes for education in this country is getting us. My father never earned more than 35,000 a year in his life. He turned down opportunities to be in management because he didn’t want the responsibility and he liked what he was doing. He raised 5 children on that income (and that income alone), and had his house paid off by the time he turned 50. He is just now retiring and has made sure that he did so debt free and with enough retirement savings to last him.

Do you see people thinking this way these days? I make enough to live in a 250,000 house, but I choose to live in one that only cost me 55,000. I put money back to retirement and am paying off debt from my ‘stupid days’. Yet I still don’t live with the discipline that he did. Because I can afford it, I have a few luxuries and give time and money to charitable causes. But if I didn’t I wouldn’t be looking for help, I would move to where I could afford a cheaper house, not eat out and not have the luxuries I have. It’s about understanding what I can and can’t afford.

Seriously, it isn’t hard to realize that if you are paying 500 a month for a house and you can change your fixed rate mortgage at 8% to a 4.5% variable rate mortgage (that costs you 1,200 to do) that it will take X number of months to break even and if the rates go up, and as low as they were they HAD to, that your payment would end up being more than you can afford.

At least, it should be obvious. To an educated citizenry. Thank god we have national education in this country, eh? I mean, if the government wasn’t teaching this stuff to our kids we might have a problem.

BTW, people who got sub-prime lending was being given a ‘second chance’ to build their lives at a cost of the risk that was being taken. We could, of course, eliminate this type of lending but wouldn’t that mean we would be preventing those who legitimately are trying to get a second chance and have ‘learned their lessons’ from getting houses? Of having the pride in home ownership and instead have to rent, earning no equity or wealth in the long run?

It seems to me that the problem was not that there were subprime loans, but that there are too many people who got themselves into houses that they couldn’t afford.

I’m sorry, Bills, but your characterization that the problem was that wages haven’t kept up, I am willing to BET that the majority of the houses that defaulted were within 5 years. I don’t think that 5 years is long enough for the phenomenon you are describing to hit a responsible person hard enough that they couldn’t either 1) make their house payment, the first and most important bill you pay or 2) realize that they can no longer afford the house and move to a cheaper house before they have defaulted on their second-chance home.

No, it is much more realistic to realize that too many people are not educated in BASIC economic theory and the issues of carrying debt to understand that you can’t live paycheck to paycheck, beyond your means, when you have already seen the error of doing that which has ruined your credit in the first place.

I guess the democratic answer is to tell all people who ruin their credit (usually when they are young and have not been taught basic economic in High School) that they just can’t get a house and will have to live without any wealth for a few years?

Posted by: Rhinehold at August 11, 2007 1:40 AM
Comment #229006

I see where the Federal Reserve is pumping hundreds of billion dollars into the investment banks but Bush says homeowners who bought houses they can’t afford are screwed.

Remember when Bush and guys on the right-hand side of this blog counted the unprecedented home ownership rates as a sign of Bush’s economic acumen? What a crock.

Posted by: American Pundit at August 11, 2007 1:40 AM
Comment #229007

BTW, I happen to live in the zip code that has the highest foreclosure rates, several years in a row now.

It has nothing to do with ‘slowing wages in the face of increased home costs’, the houses in this area are some of the cheaper in the city. It is just that a lack of discipline coupled with ‘easy money’ on the adjustable rate refi that is the issue. And the lenders who are taking a bath deserve to lose their businesses for offering ninja style refi’s with little or no documentation that they could do something so extraordinary, like actually pay the loans when the APR’s increased. What good is getting your sucker to sign for the loan when they never pay off the scam?

The only real problem is that because this is so massive it is hurting us ‘innocent bystanders’, but I think that it will be ok. The stupid lenders will be out of business soon, the housing gets a market correction is was needing, the interest rate is at a good rate that shouldn’t move for years (most of these bad loans were made in 2005/2006 when the adjustable rates were low) and we are seeing the fallout from that now.

I don’t see this as a long term issue, though I would like to see the regulatory agencies that are SUPPOSE to be keeping an eye on these lenders do their actual jobs… What good are new laws when we don’t enforce the current ones again?

Posted by: Rhinehold at August 11, 2007 2:09 AM
Comment #229012

Rhinehold
So you are saying that even if these people were getting paid more they still would not pay their morgages?

Posted by: BillS at August 11, 2007 6:17 AM
Comment #229014
It does not take an economics degree to know that APR home loans are the quickest way to lose your house.

Do you mean “ARM” loans??? Because every loan has an APR (annual percentage rate), but not all mortgage loans are adjustable rate mortgages…

Posted by: Rachel at August 11, 2007 8:19 AM
Comment #229016


Two or three years ago, President Bush was crowing about the number of new home owners (morgage payers). He claimed there had never been a better time to buy and he encouraged us to do so. Bush did not warn people to be wary of ARM’s. He did not say that interest rates would surely rise and that many people would loose their home and the money they invested in it when the rates started to rise. He just touted the Republican mantra, don’t worry, be happy, buy, buy, buy!

For the most part, morgage lenders did not tell people that with interest rates so low, the consumer can buy a nice home for their money. For the most part, lenders told people that the low interests rates made it possible to buy a much more expensive home.

Now, Wall street is all tore up about a crisis that was totally predicted and they knew was going to happen. Soon there will be calls for a government bailout a la the savings and loan debacle. So the government will borrow money to bail out Who? The consumers who got in over their heads? Of course not. The government will bail out the Wall Street morgague brokers.

Who bears responsibility for this? Are the morgage lenders responsible because they made lowns that they knew would default when interest rates strated to rise? Does the President bear some responsibility for encouraging the behavior? Are ignorant irresponsible consumers to blame?

Billions of dollars are spent on advertising because it works. Without ignorant, greedy, keep ahead of the Jones’s consumers, we don’t have a consumption based economy. Do we really want all consumers to be highly educated and savvy?

Posted by: jlw at August 11, 2007 10:26 AM
Comment #229018

Rhinehold-
Not everybody’s a financial genius, and sometimes the people who put these things together intentionally make things more complicated.

But beside that, if the folks who are selling these people these financial instruments know that these people aren’t going to be able to handle the payments or the interest rates, if they go in intending to soak these people, what’s the use of blaming the victims? They aren’t actively seeking to get screwed. Blaming the victim in these cases is no better than blaming a rape victim for letting them get into their predicament. It’s pointless. Many of these people are learning their lessons. It’s a lesson though, people shouldn’t have to learn the hard way. By all means, let’s educate people about these things. But on the other side of things, when a practice is obviously predatory, obviously bad-faith in its promises, and obviously aimed at suckering people into economic serfdom, why should we treat it as anything more than glorified theft and loan sharking? Why should it even be legal? What possible good comes of this that justifies our not blotting out these practices?

Posted by: Stephen Daugherty at August 11, 2007 11:42 AM
Comment #229019

Two words pretty much say it all, “unsustainable debt”! What’s happening right now is just a hiccup compared to what’s coming down the pike.

How many Americans ‘refi-ed’ to pay off credit card debt when new credit card lending guidelines issued by the Federal Reserve System, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, and Office of Thrift Supervision effectively doubled some consumers minimum payments just weeks after implementation of the new bankruptcy law? Yes, the Federal Reserve does have an “Office of Thrift Supervision”. Ain’t that funny?

How many have basically used the equity in their homes as a source of “supplemental income” just to try and stay afloat? Can they really be blamed or considered financially “illiterate” when they see their own President act as though the National debt just doesn’t matter?

(Note: isn’t it funny that debt does seem to matter to Bush since he has a Dem congress? He seems to be prepared to really hold OUR feet to the fire after six years of the worst financial ineptitude I’ve ever witnessed.)

Can the consumer actually be held solely to blame for believing in sheer “luck” to rectify their financial woes when it’s become all too commonplace for state governments to depend on income from lotteries to heal their financial “wounds”, and more and more localities are embracing casinos as a badly NEEDED resource of revenue?

OTOH, can the voter be blamed for being blind to the real shift of taxation onto the middle class (a term undoubtedly soon to replaced with serfdom) throughout Reaganomics chapters one, two, and three ——- aka: “Starving the Beast”? We’re witnessing the results of following the voices of ideology over those of economic and historical knowledge —— not to mention scientific, military, etc, etc.

As the economic disparity continues to worsen the “haves and have mores” will continue to prosper, the serfs…..er,uh……middle class will find themselves pitted against each other, the poor will be reviled as the dregs of society by all, the individual States will continue to seek individual solutions possibly progressing toward secession (almost certainly creating some level of anarchy).

I could go on and on but I think you get the point. It’s a picture of gloom, I think it could be aptly named, “Robber Barons of the 21st Century, the Pursuit of Serfdom in America”.

There is an alternative. I’d call it Progressive Populism. Most would simply call it Progressivism.

Posted by: KansasDem at August 11, 2007 11:52 AM
Comment #229020

“government bailout a la the savings and loan debacle”

jlw,

The S&L deal still sticks in my craw. I actually lost about 16 grand after all was said and done. And what proud family name popped up during that shining example of laissez-faire?

Neil Bush, son to HW and brother to W!

Posted by: KansasDem at August 11, 2007 12:12 PM
Comment #229022

I find it interesting that while reading all this gloom and doom no one mentioned that we should raise the tax on energy to halt man-made global warming. With the middle class suffering so, why not add this extra burden. And of course, socializing our health industry will only add about 10% in payrole taxes and the middle class will welcome that. And then, when H, O, or E becomes president we can bloat the debt more by bailing out the stupid and greedy “get something for nothing” crowd that fell for the mortgage hucksters bitter pill.
Frankly, low interest rates (will become even lower) and full employment (95.5%) will continue to make our economy hum. The housing bubble burst, like the Dot.com bubble burst, are merely markets correcting themselves after greed and stupidity run their course.

Posted by: Jim at August 11, 2007 1:01 PM
Comment #229027

Kansas
Do not be too hard on Neil. He just wanted to be an 80’s kind of guy.


Beside stagnant wages,enticing credit offers,desparate and sometimes foolish borrowers,there are other causes. The price of homes rose unrealistically in many markets. The relationship between cost and value simply vanished. One reason is speculation.There are those that leveraged the purchase of several homes any way they could with the expectation of “flipping them” for a profit. When the market stops going up they have little choice but to walk away. Institutions also play a role,buying up morgage securites for their high rate of return,making it easy for credit issuers to take more risk. Seems there is an enormious pool of potential investment money out there with no place to go after the dot com bubble burst,seeking a place to gain high yields.Can we blame globalization for this? Why is not this pool being used to fund small businesses like for example alternate fuel development etc? Is the federalgovernment selling of debt to forign governments a reason bond yeilds are unattractive?Is there no fledgling US industry in need of capital enough to pay attractive returns becuase industry is being developed overseas and not here?
I have got to say it. Another reason for high home prices is because we have not been building enough homes. Not that people do not need them but in part because local political pressure by “enviormentalist” has made it difficult to obtain permitting.In my area most planning now takes the form of infill projects. Multi story tightly packed homes within city limits. OK I guess if you are willing to admit that working class kids do not deserve backyards but even these are comming under pressure by the same people that pushed for this change in the first place. It was just something for them to say instead of admit their real reason for opposeing home developement was greedy elitism and even rascism.They never expected these infill projects to happen .These people consider themselves “liberals” and ” enviornmentalits”. They use those cloaks to disguise their greedy elitism and deserve niether.Gives us a bad name.

Posted by: BillS at August 11, 2007 2:14 PM
Comment #229029

KansasDem,

Let’s be fair, there were shady dealings on both sides of the aisle in the S&L scandals. Remember Sen. Alan Cranston and John McCain were part of the Keating Five. Keating himself was an active Republican but how many Democrats were bankers back then?

Rhinehold,

I basically agree with you about housing and people needing to make better decisions for themselves. However, way too easy credit simultaneously did expand loans to people who shouldn’t have been getting one and help inflate housing prices to gross proportions making the proposition even riskier. I can’t tell if people are less economically bright than before or simply more credit is available to less-educated people today. Probably both but there were also a lot of mortgage brokers simply looking to make a buck in a market that defied common sense, many of them predatory.

Rocky,

Easy credit and greed is why your house value on paper more than doubled in five years. Hard lessons will correct the housing market as it must. I am actually interested to see what the possible (it’s too early to tell) demise of the jumbo loan will do to crazy California home prices. I’m glad I sold my house a couple of years ago, which was always too small for my family, and am now renting.

If credit really tightens up it could turn into a real panic. Demographic changes with Baby Boomers starting to retire in droves could put a lot of sellers on the market. Imagine people wanting to cash out of their homes to take advantage of a huge capital gains exception for homeowners (one of the last tax shelters for average Americans) and an inability for buyers to get large loans. Throw in a Fed reluctant to cut interest rates because of inflation and housing could get ugly.

Posted by: chris2x at August 11, 2007 3:38 PM
Comment #229030

Jim,

Universal health care will likely be much more efficient and humane than our insurance system today. Medicare is much more efficient than HMOs who take a huge cut for themselves. Workers won’t see a change as you suggest in their paychecks as many employers already provide insurance as a benefit and many employees are already paying a lot for ever rising insurance premiums. At least the middle-man will be cut out and administrative costs lowered. Toyota located a plant in Canada recently and not the U.S. in part because of the government health care system there and the costs that would entail.

Posted by: chris2x at August 11, 2007 3:50 PM
Comment #229031

BillS,

NIMBYs make me sick too. So many people lose their common decency and sense of fairness when they perceive their home values are threatened. Integrity goes out the window. There is a brand of old-school environmentalist who sees all urban growth as bad and density as somehow super bad. The Sierra Club in Santa Cruz opposed smart development of every infill parcel in the city limits of any density regardless of the merits of the project. They even opposed a much needed bicycle and pedestrian bridge over Arana Gulch because they said it would likely lead to a road for cars and more development which was a ridiculous charge. Mitigation for threatened species wouldn’t even be considered by them.

Any true environmentalist has to recognize keeping habitat and wilderness intact requires an urban solution, not living in a suburban ‘eco-village’ where one must drive to simply get a quart of milk.

Posted by: chris2x at August 11, 2007 4:01 PM
Comment #229035

Workers won’t see a change as you suggest in their paychecks as many employers already provide insurance as a benefit and many employees are already paying a lot for ever rising insurance premiums. Posted by: chris2x at August 11, 2007 03:50 PM

And in the same breath Cris2x, many on this site wonder why wages are stagnant. Does anyone really believe that the employer is paying for anything, or in reality just passing along the cost to the employee in the form of NO PAY INCREASE and layoffs! And, how many trillions of dollars is the unfunded liability of Medicare and Medicaid? Someone forgot to put the money in the lockbox.

Posted by: Jim at August 11, 2007 6:31 PM
Comment #229040

Frankly, low interest rates (will become even lower) and full employment (95.5%) will continue to make our economy hum. The housing bubble burst, like the Dot.com bubble burst, are merely markets correcting themselves after greed and stupidity run their course.
Posted by: Jim at August 11, 2007 01:01 PM

Actually Jim, when the dot com bubble burst, and more particularly after 9/11, interest rates were dropped to 1%, thus making money cheap. With cheap money, there was a scramble to buy assets on tick. Assets such as stocks, but more particularly houses. Cheap money led to massive asset inflation. Asset inflation, particularly people’s homes, led to a feel good factor, a sense of rising wealth. As people gained greater equity in their homes, they felt wealthier, and thus released equity from their homes on an ongoing basis to fund a higher standard of living than their incomes would allow. This is what kept the US economy going since the fallout of .com bust and 9/11; consumer spending.

With falling equity and the cost of credit rising, consumers will be dropping their spending dramatically, what you call a drop in consumer spending. This has to have an impact on the true economy, the only question is how bad it is going to be. Th music has now stopped, and the piper has to be paid. If the Fed drops interest rate again, it will have a further effect of raising inflation, even further eroding the spending power of consumers. It will also have the effect of further weakening the dollar, increasing the pressure of those holding dollars internationally to seek shelter in other currencies or baskets of currencies, giving rise to the possibility of the collapse of the dollar and the end of the dollar as the global reserve currency. We may very well be at the gates of economic Armageddon. And we will have a culture of living beyond means, particularly in the US, and the philosophy of endless war to feed the military industrial complex to thank for it.

Posted by: Paul in Euroland at August 11, 2007 7:51 PM
Comment #229043

Euro Paul

Hope you are wrong about the severity but another grim fact ,you touched on ,is that because of stupid tax cuts and an out of control federal spending binge,largely for defense,the federal government does not have the resorces to apply a major economic stimulus package at least without some truly drastic wealth re-distribution ie.raising the top brackets back to 90%+ etc.

Posted by: BillS at August 11, 2007 8:12 PM
Comment #229045

BillS, that 5.65 Trillion dollar national debt the Republicans inherited was directly off preceding Democratic Congress’. Democrats by their actions prior to 1994, demonstrated they had little concern for debt either. I applaud Clinton’s working with a split Congress (Republican and Democrat controlled) to reduce the debt in his last 18 months in office. But, let’s not forget, he was in office 96 months and the Republicans threatened his budget proposals for overspending.

Budgets have been a political weapon of both parties to attack each other without either taking responsibility for the growing debt unless it could score election points against the other party in an election year.

Don’t even try to pretend Democrats believe in fiscal responsibility. They have already exempted 11 BILLs in Congress this year from their very own Pay as you GO budget rule.

Posted by: David R. Remer at August 11, 2007 8:21 PM
Comment #229046

crisx2
Nimbys suck and most consider themselves progressives. There is nothing progressive about keeping working families from buying their own homes. Ever noticed that they do not fuss too much about rich people building their
‘gentleman farmer” estates.Guess we just HAVE to address the cronic shortage of housing for rich people.Sprawl is anybody elses nieghborhood.

Posted by: bills at August 11, 2007 8:21 PM
Comment #229047

Jim said: “Frankly, low interest rates (will become even lower)”

Now you are talking Republican economics. Only a Republican sympathizer would argue that increasing one’s debt should yield lower interest rates. Republicans increased our national debt by almost 50% in 6 years. It took this country 200 plus years to raise the debt to what Republicans inherited in 2001, 5.65 Trillion. Today it is about to turn 9 trillion and will be well over that when Bush leaves office still searching for that damned budget veto pen which Clinton stole from the Oval Office. :-)

Posted by: David R. Remer at August 11, 2007 8:27 PM
Comment #229048

Indeed Jim, someone did forget to put the money in the lockbox. Still, if U.S. treasuries aren’t very secure then we have much bigger problems.

Employers are balking at the increasing costs of health care. Many of them are asking employees to pay more, including public agencies. It is a real problem.

Are you arguing with yourself over there or something? You keep coming up with issues that somehow relate to the topic but you never quite state it. Wages have been relatively stagnant and it seems harder for many to make ends meet but you keep accusing us liberals of what, making things more expensive for the middle class?

Posted by: chris2x at August 11, 2007 8:53 PM
Comment #229050

DR
A big chunk of that debt was under Reagan with his psycotic defense spending. The Dem congress cut every one of his budgets.The Clinton economic plan was passed that yielded the surplus was passed in a Dem congress without ONE Rep vote. His goal was to get a handle on spending for the express purpose of allowing him to make selected investments in the future. His welfare reform plan called for additional in front expenses for things like training and childcare. That is what the Reps opposed and cut after they had taken congress.Sorry to disapoint you but there is one party more capable of fiscal wisdom than the other.

Posted by: BillS at August 11, 2007 9:51 PM
Comment #229056


From Truman through the Carter Administration, the national debt was insignificant. During the Reagan years, the national debt skyrocketed. Reagan claimed that his spending priorities and his tax cuts would stimulate the economy and bring in more tax revenue which would off set the debt (sound familiar). It didn’t happen.

During Bush I and the first Clinton term the debt continued to rise at the pace set by Reagan before tapering off somewhat during the second Clinton term.

During the Bush II Presidency, the debt has risen at a faster pace than even during Reagan. Bush has claimed that his tax cuts would stimulate the economy and bring in far more tax revenue which would offset the climbing debt. It’s not happening.

If we were to rank the presidents according to the debt accrued during their administrations, The only one keeping Reagan from being the worst is Bush II.

Posted by: jlw at August 11, 2007 11:15 PM
Comment #229075

jlw
I suspect the Bush 2 debt increase is intentional,unleashed to make it impossible for SS to be honored or other social programs like universal healthcare to be accomplished. Purely for idealogical reasons. Why else give tax cuts in the middle of a war?

Posted by: jlw at August 12, 2007 3:33 AM
Comment #229088

Jim-
Right now, you know what one of our biggest entitlement costs is, covered by those payroll taxes? Medicaid and Medicare. With universal healthcare, there would be no need for these.

The Middle Class is not suffering because of taxes. It’s suffering because corporations and employers are cheap on one side, in terms of wages and salaries, yet are charging more for many things, including healthcare, fuel, and food. Full employment is nice, but I think many of the markets are high on the basis of what are essentially fragile economic illusions. The deregulation of the past few decades has encouraged a speculation-rich situation where prices not only are pumped up by artificial artifices of commodity trading, but also by deliberate actions designed to artificially create shortages and raise prices.

Inevitably, something punctures the illusion, people take stock and not only do you get a correction, but also an over correction. These things don’t happen without consequence, and if the correction is profound enough, it will have permanent results.

As for people with mortgages? Why are you going out of the way to disrespect people who are taken in by these lenders? The Republicans and right-wingers generally seem to be in favor of everybody becoming distrustful, and trying to be financially savvy in everything they do. Yet our own finance committee, in discussing credit card bills almost uniformly said they couldn’t understand it!

It’s one thing to advise people to be cautious, to educate themselves and their children. But we have to realize that when somebody makes it their job to sell people on these things, and they aren’t legally required to be honest with people, you’re going to get a lot of people who are cheated despite their best efforts not to be.

We have to realize that most people don’t have the extra time and energy to become financial experts on top of everything else that’s asked of them in their profession. So inevitably, in a unrestrained situation, people get cheated, even folks who are very bright.

I think at this point, it’s counterproductive to hold back the government’s enforcement capability. I think it’s immoral to hold it back. People should be informed of the character of the commitment they’re making. Moreover, certain products and behaviors simply shouldn’t be allowed.

Posted by: Stephen Daugherty at August 12, 2007 11:08 AM
Comment #229091

I agree with Stephen on this one. Why should any national community allow three card trick men, shysters and assorted con artists to prey on the public? The average Joe or Jane will purchase a house only a handful of times in their lifetime. If I go to a doctor or attorney, I expect to be given advice that takes my circumstances into account. I expect to be warned of the pitfalls as well as the benefits of a particular course of action. I know that my lawyer has a duty to advise me in a thoroughly professional way. Same with my doc.

Why should mortgage agents or bankers be allowed to offer high risk products to consumers without clearly warning of the risks involved? In my country, such advice has to be recored on paper, and the reasons why such advice is deemed to be appropriate to the needs and circumstance of the particular client. This has to be signed by both the client and the vendor of the financial product. In the event that things go wrong, there is a clear record to refer to, to see if the vendor has in fact given appropriate and prudent advice. If he has not, then he and/or his company, will be liable for consequential loss. The Financial Regulator has the tools to stamp out such abuses. it is not rocket science. Further, before anyone is approved for a mortgage, they are stress tested, which means that an assumption will be made that rates rise 2% above current rates and the mortgage applicant affairs will be examined to see if they can withstand that extra burden. It’s time the greed driven predators were made to pay for the damage they do.

Posted by: Paul in Euroland at August 12, 2007 12:00 PM
Comment #229202

In suburban Chicago, the price of existing houses and condos is pretty reasonable, but the price of new homes and condos is ridiculous. The suburbs are full of smaller houses, many of which are sold as teardowns, and the property is used to build McMansions, using every square foot allowable by the local zoning. The people doing this usually have very small families, one or two children, the kind of family that lived in a 3 bedroom ranch in former times.

Posted by: ohrealy at August 13, 2007 11:17 AM
Comment #230232

Dear God, Sweet Jesus, Hell has frozen over. Stephen made a post without one bit of blow hard anti-bush, anti republican propaganda.

Stephen, go to a doctor. Go now. You may have had a stroke!

In the spirit of fair play, I will not discuss what a failure this present democrat congress has been and instead turn to Stephens post. But only because I know he never would have posted this if in his right mind.

My wife and I have one credit card. We pay that card in full, each month. We own both of our vehicles outright. Our house will be paid off in a few years. WE refinanced some time back to a low FIXED rate, did not take out any extra money. We own everything. We owe no one except what’s left on the house.

When we take a vacation…first off we don’t. Not unless the vacation savings account can pay for it. We put money into that account each month. So there you go, don’t take a vacation on VISA because they tell you “you’ve earned it”. You haven’t earned it unless the money is in the bank to pay for it.

We pay for Christmas in advance. At the end of the year we drain the Christmas account and shower family and friends with gifts that are paid for.

Our taxes are paid in full.

We get back a few grand every year from uncle sam because we overpay just so we can use Uncle as another forced savings account.

If you play it right, manage your money, you can do well. If not, pray the democrats are in power, they want to fund all the deadbrains that take on too much debt by taking more of mine and giving it to them.

Posted by: Stephen at August 22, 2007 5:50 AM
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