Thursday, September 25, 2008

Let Them Rent What??

I apologize for not getting to this sooner; I promised yesterday to blog about the financial crisis a bit more, but the day slipped away from me before I could do so.

Reader John Jensen brought to my attention this article from First Things in which R.R. Reno takes the position that when it comes to greed, we're all guilty. Spiritually speaking, I'm sure that's true for most of us; few of us are really content with what we have, and the prospect of making more money than we deserve to with little or no effort on our parts is something most of us would find alluring.

Still, I couldn't really agree with much of the article, which seems to posit a moral equivalency between the average homeowner and the banks and financial institutions who bent the rules and enticed some, even many, people to buy more homes than they could afford--or to buy homes in the first place when they weren't really qualified. Reno seems to think of the banks as crack dealers and the people buying houses as their user customers; or perhaps of homeowners as being willing to "prostitute" their home mortgages to get easy money and thus being as guilty as pimps for selling what wasn't theirs to eager banks who got all the pleasure of the loan fees with none of the risks associated with long term servicing. (Ahem, Patrick Archbold, that's as close as I'm getting to the phrase employed in the combox yesterday.)

Consider this section:
But that’s not what folks mean when they denounce Wall Street greed. Instead, they are suggesting a juxtaposition. Main Street, they imply, is somehow modestly and virtuously self-interested, while Wall Street is a place of arrogance that guides an insatiable, perverse desire for money. In other words, it’s not people like me who are responsible for the mess. It’s all the fault of moral monsters who feed on innocent lambs.
This reaction is both implausible and self-serving. By my reckoning, one finds plenty of blind greed on Main Street. What could possibly motivate a person to buy a lottery ticket other than a greedy desire for a payoff that any rational calculation would show laughably unlikely? Who doesn’t know someone who bragged on and on about how much his or her house was worth during the recent go-go years of the housing bubble? Yes, children, there is great deal of panting after profits in Anywhere, USA.
And not just greed, but also stupidity. Anyone who bought a house in the last two years was as stupid as the Bear Stearns traders who bought and held securities backed by sub-prime mortgages, which means very stupid. Buy a house in Florida for $600,000 with 5 percent down in 2006, and you’re pretty much in the same sinking boat. What could have possibly motivated such a stupid purchase? Are rentals unavailable? Did you really believe that house prices would continue to go up at two and three times the rate of increase of family incomes?
We don’t need a degree in psychology in order to know why people bought houses at the peak of the market. The dollar signs clouded vision. The go-go hype from the real estate agents and media and friends who made tons of money buying and selling houses was overwhelming. Anyway, you gotta live somewhere, and the government lets you deduct the interest payments. Banks were intensely eager to give you the money. “And what the heck,” we tell ourselves, “it can’t ever really go down too much, because there are too many home owners like me for the government to let it all go to hell.”
There's a sort of "Let Them Rent Crap!" (if the ghost of Marie Antoinette will forgive me) about this whole section. Some people I know got married or had kids in the last two years--of course they bought a house. Especially the ones with kids. Do you know how hard it can be to rent anything that isn't a slum house when you have kids? Depending on where you live, it can be well-nigh impossible. And as housing prices went up and up and up, guess what? So did rents.
The real problem is that people used to qualify for a home mortgage on one income (okay, well, the real problem is that people used to be able to buy or build a home without a mortgage in the first place because a house didn't take thirty years to pay for, but we'd be going back quite a ways to talk about that). But since more and more people qualified for homes on double incomes, houses--even basic starter homes--could, and did, get more and more expensive. Eventually incomes were going to stagnate, as they've been doing for the past several years, and suddenly the house that was easily affordable became an albatross around the neck for too many homeowners--and this is before we start talking about ARMs and "creative" financing.
So the house you once could afford easily on two incomes you couldn't buy--but you still needed a three-bedroom house because you had kids. So you started to look at these creative ways to buy a house, and they looked pretty good, and you didn't think there was much risk, and your company owed you a raise anyway...
...but you didn't get the raise, and the cost of living went up, and the balloon rate started to balloon...
And you add in the single income families struggling to pay for a tiny house in a bad neighborhood under much the same conditions, and the people who got sent by their corporate overlords to a place where houses cost 40% more than they did where you came from (though the overlords generously gave you a 2.3% salary increase to offset things) and gas prices started to go through the roof and your commute was twice as long as it used to be because the only house you could afford was forty-five minutes away from work on a good traffic day, and....
Where's the greed in all that? Where are the families thinking they'd cash in and make easy money on the place they called "Home?"
I don't see it. Maybe for a tiny handful of investment-property-minded types, this was the case. But most people didn't see the mortgage market as an opportunity to get rich quick, just a bit of a lifeline in an already-brutal economy where jobs have disappeared into the black hole of outsourcing and where living in a home at all was starting to seem like an impossibly greedy dream.
I don't blame Main Street, because the thing about Main Street is that its people want to keep living there. They're not the ones who wanted to gut the neighborhood, sell all the valuables, and turn the rest into a strip mall. They never are.


Scott said...

Excellent entry. Parents with kids wanting to get in a house that can accomodate them is greedy in the sense that breathing is greedy.

Anonymous said...

Basically, though I work in a professional environment, it is difficult to see how my co-workers and I have been so greedy as to bring the financial system to a sudden halt.

My spouse and I have been saving 30 yrs for our kid's college, and lately for retirement. We paid cash for our used cars, more than 60% down for the house, and finished paying the mortgage off 3.5 years before the 15 yr term when it came due. We haven't done anything on credit since that disastrous 1st year of marriage, but we've been lucky not to have met up with a catastrophic event that we couldn't eventually pay off.

Sure, we've had it good, I was able to help out with the kid's school programs, volunteer in the community, and it was not simple, but was able to get health insurance to pay for the initial treatment of long-term illness, always hold one full-time job in the family, never went without food, clothing, or shelter, and in 1997 when I working at a regular weekend job to earn money for a new roof, I bought the only lottery ticket I've purchased in my life. I didn't win anything, and that was the only one, ever.

There are all kinds of people in my neighborhood, young, old, single, some roughnecks, some well-off, others professionals, etc. Sure, the national financial disaster will trickle to us, but my guess is that the greed is related to speculation, i.e. out-of-control gambling by people with some tricky access to cash they didn't have in their own hands.

I also believe that the prevailing governmental controls (as well as the prevailing spirit of the times) either weren't there or weren't being enforced when all the fiscal irresponsibility went out the door. Maybe the people with the pursestrings were greedy, but I don't think it was the common working stiff.

Does anyone recall the Gulf War and a time when auto manufacturers were 'giving away' cadillacs with new car sales of more fuel-efficient small ones? Does no one recall the thugs that got away with beating some Chinese guy in Detroit (just because they looked 'Japanese' and the prevailing attitude against manufacturers of more efficient cars when 'our' auto industry was getting kicked in the butt for its overpriced inefficiency)? Does anyone recall how Pres. Jimmy Carter was looked down and dissed for his integrity when appealing to Americans for gas-conserving belt-tightening? No one remembers these instances because there's justification for the prevailing prejudicial attitude at the time ever since...Pearl Harbor, the older Americans crow, and the younger starlings caw. I don't think that Americans were being greedy--we've been proud of our citizenry as being part of the hardest working workforce in the world for many years; they were just prejudiced against citizens of other countries that look different than them, and wouldn't listen to reason, so the elected officials just did what was acceptable at that time. Otherwise, how could things have gotten so out of hand?

About five years ago, I remember, one of the workers at my job heard about incentives for special low-income people to buy a house, and I recall how she and her husband collected the financial papers, and money from their three jobs that they held among themselves and bought a newly-built first house in to raise their small children, but it seemed that their down-payment and mortgage was valid issued US treasury stuff.

Maybe, the greedy people weren't working in the service or healthcare industry. I find it difficult to point fingers, but if it helps to think that the average working American is not greedy in the same light as the speculators in the attempt to discover the timetable in this crisis, whether it truly needs to be fixed 'overnight' and ascertain whether 'bailout' money will be used wisely, then so be it.

I'm strong, able-bodied, and can work as long as able, as well as the others in the family, but as for letting the privileged get away scot-free with shenanigans and mount a national panic, it's time to get out and polish the shillelagh to thump down in front of some of the political candidates that think running for high leadership positions of public office is like a high school popularity contest for class prez.

Like the Reader's Digest slogan years ago, 'Get me a man that reads'. I say, we need someone in the White House that has a head with real live thoughts in it, not mashed potatoes and visceral responses.


Nikki said...

I enjoyed reading your post on this subject. I stumbled across your blog a few days ago and really appreciate your posts. I also am a homeschooling mom of 3 girls. I was drawn in by your profile statements, especially the crafts. I can certainly relate to that!

I agree with your observations about one-income households. The normalization of two income households has made home buying difficult for many families who are committed to living on one income.

However, I do see some evidence of greed by homeowners. Almost as outdated as buying a house without a mortgage are the houses that were purchased (or built) in such a manner. No longer are we interested in raising families in modest homes where kids share a room. We need work rooms, craft rooms, play rooms, music rooms, and media rooms. Each of those rooms has to be appropriately decorated and decked out with all the “necessary” technical accouterments. The typical house size seems to have doubled. I had a modest childhood in a 1300 square foot house with 5 girls and 1 bathroom. Can you imagine a house with only 1 bathroom? I have heard middle-class people say they just don’t have the room for another child in a house with more than 2500 square feet and 3 bathrooms. These are families with one or two children.
Our expectations are much higher. We aren’t content with modest homes. The rise of decorating shows alone (heck there are whole channels devoted to home improvement) demonstrates to me a little of our need to have showcase houses rather than family homes. While there may be some families struggling to find a suitable place to raise their families. I also think there are many families struggling to keep up appearances. They wanted bigger and better because there was bigger and better and there were plenty of people willing to offer it to them.

I’m not advocating burning down Main Street or even willing to put their greed on the same level as the financial institutions implicated in this mess. I do think Main Street could all use a sobering look at their financial decisions.

Anonymous said...

I agree, Nikki--I think that more and more people define luxuries as necessities. Where I live, there are tons of older, fairly modest homes in small towns for sale (and my husband and I bought one of these) but a lot more people around our age want the four bedroom, 3 bath, new built home in a development (most of which cost over double what we paid for our home). Main Street's greed is much less excessive, but it's there. Man is fallen whether he lives on Main Street or Wall Street.

--Elizabeth B.

Nikki said...

I stumbled across this article today. I thought it fit into this discussion well.