Credit Where Credit is Due

Easy access to mortgage credit is the foundation of the American dream of home ownership. Home ownership, and the commitments that go with it, have a salutary effect on individual behavior and a stabilizing one on society. 68.9% of Americans own their own homes, up from 65.7% ten years ago. Property ownership is the goose that lays golden eggs for America. We need to understand how to keep it healthy.

The first thing we need to recognize is that a mortgage is a loan that allows borrowers to buy an asset which generally produces returns greater than the costs - "good debt". It is almost impossible for someone who works for a living to build significant wealth w/o home ownership in the equation and few could afford to buy a home w/o borrowing. Median net worth is at an all time high and housing makes up about half of that. The median net worth of renter households is just $4,800, compared to $171,700 among homeowners. For starters, home ownership lets the borrower avoid paying rent. Beyond that, a mortgage tends to force savings and channel the borrower’s energies into creating equity.

People's attitudes about their homes and neighborhoods improve as they become homeowners. A community where most dwellings are owner occupied is usually safer, neater and more pleasant than one with mostly rentals even when the properties values and demographic characteristics are similar. People protect and care for what they own and they appreciate what they work for. That is why governments have a public policy interest in promoting home ownership through affordable loans.

The key words are loans and affordable. The government should help make loans affordable to make home ownership available to a larger number of Americans, but if the loan becomes too much like a gift it loses some of its motivating power. For most homebuyers, the mortgage tax deduction is sufficient incentive. It makes the government and homeowners partners with conditions. The government helps citizens own their own homes if and only if the citizens in question behave in a responsible manner.

Some people have had trouble getting their feet on the bottom rungs of the property ladder. The government has helped with VA and FHA loan programs and two private/public partnerships that have helped worthy low income families get a start are Fannie Mae & Freddie Mac. Their record over the last two generations has been a generally good one, however, like all good things that are too long protected from market forces, abuses have begun to creep in.

Fed Chief Ben Bernanke says, "The perception of government backing allows Fannie and Freddie to borrow in open capital markets at an interest rate only slightly above that paid by the U.S. Treasury and below that paid by other private participants in mortgage markets." Freddie and Fannie have used this advantage to buy up mortgage based securities (MBS), so that now these two firms leverage a total debt of $5.2 trillion in which is more than the entire $4.9 trillion in publicly held U.S. government debt.

Since Freddie and Fannie are to some extent creatures of the government, this is one case where stricter government regulation is appropriate. Bernanke suggests Congress give Fannie and Fred's regulator the power to limit MBS portfolios to those mortgages for households with below-median-incomes.

This is an excellent example of a good government program that has begun to enrich the few at the risk of the many. Such is often the case. As the WSJ writes, Socialism can be a great business for the lucky few who game the political system, but gambling $5.2 trillion on something as fundamental as home ownership is too risky a scheme and why help fat cats get fatter?

Posted by Jack at March 7, 2007 8:31 PM
Comments
Comment #210980

Jack, I work in the financial services industry, midwest. As a community based institution, we focus more on credit quality and character. Sometimes going beyond our own guidelines to help those that demonstrate they are committed to financial prudence. We continue to get payments on time, we see these individuals succesfully managing their payments. While we do sell mortgages to FNMA, we do keep two-thirds on our books.

I would point out that we say “no” to two mortgages for each one we approve. We have tighter credit standards than our bigger competitors. As I think most of the readers here know, consumers tend to manage totally monthly payments … not total debt. Can they afford the payments with their cash flow.

To your point, rates are affordable, responsible home buying is critical. Ensuring that you can afford the house in good times and bad. With utilities. We see predatory lenders pushing consumers towards ARMs, 40 year mortgages, and interest only mortgages. These products have a small niche, but are being pushed to those same indviduals that match their paycheck against their bills for the month.

Financial literacy is at an all time high, I hope it continues. Our financial institution provides local high schools with free sessions on credit reports, budgeting, and borrowing. We always have a full classroom.

Posted by: Edge at March 7, 2007 9:06 PM
Comment #210981

Homeownership, the American Dream. Problem is that it now take 2 incomes to purchase a home, and with the economy taking a dump here in Michigan, more houses are getting repossesed.
Homeownership here and probably soon in other states will become the american dream.
Oh I know a person who owned a house and sold it, moved into an apartment. No worries about property taxes, cleaning the sidewalk, cutting the grass. He actually is saving more money.

Posted by: KT at March 7, 2007 9:10 PM
Comment #210985

I have a difficult time believing that median household net worth for renters is only $4200 (half above that figure, half below). I can empty the change jar, turn up the pillows on the chairs and look under the seat of my paid off ‘92 Honda and find a significant amount of that total!! Also, in view of the number of households with more than one working member and the tremendous inflation that has occurred in housing prices over the last couple of decades, even the $171,000 figure for homeowners is a bit of a disappointment.
What is particularly distressing is that you are using the median net worth of ALL households. Those at the very top distort these figures sharply higher. I would not be surprised if a significant percentage of households, (perhaps ten percent plus??) actually have a zero or even negative net worth. What are the implications of that??

Posted by: charles Ross at March 7, 2007 9:38 PM
Comment #210992

It’s like playing Monopoly, except one player can print all the money they want.
Before long, they own everything, and everyone else is broke or deep in debt.
It’s the American way.

Posted by: d.a.n at March 7, 2007 10:16 PM
Comment #210993

Jack,

Of the increase in home ownership (65% to 68%) what is the ratio of reposessed and/or forclosed mortgages. How many have had to extend their loans or take out a second in order to keep their new home? Home ownership may be up, but far too many are not being satisfied with the ‘American Dream’, i.e., the little house with the white picket fence. Every time the median home price increases, so does banker/realtor ownership. I’m not sure how healthy that is.

Posted by: Marysdude at March 7, 2007 10:19 PM
Comment #210994

According to the link from the Federal Reserve, the median for ALL families was $93,100. Of course the average was much higher at $432,000.

I am not surprised some people have zero or negative net worth. I had a negative net worth until I was 35 years old because of student loans. I had a decent job and was not really bad off or suffering. It just took a little time to dig out.

As Edge says, cash flow is what counts. As some point, you get positive. Median net worth is at all time highs in real terms, so I do not think it is a particularly new or urgent problem.

Posted by: Jack at March 7, 2007 10:21 PM
Comment #210995

Nationwide foreclosures have been rising for a few years.
But, otherwise, everything is “very good”.

Posted by: d.a.n at March 7, 2007 10:22 PM
Comment #210996

The nation is has over $42 trillion in debt (nation-wide), but some say we are doin’ good.
Some say debt is with historical norms.
Some say unemployment is within historical norms.
Some say debt is within historical norms (but that’s not true).
Some say unemployment is within historical norms.
But a few cherry picked statistics won’t mean squat when 77 million baby boomers start demanding their Social Security and Medicare benefits.

Now, lets just estimate the cost for one year with 10,540 recipients becoming elibigle each day.
10,540 recipients per day x $9,000 of entitlements benefits per year per recipient x 365 days per year = $34.6 billion per year
Now consider that an additional 10,540 people are becoming eligible each day for 20 years.

That’s $34.6 billion per year more in benefits for only the first year (that’s in addition to benefits already being paid to pre-existing recipients).
That’s $69.2 billion per year more by the second year (doubled)
That’s $103.9 billion per year more by the third year.
That’s $138.4 billion per year more by the fourth year.
That’s $173.0 billion per year more by the fifth year.
That’s $207.0 billion per year more by the sixth year.
… … … … … … … … …
… … … … … … … … …
That’s $346 billion per year more by the tenth year.
That’s $692 billion per year more by the twentieth year, if the 77 million baby boomers all live at least 20 years longer.
And all that is in addition to those already receiving benefits in the first year.
Many will not live to the end of that 20 year period, but many will, and some will live beyond that.
That does not even address the looming Medicare shortages.

Currently, about 45 million people receive Social Security and Medicare benefits.
That could climb to 68 million people in 6 years (45 million + (10,540 x 365 x 6 years)).
It’s not a pretty picture.

Posted by: d.a.n at March 7, 2007 10:31 PM
Comment #210997

d.a.n. & Marys

Forclosures may be up, but more Americans own their homes anyway, so the net effect has not been pernicious.

I can always count on you guys to object to any piece of good news and find the dark cloud around any silver lining. If Jesus came to earth, you guys would notice the holes in his feet.

I know, life sucks for you all. There are two kinds of wrong standards: those that are so low they mean nothing and those that are so high they never can be met.

Posted by: Jack at March 7, 2007 10:36 PM
Comment #210998

No, they don’t own them.
They own huge mortgages.
Their things own them.

Posted by: d.a.n at March 7, 2007 10:37 PM
Comment #210999

Jack wrote:
I know, life sucks for you all.
Jack, I own my own home free and clear.
I also own 30 acres and a 3000 square foot cabin in the mountains.
When I write about things, it doesn’t apply to me.
I’m an engineer, and so is my wife.
We’re not poor, and we’re not rich, but we’re not your average American.
Yeah, yeah, … right, our poor are the richest poor on the planet.
I just don’t see how you can keep saying things are so wonderful.
They’re not.
They’re not terrible, but we’re on that path.
Perpetually saying all is well ignores the pressing problems facing the nation.
We are not invincible.
You’ve studied Roman history.
What happened to them?
Here’s what happened.
If you don’t learn from history in time, you will be history.
History shows us this over and over.
Yet, some are still painting rosy pictures, despite all the signs saying things are not rosy.

Posted by: d.a.n at March 7, 2007 10:44 PM
Comment #211003

d.a.n.

The Roman Empire lasted about 500 years in the west, endured another 1000 years in the east and still influences our concepts of government, religion & law. Not so bad, really. The Roman analogies do not really work.

Things are not perfect. I have often mentioned the looming entitlement crisis. But, as I wrote just above, a realistic assessment is not fooled by being overly pessimistic or overly optimistic. Compared with previous years, American median net worth is at an all time high. This is a good thing. Almost 70% of Americans own their homes. They owe money on them too, but we get back to that net worth thing. Their debt in relation to equity is at an all time low.

Has there ever been a time in American history (or the history of the world) that you thought was good?

Posted by: Jack at March 7, 2007 10:59 PM
Comment #211006

Jack,
The Roman Empire was under constant attack.
The Roman Empire suffered from its own decadence.
Things happened more slowyly then.

Has there ever been a good time.
Absolutely.
But is isn’t now.
Now is propped up by massive debt, borrowing, wasteful spending, and excessive money printing.
Now is not as rosy as some want to portray it.
I expect in a year or two, the Democrats will be singing the same song.
It’s all in spite of the math and history that says otherwise.

Posted by: d.a.n at March 7, 2007 11:07 PM
Comment #211008

Jack, I am skeptical of your percentage of All Americans who own their own homes.

First, I question the percentage. I don’t think there are that many homes in America.

Second, I question your use of the word “own”. Most Americans DO NOT own their homes, the mortgage company and insurance companies do, most Americans just live in them.

If even half of Americans truly OWNED their homes, our economy would be in far superior shape today and down the road than it is.

Home CO-ownership with banks and lenders is good for Americans in that living in a home as opposed to an apartment, trailer, or TeePee, affords a greater degree and sense of security, both physical, and financial if they can build equity and refrain from using it to pay down credit card debt.

Refi’s to consolidate debt does not create net asset wealth for homeowners - unlike the lenders and their investors. And the Refi market has been on a tear this last decade, accounting for our current NEGATIVE savings rate (debt exceeds assets). No wonder investors are leery and worried about the sub-prime lending market.

Posted by: David R. Remer at March 7, 2007 11:21 PM
Comment #211011

David

The figures come from the commerce dept. Re not owning, that is not a new situation. Net worth is all time high. People own as much or more than ever. Most “homeowners” do not really own their homes free and clear and they never did. But they have equity.

The saving rate does not mean debt exceeds assets. In fact, the median household has $93,100 more in assets than they have in liabilities and in inflation adjusted dollars this is more than ever.

d.a.n.

When was that good time? The two best 5 year periods in U.S. history are 2002-now and 1995-2000. We got to live through both.

Posted by: Jack at March 7, 2007 11:50 PM
Comment #211020

Jack,

If Jesus came to earth, you guys would notice the holes in his feet.

What!?! Do you mean nobody will have given him shoes? Not even Nike?
What happened to marketing these days!?

:-p

Posted by: Philippe Houdoin at March 8, 2007 5:04 AM
Comment #211025

Jack,

I’m as positive toward your views as you are toward mine.

I live my life in a positive way, but…I don’t buy pigs in a poke nor believe in pie in the sky.

I don’t feel as comfortable now as I did in the fifties, seventies or nintys, because I could see better things ahead. Sorry, but ahead seems pretty foggy right now.

Positive is a relative term.

Posted by: Marysdude at March 8, 2007 8:16 AM
Comment #211028

Marys

Every generation thinks it faces the worst challenges and look back to some golden age when things were better. We had such tough times. The Depression was hard. In 1935 or 1947, you could reasonably fear the world was heading toward toward destruction and fascism/communism. During the 1970s, when the post-war arrangements were coming apart, you might fear long term ecnomic stagnation (Carter malaise). Even during the early 1980s you might reasonably fear a nuclear war.

These times are pretty good in comparison. The problem we have is entitlements. We have seen tha coming a long time, but nobody will address it, frankly, because it still is not a problem. Many looming problems have a way of not being so bad when they actually arrive, as people adapt. When entitlements really starts to pinch, I expect we will adapt too. It is lucky that we are in such a strong position to do it.

Yes positive is always a relative term. Relative to other times, we are much better off.

BTW - how did you ever feel comfortable in the 1970s with stagflation, malaise, etc?

Posted by: Jack at March 8, 2007 8:51 AM
Comment #211029

For all the homeowners, you never own your home. Don’t pay the taxes on it and guess what, the government takes it away.
So owning a home is just a dream(nightmare at times).

Posted by: KT at March 8, 2007 9:18 AM
Comment #211039

Jack,

Your refusal to acknowledge the debt as a serious problem this country must address is, as always, infuriating. I am sure if you were in Rome, and there were barbarians at the gate, you would say “There have always been barbarians. You can never remove barbarians. Some people always want to talk about barbarians”, etc. Your idea is great, but practically if will probably have to wait until this government has some money.

As a side note. There’s a very interesting program being used in developing countries called “microcredit”. Essentially, it’s a bank that gives out small loans to folks who are “pre-bankable”. It requires some trust on the bank’s part that the money will be paid back, but the amounts are small, and its been shown to be very effective at fighting poverty.

More here for those intersted: http://en.wikipedia.org/wiki/Microcredit

Posted by: Max at March 8, 2007 10:47 AM
Comment #211042

Did everyone catch that reply to Marysdude by Jack.

Clever trick. Anytime anyone casts a pall on Republican’s rosy economic scenarios, as Jack did, they attribute such skepticism or pessimism to psychology of the skeptic or pessimist.

This is the same as saying anytime you feel uncomfortable about what we tell you, trust us, not your feelings, trust our facts and don’t trust those of others. For Jack, pessimism and skepticism have always been entertained by some, therefore ignore them. Could not the same argument be made for hope and optimism?

Sorry, Jack, but debt is debt and negative savings rate is something you obviously know nothing about. I refer you to THIS:

The government reported last week that consumers last year spent all they earned and then some, pushing the personal savings rate into negative territory at minus 0.5 percent.

You may want to check such facts before pontificating that others are wrong when they venture forth economic data and statistics and trends. When Americans spend more than they earn, they create net debt, and a negative savings rate. This is definitional.

Enron spent more than it earned too. Such action has consequences if persisted in, and none of the good. Our savings rate went negative in 1995 and has continued to reoccur and is now becoming a trend.

Posted by: David R. Remer at March 8, 2007 11:30 AM
Comment #211047

“net worth is at an all time high”.

“The median net worth of renter households is $4800”.

Do you mean to tell us, Jack, that things were worse before?

It’s nine in the morning here. I think I’ll go have a drink.

Posted by: Charles Ross at March 8, 2007 12:06 PM
Comment #211049

Jack,

I don’t suppose you have been keeping track of the blowup in the subprime mortgage market, have you? Starting late last year, there have been subprime lenders that have found themselves in financial distress, bankruptcy, and under investigation due to doing exactly what you are advocating here- giving mortgages to people whose credit is downright awful and who shouldn’t be able to get a loan at all.

I suggest you check out Calculated Risk to get yourself up to speed on exactly what is happening in the housing and mortgage markets. His analysis is quality, and i think after you see the credit blowup in subprime you’ll be a little taken aback given what you wrote above.

Posted by: Dizzle at March 8, 2007 12:12 PM
Comment #211052

FORECLOSURES UP BIG IN DECEMBER

Posted by: Rachel at March 8, 2007 12:50 PM
Comment #211053
Problem is that it now take 2 incomes to purchase a home

Actually, it doesn’t. BUT, if you want a nicer house in a better neighborhood, well then it might. It depends if you choose to live beyond your means or not.

When I was looking for a house years ago I was told by a mortgage counselor that I could borrow (actually, told I could ‘afford’) a house that was 3 times my annual salary. I laughed and said that the payments on that house would leave me with almost nothing to live on after I paid my mortgate. I ended up purchasing a house below my annual salary. My wife doesn’t work, I have a mortgage payment that is realistic and while the house isn’t in a new addition with a homeowner’s association, I find that it suits my NEEDS just find and I can focus on planning for retirement and saving up for a better house down the road.

Too many people think they need the best and are told that they can have it, they just need a little bit of ‘credit’… They just don’t understand the full cost of what they are paying for and no one is educating them, our schools have long since given up trying to teach money management to our kids…

Posted by: Rhinehold at March 8, 2007 12:53 PM
Comment #211061

I have, perhaps, a distorted view of what it costs to own a home, having grown up in San Francisco, lived in Tucson, Az. and now in Portland, Oregon; all places where it has become extremely expensive to own a home. Here is Portland, which is the most inexpensive of West Coast cities as far a housing, it would be just about impossible, on one income, to purchase a home with a standard 80/20 loan and keep the payments within the %28 limit of gross income recommended by mortgage lenders. (that’s %28 going to TOTAL housing costs) Median incomes here in Portland, that’s personal not household, are not anywhere near being able to accomplish this.
In an earlier Blog, the issue was brought up of what homes cost in South Georgia and I disputed the notion that one could buy a rural home of any substance for under $50,000. Apparently it is doable. I’m not sure of the benefit of owning housing in an area that has little chance of appreciating in value.
Note the median net worth listed above. It is very low. I’m not sure that even if the issue of affordability was overcome that people would have even the funds for a reasonable down payment.

Posted by: charles Ross at March 8, 2007 1:17 PM
Comment #211063

Well, for example, I live in Indianapolis. My house cost $55,000 when I purchased it in 2000. It is a 2 bedroom house with a full basement, 2 car detached garage and on a dead-end street. The house is probably now worth about $65-75,000 mainly from work I’ve done on it and the market going up a little bit in that time.

There are houses in Indy that you can get for

The point is, why on earth would you want to live in an area where you can not make enough to pay for your housing? Is living in San Francisco really worth all that, putting yourself in unreasonable debt just to own a house there compared to Indianapolis which is a really nice place to live (at least I think so)?

Perhaps it is people’s perspectives that are skewed and not the economies…

Posted by: Rhinehold at March 8, 2007 1:34 PM
Comment #211065

Jack,

Yes, some statistics look good at the moment, but those good statistics are only possible by heaping up massive debt that will have to be dealt with later.

It’s easy to look good until all your credit cards are maxed out.

Home equity won’t mean a lot in the next recession when foreclosures spike higher (as they always do), eroding some of the home equity.
Already, for some reason, foreclosures have been high for the past few years. And look at the percentage of foreclosures to all loans since 1978. Foreclosures in 2006 surpased 1.2 million (up 43% from 2005).

And January 2007 started out with 130,511 foreclosures. So, not all statistics are rosy.

Posted by: d.a.n at March 8, 2007 1:43 PM
Comment #211068


More Mortages own their own humans than ever before.

Posted by: jlw at March 8, 2007 2:02 PM
Comment #211069

I don’t believe that most debt is good. Even if it is a mortgage. The only good debt is one that returns more than you pay. And you aint gonna get that with a mortgage.
Buy the time you pay off a 30 year $80,000 mortgage your paying somewhere close to $180,000 for your property. If ya and sell it at the end of the 30 years will you get more than $180,000 for it? If so it was good debt. But most the time you’ll find that while the value of your property ha gone up it’s not near what you paid just in interest. How is that good debt?
I’m all for home ownership and wish everyone owned the home they live in. Home ownership does have a positive effect on neighborhoods. Folks will take better care of something they own than something they rent. And I believe it’s good for the economy too. And I know most folks need to barrow the money to buy a home. I’m not against them doing this. And they will get more of a return on their investment than going in debt to buy a car or TV. Or on their credit cards.
But claiming that the debt incurred on a mortgage is good is stretching it a bit far. Debt is never good unless you can get back more than you’ve spent. And very few get back more for their property than they paid.
BTW, I heard on the news the other day that mortgage lenders are starting to tighten up on who they lend to.

Posted by: Ron Brown at March 8, 2007 2:32 PM
Comment #211080

Jack,

You asked how I could feel positive about the stagflation seventies?

That’s not what I said. I said I felt more positive toward the future during the fifties, seventies and ninetys. Everyone knows there will be periods of down time in the economy. But, there were good signs, i.e., possible peace in the middle east, lessening of tension with the USSR, etc. I felt better about the future, because there seemed to be one…wherein, now??? Just how far into the dump do we have to fall before the facade gives way and reality sets in?

Internationally we are treated as a pariah, not the strongest nation on earth

Economically we are so many trillions in debt we will soon have to jettison the Social Security System and Medicade, just to keep our heads above water

etc etc etc

Posted by: Marysdude at March 8, 2007 4:21 PM
Comment #211084

Ron, most financial advisors distinguish between types of debt, appreciable debt and consumer debt. Buying a home with borrowed money is most usually a good thing to do when all is factored into it: cost of renting, tax benefits given to home buyers, reliable long-term appreciation rates. As many dentist, Danny “I’ll take the tooth out for less” Sullivan used to say: “Charley, If you want to make a million, find a way to borrow a million”!
As far a living on the expensive west coast, it is what I’m used to.

Posted by: charles Ross at March 8, 2007 4:57 PM
Comment #211096

David

I am sure you know that net worth is the assets minus liabilities. If your net worth is growing, you are getting richer. If you your net worth is shrinking, you are getting poorer. Our national net worth and the median net worth of our citizens is growing.

Actually, like everyone else, I cannot predict the macro economy. I just know that since I could read about the economy, people have been predicting the end of the free market. When I read back, I see the same predictions made 50, 100, 200 years ago. The system does not work in theory, but does well in practice.

It is equally wrong to be too pessimistic and too optimistic.

Charles

Nearly 70% of Americans own their homes. Their median net worth is much higher. Non home owners are usually the younger and poorer people. It is no surprise their net worth is low, since it includes some with negative net worths.

Dizzle

We always have the dilemma of lending to people who are too poor or too irresolute to pay the money back. Should we deny them credit? Probably sometimes.

Charles

Rhinehold is right about where you live. People perhaps should consider more their salaries in relation to incomes. You can often live comfortably in the south or the midwest. It tends to even out after a while.

Posted by: Jack at March 8, 2007 5:50 PM
Comment #211099

Jack, the consumer retail numbers this week says it all about net worth. High End retailers like Gucci and Nordstrom are doing great in sales. Low End retailers have not met their numbers for 4 months in a row. The net worth increases you speak of are occuring at the wealthy end of our population. The middle and lower end are getting cash strapped, resulting in softer sales at lower end retailers.

Now credit is tightening at the consumer level, and working folks are spending more than they are earning, which means they are going further into debt. Consumer debt continues to rise, trade debt keeps creating new highs, as does our nation debt.

That means this country is digging itself deeper and deeper into debt in the attempt to maintain appearances of doing well financially. If I max’d out my credit limits, I could make myself look as rich as Donald Trump for about a month. But the underlying economics of my situation would be precarious in the extreme unless Donald Trump or the Lottery decided to help me out when the bills came due for the chaffeurs, stretch limos, lobster/caviar dinners, and Gucci shoes.

The appearances are being maintained for the moment. But as Greenspan, Bernanke, Paulson, and a host of others have been saying ever more emphatically, we are increasingly unprepared to meet the creditors when unfunded obligations come due. The negative savings rate is a telling symptom of this reality.

As mortgage defaults continue to rise, just who are going to buy up these middle class homes? Illegal aliens. Think again. The markets are getting soft, which is why Greenspan is saying there is now a 33% chance of heading into recession in the next year.

Posted by: David R. Remer at March 8, 2007 6:15 PM
Comment #211105

David

Median. At least half of the people are doing okay.

And with credit tightening, won’t that produce the lower debt you advocate?

Posted by: Jack at March 8, 2007 7:02 PM
Comment #211106

Jack, what it will produce is more foreclosures and bankruptcies. It wipes debt off the books, for sure. But, is not the preferred method.

Using debt to float debt, invented by corporate America, has become a strategy of the working person confronted with huge medical bills, a dead vehicle requiring replacement, or a change of jobs resulting in lower income, assisted of course, by the sub-prime lending industry.

It is a part of why the sub-prime lending industry is in trouble.

Posted by: David R. Remer at March 8, 2007 7:16 PM
Comment #211117

So David - if they do not get to have debt, what should they do?

I bet more are floating debt to pay for cars they do not need, vactations they cannot afford or clothes they don’t wear.

Posted by: Jack at March 8, 2007 8:13 PM
Comment #211124

Jack
You are just not looking around. There are hard working people struggling that should not be. Just for R& D get on the early bus.There are plenty of decent folks that are not getting the promised opportunity that is our country’s greatest potential strength. That appears to be the great fault of many conservatives. If it not happening to them or those they know it is dismissed. Expand.

Posted by: BillS at March 8, 2007 8:49 PM
Comment #211131

BillS

Median net worth is at an all time high. The means that at least half of the American population has a higher net worth than ever before.

Most people are getting the promised opportunity. Getting an opportunity does not guarentee success. We talk about life, liberty and the pursuit of happiness, not necessarily the achievement.

I am sure some hard working people are struggling, as they are always and everywhere. But the nature of that struggle is changing as general living standards have risen.

If you look at the original article, I am talking about ways to extend affordable mortgages to the worthy poor and protecting the system. We can decry the fact that some people are relatively poorer than others, but what really should we do about it?

Posted by: Jack at March 8, 2007 9:44 PM
Comment #211133

Jack,
Your net worth may be great now but if home values drop as they appear to be doing here in Southern Oregon. (This is due to home values doubling in the past 7-10 years) Your net worth will also fall even though you still have this wonderful home. Your home is only worth what someone will pay for it. I couldn’t sell my home 2 years ago for “fair” market value. Luckily I make enough money that I can rent it for a “loss” for a couple of years until I am not so upside down then sell it for what I can get. So at this time I rent an appt. partly because I am unwilling to pay what they are asking for homes around here (Portland is cheaper then here). So even though I have seen an increase in pay of $2.50 hr. over the last 2 years I am no better off then I was 2 years ago. The cost of everything has gone up and I had to replace my vehicle unexpectedly. The 800 pound gurilla no one is really talking about right now is insurance. As the number of insured keeps dropping in this country we are headed for a huge crash. 1 good medical problem will wipe everything you have out and haunt your for nearly a decade. This and the repbulicans passed a bankruptsy bill that protects the creditors from their bad lending habbits.

Posted by: timesend at March 8, 2007 10:08 PM
Comment #211146
The cost of everything has gone up …
Yep. Yet, few are aware of the inflationist practices and the nefarious reasons for it.

That’s what excessive money-printing (inflation over 1%) does.
It especially hammers the poor and older folks on fixed incomes.
The government does it to shrink debt, and they don’t care that it erodes your hard earned savings.

Government is increasingly irresponsible (fiscally and morally), but too many voters keep rewarding them for it by donating billion$ to fill their campaign war chests, and by repeatedly re-electing them.

It’s true that some statistics look good at this very moment, but it’s only because of massive debt, borrowing, spending, and excessive money-printing. And to boot, Do-Nothing Congress gave itself a raise 8 times between 1997 and 2006.

Posted by: d.a.n at March 8, 2007 11:36 PM
Comment #211168

Well, Jack, thank you for such a typical Republican response. I tell you of facts of how huge medical bills, no insurance, dead vehicle replacement, etc. is hurting Americans carrying debt, and you reply with your guess:

“I bet more are floating debt to pay for cars they do not need, vactations they cannot afford or clothes they don’t wear.”

As if to say, what is really important is to stop the poor from living above their means and station in life according to Republicans.

Thank you for that candor. This clearly delineates the priorities of many Republicans and everyone else. Many republicans worry about some poorer folks living above their station, while everyone else is concerned about working Americans losing what they have worked so hard for. Pretty well defines why America has lost confidence in Republican’s agendas and priorities.

Posted by: David R. Remer at March 9, 2007 9:49 AM
Comment #211170

David,

Common sense tells me that if those people weren’t floating debt for unnecessary items, they would be more able to affore the basics of life.

Posted by: tomd at March 9, 2007 9:53 AM
Comment #211177

tomd,

If ifs were skiffs, we’d be up to our as in row boats.

If Unions had behaved themseves, we’d still have some manufacturing…

If manufacturers had behaved themselves and stayed in America, we’d still have decent jobs…

If big box stores weren’t so greedy, we would be buying American instead of Chinese…

If George Bush was an honest man, we wouldn’t be warring in Iraq…

Consumers are consumers. If you offer them a way to be more comfortable, they’ll take advantage of it, even if it makes their future look more bleak. And, many won’t be able to see the future because bankers, insurers, admen, etc., will cover their eyes so they cannot see.

Posted by: Marysdude at March 9, 2007 10:38 AM
Comment #211181

Marysdude,

So we should just give them all a blank check and provide for them from cradle to grave?

Posted by: tomd at March 9, 2007 11:00 AM
Comment #211203

David

Please also see the response to Marysdude. We still have a problem with people living beyond their means. My observation is that it is only rarely caused by those unpredictable catastrophes you mention. I have a good job. But I notice most of the people around me - many of whom make significantly less - have bigger cars, fancier furniture and more luxurious vacations. It is the choice they make. I suppose you could stop them from doing it by tightening credit. Otherwise, my Republican response is to let them do it and suffer the consequences. The smart ones will learn from their mistakes (as I did earlier in my life). What would be your alternative?

Marys

We manufacture more in America than ever before and manufacturing is a bigger share of GDP than it was 15 years ago. Two things have happened. One is automation has eliminated many manufacturing jobs. A process that used to require dozens of men now requires a couple. So manufacturing jobs have declines, not manufacturing. The other thing is consumption. We Americans consume more than we make. That is a problem, but one that cannot be solved w/o either making consumption more expensive or cutting credit. Do you know of another option?

Posted by: Jack at March 9, 2007 2:20 PM
Comment #211220

I just remember Bush telling us all, as a response to 9/11, to go shopping…

Posted by: Rachel at March 9, 2007 4:19 PM
Comment #211224

….and Mr. Bush never told us to stop shopping.

Posted by: Rachel at March 9, 2007 4:43 PM
Comment #211235

… and we haven’t

Posted by: Jack at March 9, 2007 5:18 PM
Comment #211267

Jack:

Glad you finally agree that Bush is responsible for the debt in this country…maybe you could write him and tell him to tell the rest of us to stop shopping.

Posted by: Rachel at March 9, 2007 8:25 PM
Comment #211269

Rachel

When did this spending start and who is doing it? How much do the people listen to Bush anyway?

Posted by: Jack at March 9, 2007 8:38 PM
Comment #211309

Jack…you seem to have lost your sense of humor…but then, nothing about Bush is humorous, is it.

Posted by: Rachel at March 10, 2007 8:56 AM
Comment #211311

Rachel

People in America spend too much. It is a bad situation. Because of their bad habits, many peolple feel strapped finanicially and over time they do not build equity. Then the rest of us have to take care of them. This happens; but we should not accept that they blame any politician for their bad habits.

I know 50-year-old people who still blame their parents for their lack of … you name it.

It is true that we are bombarded by tempations. The broad road that leads to perdition is easy to find and looks pleasant, while the way to doing the right thing is rocky and steep. This is true in both spiritual and material life.

You may be able to blame Bush for the direction of the country, but if you are personally unhappy, it is up to you.

Posted by: Jack at March 10, 2007 9:12 AM
Comment #211372

charles
I’m with ya. A mortgage is preferable to renting. At least after you pay off the mortgage you have something to show for the money ya spent other than a stack of rent receipts.

Posted by: Ron Brown at March 10, 2007 5:33 PM
Comment #211401

Jack…but of course, you never spend too much…it’s just “those” people who do…just like “those” people are irresponsible, and “those” people support terrorism, and “those” people want to kill our way of life, and “those” people aren’t moral, and “those” people…it’s always “those” people, isn’t it…

Posted by: Rachel at March 10, 2007 9:13 PM
Comment #211409

Rachel

I sometimes spend too much and then I suffer for it. Usually I do not. Yes, some people cannot properly handle their money and their credit. Is that a surprise to you?

Posted by: Jack at March 10, 2007 10:04 PM
Comment #211461

Jack:

Seen the price of gas and fresh produce recently…if you buy either one, you’re automatically spending “too much”…

Posted by: Rachel at March 11, 2007 10:19 AM
Comment #211469

Rachel

Yesterday I got 5lbs of potatoes for $1.49. You can often get gala apples for about $1 a pound. We pay less for food as a % of our incomes than our parents did and less than residents of most other developed countries.

Gas is less in inflation adjusted dollars than it was in 1980. Besides the price of gas need to be higher to encourage conservation and alternatives.

As I wrote in the original article, more Americans own their own homes and we have a higher median net worth than ever before. Some people have trouble no matter what the situation. I have advocated methods to help those who will work. What else do you advocate?

Posted by: Jack at March 11, 2007 12:49 PM
Comment #211490

Oranges run about $1 a piece since the “big freeze”…gas prices which were $2.13 just a couple weeks ago are now $2.46 to $2.55 a gallon…potatoes are a starch…try buying green vegetables…

More people owning their houses than ever before is one of those “fake” good-feeling statistics…that number has always gone up every year (with the exception of the Great Depression)…

Higher median net worth? Right…factor in some inflation and the negative savings rate and houses that aren’t selling after a year on the market…

Posted by: Rachel at March 11, 2007 5:21 PM
Comment #211500
Median net worth is at an all time high. The means that at least half of the American population has a higher net worth than ever before.
Jack, A large part of that so-called net worth is in over-priced real-estate, which won’t be worth as much in the next economic downturn. When that happens, you can watch that so-called net worth plummet like it always does. Now, if more people owned their homes clear of any debt, your argument might have some teeth. But, since they don’t own their property clear of any debt, and people are also deeper in debt ($22 trillion federal debt and $20 trillion nation-wide personal debt), the situation is more dire than many times in the past. There will be painful consequences for so much decades of so much fiscal irresponsibility. But what caused this real-estate bubble? It was a result of the stock-market bust in 1999. People lost trillions in the stock markets. So, they fled to real-estate. Real-estate prices started to climb hihger (ridiculously hihg in some areas), creating yet another bubble. Now, that bubble is bursting, and people are returning to the stock market. However, that is merely creating anohter bubble. A large part of the reason for these bubbles is the incessant inflation, which keeps people running around like chickens with their head cut off, looking for someplace to stop the erosion of their hard earned income. It’s like squeezing a balloon. Anywhere the balloon is squeezed, it merely shifts the volume (i.e. problems) to somewhere else.
  • Posted by: d.a.n at March 11, 2007 6:53 PM
    Comment #211512

    Rachel

    If home ownership goes up, it is good. It is not a fake statistic. I suppose it will stop going up sometime, since not everybody even wants to own a home, but not yet.

    What exactly is your complaint? Making a living is always a challenge to most people and we have to make choices about things we want.

    You can also make substitutions. If oranges are impacted by cold weather, eat apples.

    BTW - potatoes are a very good basic food. I lived mostly off potatoes, beans,cabbage & whatever fruit was cheap when I was in grad school. Eating boring food is a good way to lose weight.

    d.a.n.

    Economics is pretty much a history of booms, bubbles and busts, but we make progress each time. Remember the last real estate crash back in the late 1980s. Everyone feared and made dire predictions. I bet most people do not even remember it happened.

    Your inflation chart is interesting, but not much use. We are so much better off today than we were when we had that gold standard, maybe inflation is not so bad. Actually, an inflation of a couple percentage points a year is probably a good thing.

    Posted by: Jack at March 11, 2007 10:55 PM
    Comment #211536

    Jack:

    Eating a bad diet makes for bad health…families do not even have a chance at buying fresh produce…it’s just too darned expensive…and no doubt you’ll be among the first to contend that families with bad health aren’t choosing to eat right!

    Grad school “poverty” doesn’t even begin to compare with a working family’s poverty…yours was a personal choice…

    Posted by: Rachel at March 12, 2007 10:02 AM
    Comment #211564

    Rachel

    It was not a choice in the big sense. I really did not have much money, since I was paying tuition and not working steady.

    Working families (and everybody else) must make choices. Nobody can have all they want. We are a prosperous people by any measurment. I ask again, what would you propose we do? We already make it easier to buy a home (around 70% of Americans are home owners). We make it easier to go to school (more than half of 18-22 year olds are in some kind of higher education or training). Some people are doing better than others. I spent seven years in poverty. I know you discount that because I chose to go to college, but maybe that is exactly the point. It was a good choice.

    Posted by: Jack at March 12, 2007 1:46 PM
    Comment #211590

    Jack…grad school was a choice YOU made…you could’ve found a full-time job, yet you decided that living in near poverty while continuing your education was what you wanted and were able to do…most people don’t have that choice to make.

    People make choices with the information they have at hand and with the values with which they’ve been imbued…stop pointing out “they made a bad choice”…you are the one perceiving it was a bad choice, but you don’t know the parameters that precipitated their choice…

    And it’s always “us” against “them”…just stop finally…I hope sometime you walk a million miles in “their” shoes…

    Posted by: Rachel at March 12, 2007 3:18 PM
    Comment #211623

    Rachel

    For the fifth time - what do you propose to DO? People have choices and they make them. Some work out better than others.

    My going to college choice was one most people could have made. I paid tuition by working at places like McDonalds and eating those potatoes I mentioned. Those options are open to most. Certain things followed from those choices. Not all good.

    You can equalize outcomes only by limiting choices. Then you have to assume that your judgement - pr the government’s judgement - is better. When I was going to school, many people indeed thought I was making a stupid decision. Some still think so.

    We have a diverse society where people make a variety of choices. This is a good thing. Choice produces a diversity of outcomes. This is a good thing generally, but sometimes not.

    What do you propose to DO about it? I understand you feel sympathy. You passed PC test. Now move on to the next step.

    Posted by: Jack at March 12, 2007 6:16 PM
    Comment #211898

    I know it’s too late for anyone to see this and relate it to Jack’s essay, but here it is anyway…

    http://www.washingtonpost.com/wp-dyn/content/article/2007/03/13/AR2007031300505.html

    Posted by: Marysdude at March 14, 2007 8:11 AM
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