Jess Bachman, who did the terrific centerfold graphic for Bailout Nation, has another killer graphic: The Descent into Credit Card Debt
It loses something here — click thru to see it in full size:
click for ginormous skyscraper graphic
Source: Mint
Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data, ability to repeat discredited memes, and lack of respect for scientific knowledge. Also, be sure to create straw men and argue against things I have neither said nor even implied. Any irrelevancies you can mention will also be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.
"Overall household indebtedness is up from $7 trillion to almost $10 trillion since 2000. On this sum, we estimate, the American consumer has an annual interest bill of more than $500 billion; a sum, by the way, that vastly exceeds his current income growth." —Kurt Richebacher
"The Greek offer is not sufficient and they have to go away to come up with a revised plan," said a spokesman for the German Finance Ministry. The Greeks must first have a plan that satisfies the Germans which this comment states they clearly don't yet and then the Greek Parliament will vote on it this weekend. This said, whatever package gets voted on in Greece is basically an up or down vote on euro membership so we are entering another uncertain weekend for global markets. A failed vote will likely lead to a hard default which may be what...
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June 27th, 2009 at 5:48 pm
Ritholtz, I like all the different areas those guys are getting nailed at – in the head, into the crotch, across the spine – and how they are going straight to hell after they die. And I like how you call it a “killer graphic”. Very subtle.
I was waiting for Mark Hoffer to provide data for your duel on CRA on the earlier thread, http://www.ritholtz.com/blog/2009/06/most-subprime-lenders-werent-covered-by-cra/#comments, but I think I am recovered now from my run earlier today and last night, so I am out. Why do you always bring up such contentious subjects like CRA, Ritholtz? It’s summer.
June 27th, 2009 at 5:52 pm
I dont believe CCs are inherently bad. I feel there’s a major problem with todays mentality: my credit card is my emergency money.
If you live check to check, but ‘pay the credit card in full every month’ then yea, you’re gonna risk falling into the abyss. But for those who live below their means, have cash in the bank, I dont think a CC is a problem.
Last month we had a rough month of unexpected costs: $650 vet bill; $400 car1 servicing; $300 car2 servicing; $800 car1 new tires. An unexpected $2k in a span of about 4 days. I put it all on the CC with the rewards.
Then pulled the money from my SAVINGS to pay it off.
June 27th, 2009 at 6:28 pm
@dafox
Credit cards are a symptom of the real problem, which is the maldistribution of wealth in America. Corporate profits and worker productivity have skyrocketed, and inflation in basic expenses such as health care is in the double digits. Wages, however, have been falling for many years now.
In the absence of strong unions to obtain fair wages, many Americans have had to rely on credit in various forms.
http://www.nytimes.com/2006/08/28/business/28wages.html
June 27th, 2009 at 6:38 pm
man- this graphic is longer than the old Jim Morrison posters hung on everyone’s doors back in the 70′s-
but- Re CC’s it’s the minimum payment that is the killer- people get caught up in the purchases- but can afford the minimum payment- losing situation- why may I ask- are the banks allowed to-
charge so much interest?- how about a a couple points over prime- lower payments- more affordibility-
less write offs- but no-
that’s no good- the bank’s want to bend the folks over as much as they can possibly get away with- my advice-
use a debit card- live small- don’t buy anything that can’t be paid for in cash
June 27th, 2009 at 7:43 pm
ahab,
with ‘debit-cards’, be careful of the Tusk with that Beast, see:
http://www.filife.com/stories/shoppers-should-rethink-how-they-pay
is an older story..
this: http://www.creditcards.com/credit-card-news/herigstad-debit-cards-consumer-security-1294.php
newer, notes changes, though, leaves it with: “Read the Fine Print.”
June 27th, 2009 at 7:57 pm
Seriously, While credit cards are a nice to have, you have to be responsible. Most people know the financial shape they are in and the first thing that needs to go are credit cards if they see a hint of stress, because credit cards become a crutch that will cripple instead of helping to heal the financially strapped.
In my view if you don’t have the money in an account too pay the card off completely at any point and time then you should not have one.
June 27th, 2009 at 8:32 pm
@ dafox, thanks for the tmi.
What’s wrong with CCs? you could as well have a poster with ppl taking off with airplanes, first class around the world tickets. Pay for by CC companies. Or maybe tax payers by now. Churn, churn, churn.
June 27th, 2009 at 8:57 pm
F411
Americans would use less credit if there were more/stronger labor unions??
Care to explain that further?
June 27th, 2009 at 9:59 pm
@ Christopher, correlational proof. Europe stronger labor unions, less CC use.
June 27th, 2009 at 10:31 pm
Thankfully, I’m no where near the entrance. Let alone balancing precariously on one of the precipices.
June 27th, 2009 at 10:59 pm
For those who don’t have credit card debt yet, always pay at least 10% of the total amount due and you will be less likely to get in over your head. lol, I wish someone had told me that rule a long time ago.
In the meantime, it is time to protest against Chase Bank. http://www.daily-protest.com
June 27th, 2009 at 11:09 pm
super_trooper, the laws for the sharing of credit information are disorganized, inconsistent, and tilted towards the privacy of consumers in Europe. Effectively there is no central repository for credit information, therefore, there is no wide distribution of credit cards in Europe like here in the US. Unions have little to zero to do with the use of unsecured credit in Europe.
June 27th, 2009 at 11:22 pm
“Credit cards are a symptom of the maldistribution of wealth in America”????
Franklin…what are you smoking?
June 27th, 2009 at 11:23 pm
I paid off all of my credit cards & closed all of my credit card accounts after getting burned by Circuit City prior to them filing for bankruptcy. It was my fault for not reading the fine print but in classic free market style I paid off my account and refused to do business with them again. You see when I went to pay amount owed on mycard with a debit card they dinged me a $15 fee that I didn’t know about since I thought I paid off the amount, of course with the fees and taxes etc… and an extra month of me fighting with Circuit City it added up to over $130. Shows what happens when free market reigns.
June 28th, 2009 at 12:08 am
@Bruce: You’re still up? Can’t sleep eh.
June 28th, 2009 at 12:35 am
Da Fox, are you sure you would have savings, and a job, if your company did not accept credit cards? Too much energy is being spent on judging people with debt and not enough energy is being spent on relatively simple solutions that would begin to reduce the nearly one trillion in consumer credit card debt that is acting as a perpetual braking system on the global economy.
http://www.daily-protest.com
June 28th, 2009 at 9:07 am
One thing this whole mess has shown is that the cost of living will always end up being equal to the household monthly cash flows.
For example, a few decades ago monthly costs were equal to month revenues so to get ahead many households sent their mothers to work to help increase the family income. That extra income pushed up the cost of living and forced more families to send their wives off to work. And now most families need 2 incomes to survive.
Give people credit and they will use it because at one point they have no choice unless they want to change social brackets. If you ask a PhD making 100K to live without debt, you will be asking him to live in a blue collar environment. You are asking people to go against human nature. Everyone laughs about keeping up with the Joneses but it’s more complicated than that.
My mom kept on complaining about people living beyond their means until she watched a show depicting an educated middle class family unable to make ends meet, never mind save. She finally understood that it was more than impulse control, it was a structural problem.
They could only afford a house in the burbs (city housing has pushed out families… real estate in the city core has been aimed at boomers and dinks) so they needed a car. To pay for these and their 2 kids, they both had to work. Since they were both working they had daycare costs. Because the daycare was out of their way, they needed a second car. The only thing this couple with 2 kids could have done is rent a decrepit little apartment in the city. What an option!
Debt can be used to generate wealth but the reality is that for most people, debt was used as a monthly cash flow manager. And the people at the top don’t care because they’re making money off of this and when the whole house of cards comes crashing down they’ll just end up owning even more land and property.
And sadly, I think most people still don’t see it despite what has happened in the credit markets.
June 28th, 2009 at 9:26 am
danm,
“the only thing this couple could of done…”
was to Understand that, no matter the Jurisdictation, their lives are controlled by a National Government/Private Bank-Duopoly
see this book: http://www.amazon.com/Creature-Jekyll-Island-Federal-Reserve/dp/0912986212
read the reviews of others.
June 28th, 2009 at 9:29 am
danm-
well dan- it comes down to what house in the burbs- a giant 4BR 3 bath 3500 SF home many miles from the city- or – a lesser expensive older home in the older burbs w/ 3 BR and 2 bath for $200,000 less- possibly closer to bus lines or metro lines
I have no sympathy for anyone that had to get into RE that guaranteed serfdom to their 2 job 2 car life- it’s all about choices- and trust me-
there’s always choices
June 28th, 2009 at 9:45 am
there’s always choices
————-
Yes. Don’t take on debt and live in a run down neighborhood with bad schools despite your nice degrees and be judged and ridiculed by everyone in your entourage.
Look. I lived conservatively and I effectively became a pariah in the last 5 years. It takes a toll and I fully understand why most people would not want to go through the social exclusion.
But then again, I believe we have limited free will while most Americnas think they can control everything under the sun!
I have no sympathy for those who created the McMansion excesses but the fact is that these excesses tricked down to the starter home and have impacted EVERYONE. If you’re making the annual average of 60K and you have 2 kids, sorry but it’s tough to put money aside. I guess you’d expect them to move to Detroit?!
June 28th, 2009 at 9:48 am
danm “One thing this whole mess has shown is that the cost of living will always end up being equal to the household monthly cash flows.”
that sentence caught me too .. like “there’s no such thing as a free lunch” and “can’t get blood out of a turnip” and something like “capitalism is excellent at maximizing profits of the entrepreneur at the expense of all the consumers”
June 28th, 2009 at 10:18 am
@Christopher + Bruce
Did you even read the link I posted? Real wages have been flat to negative even as worker productivity and corporate profits soared. Also, basic expenses such as housing, medical insurance, energy, and the cost of a college education are skyrocketing with double digit year over year inflation (in my college career, state university tuition tripled!).
So workers are more productive and that productivity is translating into higher corporate profits because corporations aren’t paying their workers a fair wage. Unions would ameliorate that by ensuring that workers receive a fair deal. People have been using credit to bridge the gap between slave wages and the basic necessities of life.
June 28th, 2009 at 10:30 am
danm Says-
“Yes. Don’t take on debt and live in a run down neighborhood with bad schools despite your nice degrees and be judged and ridiculed by everyone in your entourage.”
wow dan- sorry you feel so pressured- but here in DC- there are many older neighborhoods that are not run down at all- beautiful mature trees , well manicured lawns- the houses are just smaller and older- fewer BR’s and baths- many are rambler style- but they are closer in to the city and closer to mass transit- and people move into these neighborhoods all the time-
the smart ones- also-
renting is always an option- and yes there is free will- people can make their own destiny by the choices they make as they proceed through this life-
excellent book- if you get chance- read it- it is from a retired Wall street analyst (sadly, now deceased)- but says much about living and choices people make
http://www.amazon.com/Your-Money-Life-Transforming-Relationship/dp/0140286780
June 28th, 2009 at 11:11 am
wow dan- sorry you feel so pressured
———–
I kept my life simple but in the process I drifted away from friends I had known forever. When your life is all about working, trips and owning more stuff plus you start having kids, the conversations become narrower. And when you keep it simple while the others go for the high life, you don’t have the same outlook on life and your parenting syles tend to be different. It creates a big stress on old friendships.
I’m an observer and I’m surrounded by pressured households. I used to think that they should downsize their lives but then came to the realization that if they all did, there would not be enough housing to accomodate them. The problem is structural. Yes, one couple here or there can go against the crowd but the whole crowd can’t. Just like a parent can opt out of the vaccinations because everyone else is immunized.
And I don’t kow where you live but in many Cdn cities, your rent will be higher than your mortgage. And because of the flight to the burbs, the inner city schools aren’t the best. So if you rent downtown, you end up paying 10K per year for a private school.
Yes the top 10% have choices but I really get the feeling that you are out of touch with the average Joe. There are a lot more families out there with limited options than you think. The average household income is 60K. Do the math, it’s hard not ot use credit to make ends meet. And by the time someone accumulates 20% down payment, house prices would have doubled… so what’s the use?
And it comes to my argument about free will. Yes, there are choices but since I don’t believe we have 100% free will, I don’t believe these choices are really an option for most. I believe we are a slave to our genetics, environment and pre-conditioning and these will mostly determine our future choices.
June 28th, 2009 at 11:56 am
dan-
when RE is inflated- rent is usually the better option- that’s how you know it is not the time to buy- and by saving the last several years someone can get a much better deal on home that if they got in 3 years ago with minimal down- a $200,000 or $300,000 better deal in my neck of the woods- by the time the basic schmo thinks RE is a “no lose”and “much to gain proposition”- that’s when you know it’s time to sell-
chumps follow the crowd dan- but you have some good points- sometimes there are no choices for housing in particular area unless you buy into the McMansion ideal- pretty sure the mix of housing will change- the days of all new communities advertising only new “Luxury” homes may be numbered- thankfully-
we can’t all be granite counter top, home theater, stainless steel appliance home buyers- the older homes- also – have much more character
June 28th, 2009 at 12:37 pm
@danm
“they should downsize their lives but then came to the realization that if they all did, there would not be enough housing to accomodate them”
How many of them, as a percentage, would have to downsize before the prices on the oversized homes started to collapse?
“I kept my life simple but in the process I drifted away from friends I had known forever.”
I think it’s a bit of an overstatement to call this a systemic problem. You have to find the people who think like you, and that can be difficult at times. I am finding that the Internet is a great help in this regard. I also live well below my means and I am sure it has an impact on my social life. Some people may think that I am cheap or that I am a loser for not making enough money. I decided that I don’t give a shit: financial security is more important to me. And I am often surprised to find out how many people respect, if not outright envy this attitude.
@super_trooper
“correlational proof. Europe stronger labor unions, less CC use.”
This was a joke, right?
June 28th, 2009 at 12:40 pm
call me ahab:
You’re preaching to the converted!
One thing with the older homes is the lack of maintenance. For example, my first home was a 1950s bungalow built for the returning soldiers. At one point, I had to decide whether to renovate it or change neighborhoods. We opted for changing neigborhoods because we would have never gotten our money back since the area was populated by original owners who had never done anything to their houses or by young couples with no money who did even less. And as soon as they got money, they would leave just like we did.
Let’s look at a young couple’s options: either they buy an old house and borrow money from the bank for renos or they buy a new house with no renos for 10 years.
Here in Canada, the bank will not loan for more than the purchased value. So if you want to borrow more, it will usually be a loan with a higher rate than your mortgage which you have to pay off in 5 years or so. On the other hand, if you buy a new house, the bank will lend you the money for a much higher mortgage than if you bought the old house because at purchase time the value is there not potentially there as for a reno. But you pay off the loan over 25 years instead of 5 and you get the good mortgage rate. Basically, it does not make sense for a young couple with tight monthly cash flows to buy an old house when they can buy new with stable cash flows especially if they think their incomes will increase over time. Normal to think that , no?
What I’ve noticed in the last decade is that usually, the young couples who settled for old and cheap were the ones who knew their incomes would not be moving up all that much. They made due with 1950 kitchens and bathroom because they had to.
And for most people to do a better financial analysis than the one above is nearly impossible since most have never had the proper training in making informed financial decisions. Most will ask mom and dad and these 2 will tell you that in the last century, the best investment was real estate.
I really think that people who expected any other outcome from the one we got is not accounting for human nature.
June 28th, 2009 at 12:59 pm
It’s not just the size of the house. It’s the size of your life. For instance, I think the killer for many families is the 2nd car. But as I look at how our environments are set up, I don’t know how most can get away with 1 car. As soon as you look at neighborhoods where you don’t need that 2nd car, there’s arbitrage at play. The increase in mortgage is equal to the cost of that car.
It might seem like an overstatement for you but for me it was like my heart was being ripped out of its cage. I was very close to these people and they were like my family. When you start going through your transformation, you don’t initially realize what is going on.
I say it’s a systemic problem because I don’t think it’s fair to expect most people to willingly go through marginalization. I did it because for some reason I have it in me to go against the crowd. You take any group of people and you’ll always end up with the same distribution of personality type. I’m just that oddball that makes 1% of the population. You can’t expect 99% to become oddballs, it just won’t happen.
I found this blog when I was going through the marginalization process.
I did it because I just can’t shoot the breeze with people who talk about nothing but stuff. I’m also the kind of person who does not want to look rich when the heads start getting chopped off.
I’m not even sure anymore that my conservative ways will make me richer than my spenthrift friends. For all I know, I’ll just pe penalized like the savers in the Weimar republic. But I’ve made peace with that.
June 28th, 2009 at 1:07 pm
Pete from CA that last post was for you but I somehow screwed up the layout.
June 28th, 2009 at 1:18 pm
These two links may be of interest to those thinking about income gaps and productivity gains in a context of ever-increasing indebtedness. ROA vs. ROE. (I found it on BoingBoing)
http://jontaplin.com/2009/06/27/americas-corporate-shell-game/
and
http://www.deloitte.com/dtt/article/0,1002,sid%253D227141%2526cid%253D266128,00.html?introlist
June 28th, 2009 at 1:24 pm
If Renters could deduct their rent from income taxes, they might be able to save properly before purchasing a home and they might be less likely to overextend themselves. Thoughts anyone?
June 28th, 2009 at 1:35 pm
Regarding the rent vs. own and appetite for the ‘lifestyle’ funded through ‘credit/debt’, one thought might be that it is best to recognize fully the cost of one’s decisions and accept them. The leveraged lifestyle seems horribly risky and rarely provides one with real and sustainable value in exchange for the debt assumed.
If one considers the practice of extracting $ from the notional equity value of home’s through the assumption of debt in order to fund a level of consumption that one’s income can’t cover, the clear conclusion is that there is ‘prestidigitation’ involved. The banks offered ‘money’ in exchange for debt (at the expense of one’s future plusvalía). Simply insane. People were willing and enthusiatic accomplices in their own financial diminishment. Unbelievable.
As for high earners in our economy, some are very prudent but many consume at rate which gobbles up most of their income and produces an inexplicable level of indebtedness. Case in point from a fewer years ago: two income family 9(early 40s), two kids, around 140K a year. Over 300k in mortgage, 25k+ car loans, 10k+ in cc’s, private school, less than 8k in savings, 401ks unknown (probably less now). They were living a lifestyle that imposed complete consumption of their income. 5 to 8 years of pleasant frugality instead of spending 94 of every 100 dollars would have left that family in an entirely different reality.
June 28th, 2009 at 2:07 pm
If Renters could deduct their rent from income taxes, they might be able to save properly before purchasing a home and they might be less likely to overextend themselves. Thoughts anyone
———
Arbitrage. Rents would go up until savings = 0 because no matter which policy you put in place, you will always have a good proportion who’ll live from paycheck to paycheck.
Before you had credit, most lived from paycheck to paycheck. Today people do the same thing except they use debt to complement their monthly cash flow without being able to compute future and present values. The difference between then and now is that now when those living according to monthly cash flow stumble, they end up making the savers pay for them.
June 28th, 2009 at 2:17 pm
“If you want to make Something more Expensive, Subsidize it.”
Alessandro,
why not cut taxes, and get rid of the ‘Mortgage Interest’-deduction?
~~
MR–
to your links, ROE is, as currently employed, such a Fraud it doesn’t even lead to more Fish, just ‘Fish to Fry’.
it has always been obvious, to anyone that cared to crack open an ACCT text, ROA is the choice that will not constrict you..
June 28th, 2009 at 2:20 pm
@danm
I get your point now. I didn’t mean to dismiss the difficulties you encountered. I understood “systemic” to mean that an external influence (the “system” in which we live) forces people to behave this way. I think it has more to do with human nature (and I see from your 12:40pm post that you also alluded to this, so maybe we are in violent agreement after all :).
“take any group of people and you’ll always end up with the same distribution of personality type”
I think this is only true if you are talking random samples. But you can choose your friends (again, heartache associated with losing old ones notwithstanding). If you do that, you may get a better outlook on those percentages as well. ;)
I am sure you read the book “Millionaire Next Door” but in case you didn’t, I highly recommend it.
“For all I know, I’ll just pe penalized like the savers in the Weimar republic. But I’ve made peace with that.”
I feel exactly the same way. It will be a great set back for me if we go into high inflation without at least a brief deflationary period. But hey, that’s what makes life interesting, isn’t it? :)
June 28th, 2009 at 3:24 pm
danm-
“Here in Canada, the bank will not loan for more than the purchased value.”
typically homes here have a down payment 3.5% to 20%- for a purchase the value of the home is the appraised value or sale price- whichever is LOWER- regardless if it is new construction or a resale-not sure of your point regarding Canada RE
“They made due with 1950 kitchens and bathroom because they had to.’
wow dan- sounds like quite the hardship- hopefully they have indoor plumbing- have you thought that maybe some don’t give shit- and are moving up the pay scale – and saving money- and paying their house off?
possibility maybe?
some of us Dan still have Formica counter tops (me), 20 year old appliances (me), tiny kitchens (me)- I also have 3 kids- and my house is almost paid off- so- almost-
rent free and mortgage free- everyone gets there priorities screwed up because of the “home interest deduction”- so people think it is bright to lever up to maximize their deduction- great in theory maybe- no freedom in that though- because you are a slave to your house payment and a slave to the job that provides the income that allows you to pay that monthly house payment- and-
if you lose friends because you chose a low key lifestyle- maybe they are not really friends after all
June 28th, 2009 at 3:44 pm
ahab,
nice points. exactly what Hayek was drawing out in his “Constitution of Liberty”–towit: “Employees are a Threat to Liberty.”
http://www.amazon.com/Constitution-Liberty-F-Hayek/dp/0226320847
http://clusty.com/search?input-form=clusty-simple&v%3Asources=webplus&query=hayek+constitution+of+liberty
June 28th, 2009 at 4:17 pm
MEH-
thanks for the links Mark-
I come up with a point or two sometimes- but I am taking in more from reading all the posts from you smart mofo’s
June 28th, 2009 at 4:26 pm
call me ahab:
- not sure of your point regarding Canada RE
Let’s say you buy an old house for 275K. One of those, handy man’s special. Your monthly payment is 1446.73$ and if you renovate for 25K (not much done with that amount), the bank will not add that 25K to your mortgage. You’ll have to take a loan to be paid off over 5 years or so. So for 5 years you end up with and extra monthly payment of 480$ for a total of 1,926$. And you have an old home now worth 300K
If you buy a new home for 400K, your monthly payment is 2104$ per month and you have a beautiful new home with no reno headaches. What you see is what you get.
In a world run by monthly cash flows, I think the new home looks quite attractive thank you very much! And I can totally understand how someone with no formal financia education would fall for it.
BUT:
I don’t think like that. I was the sucker paying off my mortgage while everyone was trading up. I also have Formica counters. I’ve never bought a new house because I like mature trees. I also believe that the structure (house) is a depreciating asset (money pit) and that the land is the appreciating asset. Over the short term there can be a lot of money to be made by flipping but over the long term the structures get outdated, need repairs and lose value.
In Canada we don’t have the deduction and people still get their priorities screwed up. This real estate bubble was global. Human nature is the same everywhere. So you can judge and be angry all you want, but it won’t change human nature. In these people’s minds, they were doing the right thing and WE are the suckers! And the jury is out on that. If we get Weimar hyperinfaltion, they’ll get the last laugh.
-If you lose friends because you chose a low key lifestyle- maybe they are not really friends after all
And even if I did lose friends because of my low key lifestyle, it does not matter if they were not friends in the first place. It was still a painful experience and many will jump through hoops not to have to deal with it.
June 28th, 2009 at 4:26 pm
ahab,
feel to share, it’s the only way anyone learns.
one of the old rules most, current, Teachers love to forget is: “If you want to Learn, Teach. If you want to Teach, Learn.”
June 28th, 2009 at 4:28 pm
feel free, that shooda bin.. (:
June 28th, 2009 at 4:54 pm
‘ So you can judge and be angry all you want, but it won’t change human nature. ”
no anger here- my point is only that it is a false choice- I see the 300K as more affordable because it can be paid off faster- plain and simple- and the 5 years loan is paid off in 5 years- right? It’s like saying you got a nicer deal on a car because you have a 10 year loan payment at only a a few bucks more than a car with a 4 year loan that’s not quite as nice-
I have always found that when you have extremely low overhead- such as no rent or mortgage- you have more freedom- sick of your job? your new boss is an asshole- tell him to go fuck himself because you have all the time in the world to find a new job- because your expenses are minimal-
people get caught up in what they can afford on a monthly basis- all that guarantees is that they will maximize what that will buy and be a slave to the payments-
but possibly we will have to agree to disagree- maybe we are just seeing the world differently- I do want to drop a should out to Canada though for not having the mortgage interest deduction- truly a giveaway that gets the government involved in subsidizing a person’s living choices- sometimes renting is better solution for many people- why are they penalized?-
NAR wouldn’t have that though- but I wish wiser minds would prevail and eliminate it altogether
June 28th, 2009 at 5:04 pm
«In Canada we don’t have the deduction and people still get their priorities screwed up. This real estate bubble was global. »
The deduction makes thing worse.
However the real estate bubble was NOT global. Several countries, notably Germany, had no real estate bubble.
Even worse there have been several bubbles, one after another, of which the real estate one is just a phase. Currently we have a treasury debt bubble. Before real estate there was a finance stock bubble, before that a corporate bond bubble, and before that a tech stock bubble. And all along there has been a tremendous bubble in jobs and investment into China and India. Just as asset prices and financial profits rose wildly in the USA, wages and industrial profits rose wildly in China and India.
The main technical causes of all these bubbles is a gigantic increase in the amount of credit and decrease in real interest rates, mostly because of the Japan ZIRP, and the main political cause is the control of Congress and Presidency by the Republicans and democratic Blue Dogs (including Clinton), both of which happened in 1994-1995.
If you look even deeper the likely ultimate cause is that a large part of the USA (and Japanese) working class, the middle 60% of the population, making it to pseudo-rentier status, and dreaming of becoming rich on assets, and turning dramatically to the right.
This happened in other countries, like the UK, Australia, Spain, Ireland, Iceland, all countries in which the working class clamored to become “rich” with asset price speculation, demanding low interest rates to buy and assets and drive up their value.
Most political elites went along, not just because voters wanted it, but because the financial and business elites felt that they could make enormous amounts of money fast by catering to the speculative demands of the working class, and because there was a small chance that this would solve the retirement problem (drive up asset prices with low interest rates, bring in a lot of immigrants to bid up asset prices, older working class cash in and retirement problem solved).
It never had a chance to work… I suspect that most policymakers knew, but they also knew that after the collapse of the Soviet Union and the end of the 40 years war with it the working classes were disposable, as there was no longer any need to keep them sweet to avoid them turning socialist, and there was a gigantic oversupply of labor from places like China and India.
So likely the speculation-oriented working classes were consciously led to to the slaughterhouse, while the financial elites moved their productive asset to China and India, thinking that the USA, the UK etc. were entering secular decline.
June 28th, 2009 at 5:25 pm
«Yes the top 10% have choices but I really get the feeling that you are out of touch with the average Joe. There are a lot more families out there with limited options than you think. The average household income is 60K.»
The “average Joe” in Real America is just cattle to be squeezed as hard as possible; those households making $60k/y are losers nobody cares about, least of all themselves. The credit card techniques described above are just way to ensure that as much of their income goes to the deserving, producing, creative top 10%, to avoid wasting it on losers.
Real America is a nation of many self-hating losers and a few winners.
June 28th, 2009 at 6:07 pm
“Real America is a nation of many self-hating losers and a few winners.”
Ha!! Now I think we may be getting closer to the heart of the matter.
The simple question is, Why do people spend more than they can afford??
When did it start??
Why has it gotten so bad??
What drives it??
I don’t think many would argue that the increase availability of credit is a big factor. But if the consumer wasn’t demanding that credit I suspect the punchbowl might have been smaller.
I blame MTV.
Seriously.
I think cable/mass media has played a HUGE factor in the “Dumbing Down of America”. It has made many slaves to the getting the latest greatest doodad/gadget/car/home/etc.
TV makes people Stupid.
In fact, with the exception of a few bright spots of enlightenment….I would say the same for the internet.
Neither are about education/entertainment….only about marketing.
I don’t have much sympathy for most folks who get too deep. If you refuse to read the contracts and educate yourself a bit…it’s strictly “live and learn”.
PS. I read the article. Tea and China and all that.
Unions….So if household income increases….credit use decreases??
At the income levels we’re talking about I don’t think I buy that as a reasonable assumption.
June 28th, 2009 at 6:36 pm
call me ahab :
I think you’re in need of this:
http://www.youtube.com/watch?v=kQFKtI6gn9Y
I don’t see why we should agree to disagree. We see real estate the same way!
I’m just saying that most people don’t see real estate the way we do and many have made much more money than us using leverage. And the jury is still out.
June 28th, 2009 at 6:37 pm
«The simple question is, Why do people spend more than they can afford??
When did it start?? Why has it gotten so bad? What drives it?? I don’t think many would argue that the increase availability of credit is a big factor. But if the consumer wasn’t demanding that credit I suspect the punchbowl might have been smaller.»
Quite the opposite — the consumers were demanding it because it was so cheap, because supply went through the roof.
Disreputable hacks like Greenspan and Bernanke started peddling the talking point of “the asian savings glut”, as if extremely poor asian coolies were saving like crazy and investing in USA stocks and bonds instead of eating or going to the doctor.
The punchbowl was the result of deliberate government policy on both sides:
* Asian governments, mostly the Japanese and Chinese, kept their exchange rates low with a very loose money policy, because their policy was to boost the industrial sector to shift as many jobs as possible to their countries.
* The USA government allowed that to happen, because their policy was to boost the financial sector (low interest rates and high currency favour banks and in general property owners) and to shift as many union industrial jobs as possible outside the USA, to destroy the unions who were strong in industry but weak in finance and other services.
The twin results were colossal jobs and investment bubbles in Asia (or a lower rate of shrinkage in Japan) and colossal asset price bubbles in many countries with governments who has decided to boost property owners and impoverish (union) workers.
«Unions….So if household income increases….credit use decreases??»
Sure, and the link is direct and indirect, but pretty clear:
* Constant or lower wages have induced consumers to cash in paper capital gains; if unions had not been weakened, probably wages would have grown with productivity, and HELOCs would have presumably been a lot less popular. At some points a pretty large chunk of the disposable income of many usians was coming from HELOCs.
* Not only wages have been stagnant or decreasing, pension benefits have been collapsing, creating a huge political demand for asset price bubbles by workers desperate to get capital gains to compensate for collapsing pension contributions. Unions would have been more effective in avoiding collapsing pension benefits.
* The massive growth in the share of GDP going to corporate profits and to the top 1% would have been much smaller, making asset bubbles much harder to start, and thus the demand for extreme deregulation of finance and credit creation.
June 28th, 2009 at 6:46 pm
«I think cable/mass media has played a HUGE factor in the “Dumbing Down of America”. It has made many slaves to the getting the latest greatest doodad/gadget/car/home/etc. TV makes people Stupid.»
Surely so, but the destruction of the unions has had a much bigger effect: it has dumbed down workers collectively. Once upon a time unions were the coordinating “brains” of the lower classes, hiring experts, training negotiators, creating think tanks that allowed the lower classes to play a better game. As individual the lower classes are too poor and exhausted to fight back; but unions contributions fund those that plan and fight for them. Once upon a time unions has serious money to lobby Congress.
Exactly as shareholders appoint directors and management to run a company, and businesses create associations (Chambers of Commerce, industry bodies, Business Roundtable) to plan and advance their interests. Now almost all the money to lobby Congress, both for Democrats and Republicans, comes from business interests.
The result has been that policy has been in the hands of the upper classes for a long time, driving changes like abolition of usury laws, of New Deal legislation etc. that restrain their ability to make money fast at everybody else’s expense.
June 28th, 2009 at 7:14 pm
danm-
funny stuff dude- also-
leverage can parlay into a bigger payday for sure- but can also result into crash and burn victims
June 28th, 2009 at 10:40 pm
some of these posts come across as a wide coordinated attack against the middle class
imo its not as much an all out war* as an attempt to bring more consumers into the way things are here in the West .. to do that jobs and the way of life needed to be supplied/exported to the East .. of course that direction created some immediate reductions in labor costs and lots of factory setup profits for the right companies here in the West .. then the increased productivity put more and more corporations under the gun to do likewise or suffer the consequences .. I think we hit the wall of over capacity E & W
not sure how an easy & less painful rebalancing can happen .. the game called a draw – divy up for replay & start over
coda* I’ll grant that union busting was an objective imo .. that brain/brawn fight and who makes it all happen
June 29th, 2009 at 5:00 am
«a wide coordinated attack against the middle class»
The middle class (those with household incomes between 100k-300k) have done ok, not well but ok, in terms of income (collectively — a lot of people have fallen out of the middle class). They have done pretty badly in terms of asset prices, because they were among the suckers who chose a “buy and hold” strategy in a “greater fool” market.
The working classes (those with household incomes between 40k-100k) have done pretty badly because many of them were into unionized industries, and they also tried to engage in capital gain speculation and market timing.
Note: actually “middle class” and “working class” are not defined by income. They are defined by the role in the workplace. Middle class people have professional or supervisory roles, advising upper class people or implementing their strategies, so they are always a minority and well above average earnings. “middle” refers to their being in the middle between business owners and generic workers, that is their role, not them being average. “working class” have roles requiring them just to carry out other people’s decisions, no matter how well paid they are (and yes, there are working class families with household incomes close to $100k). Example: fast food “managers” are working class, because they are entirely driven by company procedures (3 ring binders); they are just squad leaders. The people who design the company procedures are middle class. The people who decide what the company procedures should be like are upper class. It just happens that as a rule the middle class is rewarded for their loyalty with incomes in the top 10-20%, and that the working class gets incomes in the middle 40-60%. Education does not matter much anymore as to class: there are plenty of people with a college degree and a working class role (e.g. bookeepers), because of the credentials inflation/arms race.
Note: “house prices always go up” and “buy now or be priced out forever” are market timing speculative strategies.