Is Christopher Cox the new Michael Brown?

Until today, I had never head of Christopher Cox.  He’s the chairman of the Securities and Exchange Commission, and he seems to be becoming the poster boy for the total failure of the regulatory agencies to do anything to try to prevent the Wall Street meltdown.

Well, that’s not quite fair.  As I learned this afternoon by listening to This American Life, he acted to ban naked short sales (e.g. the practice of selling stocks that you don’t actually own and haven’t borrowed from anyone) but only for Fannie Mae, Freddie Mac, Lehman, and 18 other financial institutions, and only for a limited period this summer. 

I’m not defending the idea that you should be able to sell things that you don’t own (and it’s apparently illegal in any case), but what this says to me is that he wanted to shoot the messenger.  Short sellers aren’t what’s bringing these institutions down.  Bad lending standards, massive leverage, and generally really bad judgment are.

When specifically asked by Senator Shelby (who is not exactly known for being an advocate for government intervention) if he wanted more regulatory authority, he said no.

John McCain says that Cox should be fired.  Bush says that he’s doing a great job, Brownie.  (And as in FEMA, I think the problems go much further than the top leadership…)

20 Responses to “Is Christopher Cox the new Michael Brown?”

  1. amy Says:

    There was considerable complaining about Cox when he was installed — he was, as I recall, said to be a purposely weak choice, someone who wouldn’t be able to enforce much of anything. I seem to remember business types being angry about him, too, because his presence meant there was no hope of a level playing field, meaningful oversight (which meant uncertainty about the rules, which isn’t nice for biz), or an end to the CEO-overcompensation nonsense.
    I want to point out that this problem can be laid at the feet of _most Americans_. Not just the phenomenally greedy bankers acting like a gang of particularly horrible and stupid 16-year-old boys.
    If you were in fact poor in the last 15 years, and lived as though you were part of some imaginary, happy middle class, you were part of the problem. By “poor” I mean you had little or nothing in savings, little equity or ability to sell your house and profit by it, student loans of more than a few grand unsecured by any real, salable property, medical debt, revolving balances, a mortgage for a loan to buy a house with a fantastically inflated price (and you knew it was sky-high, but you decided you ‘had’ to buy then and there).
    (Or: You had savings, and when ridiculous gains showed up on your 401(k) and IRA statements, you figured you were rich, and that somehow this would go on forever…even though you weren’t exactly watching the US knocking the world flat tradewise, and you knew there was funny stuff going on, and that poor people all around you were racking up the debt like there was no tomorrow and still managing to live like not-genuinely-poor people.)
    And even though you were poor, you spent $15K on a wedding, you took $3K vacations, you bought a car for something approaching your annual income. At amazon, you turned on 1-click; you didn’t really know how much money you had; you just bought what you wanted. You told yourself $90 was a reasonable price for a nylon computer bag, and $30 was reasonable for a t-shirt. You bought tiny leather children’s shoes at $30 a pop. You knew it was stupid, but somewhere along the line you took out a HELOC and told yourself you deserved the money and that there would always be more. You have a telecom bill that runs to three digits because, well, you have to.
    Please do not spend all your energy blaming the banks and regulators for the fact that the cut-flower deliveries will have to stop.
    I worry that the next president & legislature will not let us take the financial hit and recover honestly, but will instead keep us on a money drip, and to pay for it sell off major US assets to cash-rich foreigners. Asset-stripping has real & serious consequences in terms of power loss, and for a nation that has managed to lose considerable influence since 1991, that’s not a good thing. It’s also a very difficult thing to reverse, because you’ve sold off your leverage.
    Well. I wonder how much of the vote Ron Paul’s going to strip off McCain’s party.

  2. Jody Says:

    it is not the fault of consumers’ bad that the US government forgot everything it had ever learned about the dangers of leveraged investing and conglomerate banking/brokerages and stripped just about the last of the 1930s-era regulatory powers off the books back in 1999.
    How many consumers are in trouble because they borrowed to spend extravagantly, and how many are in trouble because they borrowed to pay their medical bills? I want to know how many poor people we’re going to blame for their job losses, rising insurance premiums, and random illnesses before I start my attack engines, please.
    Not wanting to be saddled with almost unquantifiable billions of dollars in additional US debt is not the same thing as bemoaning the end of the consumer bandwagon. I cut flowers from my own garden.

  3. Amy P Says:

    “How many consumers are in trouble because they borrowed to spend extravagantly, and how many are in trouble because they borrowed to pay their medical bills? I want to know how many poor people we’re going to blame for their job losses, rising insurance premiums, and random illnesses before I start my attack engines, please.”
    If you read (which collects news stories from around the US about the housing crisis), a lot of the poster children featured in the big articles were just plain dumb, and it comes through even when the reporter is trying to make them look sympathetic. Take, for example, all those mortgage brokers who made $180k a year in the good times, leveraged themselves up to the eyeballs, and then had nothing to show for it when the good times were over. Or take the people who sucked equity out of their houses to create a small Rich-Dad-Poor-Dad real estate empire, with no cash reserves for repairs or rental vacancies, with the idea that the renters would always cover the mortgage. Or take the people who milked their houses for cash to create a gourmet dog biscuit bakery or a candle-making store. Or take the people who bought their new house before selling the old house–lots of those. In other cases, the borrower got to enjoy a lifestyle out of their means thanks to the stupidity of the lending institution. A strawberry picker was never going to be able to swing a $700k house, medical bills or no medical bills. It takes two to tango, and neither the lending institutions nor the borrowers could have gotten into nearly so much trouble on their own. Medical bills and lay offs come into these stories occasionally, but as the final straw that breaks the camel’s back.

  4. Amy P Says:

    Here’s another one:
    “Extreme Makeover and Beezer Homes builds you a luxury home, gives you 100,000 dollars, paid off your mortgage, and you lose the home to foreclosure in 3 and a half years.
    “How the hell does that happen?”
    The answer is that the family took out a large second mortgage to start a construction business. In a lot of other cases covered in the newspapers, it’s not clear what happened to the money.

  5. amy Says:

    Jody, Elizabeth Warren is correct in saying that a very large proportion of bankruptcies are due to medical bills. And you’re correct; medical’s outrageously expensive here, in part because we expect tremendously good and fancy service on demand, and in part because we insist on keeping not-long-for-this-earth people alive instead of letting them die.
    But I’m not talking about bankruptcies or medical costs. I’m talking about being poor and living as though you’re not. If you don’t live in a major city, how many just-getting-by white people have you seen walking or bicycling the five miles to work because they don’t have cars? Dropping out of school because they can’t pay for it? Walking around free of electronic devices costing a week’s part-time wage? Fixing shoes with duct tape until payday? How many do you know who don’t go on trips they can’t afford; don’t use plastic; don’t sign the kid up for sports with a price tag for the uniform; don’t download anything that costs money; don’t buy $3 coffees; double or triple their kids up in bedrooms; don’t have cable TV; make their own Christmas presents? How many of these people even know how to be poor anymore?
    Not too many, I bet. The fact that people have been able to hide from the fact that they’re poor — and have raced to do it — created this financial disaster. If not for that, there would have been nothing to blow up into imaginary financial products and sell off in a global financial game of Russian roulette. If there had been no credit cards in 1992, and no HELOCs in 2001, [b]_or_ if people had had the sense to leave them alone[/b], we as a nation would have been *much more acutely aware* of how broke we were thanks to things like mad medical costs. We would have had considerably more incentive to fix the problems and do things like accept the reality that we can’t afford some kinds of treatments.
    Oh. And can you leave them alone in the face of medical emergencies? You bet your sweet patootie. I know, because I did it. I’d get doctors’ secretaries and hospital people pushing me to put things on credit cards, and I’d stand there and lie and tell them I had no credit card. The result was that they were forced to deal with a patient who had no money and inadequate insurance, which was fine with me, because they had considerably more power than I to go yell at legislators and be heard. The other result was that I had no medical debt. I had lots of pharma samples, and eventually I found my way to the pharma industry’s political safety valve: indigent-patient programs that give away drugs to working-poor and medigap seniors.
    Look, I’m fairly careful about this stuff because I spent a long time being poor, and I got to be pretty good at it. We live pretty nicely at 200% FPL here, we have excellent health insurance, good food, swimming lessons, the whole deal. I also have no debt beyond a small mortgage. But the other day I nearly bought my daughter a pack of gel clings for her window, because I’m used to, you know, just buying stuff, and she wanted them. That’s $3 just for the hell of it, when we have piles of construction paper and crayons and tape at home. It isn’t, in general, extravagances that put people under, even though the weddings and trips help; it’s the prom dress, the twelve downloads, the $79/mo cellphone bill, the extra bedroom, the pedicure, the beater car for the kid, the $16 insulated thermos that you _don’t really need_. I’m routinely aghast at what people do to themselves financially every December. (I learned long ago to stop asking my inlaws to cut out the crappy toys, which we have plenty of, and put money in the kid’s college fund instead.) And yet there I was taking the thing off the rack, for the same thoughtless reason that so many Americans are fat: It’s there and it’s normal to take, especially in the midst of so much, and nobody has yet stopped us. Our culture has nothing whatsoever to do with financial prudence anymore. It did used to, back when it was very difficult to live beyond your means for more than a few months.
    Middle-class types have not been immune to the stupidity. I just watched an entire professor neighborhood get wiped out by a flood. How many of them had taken out second mortgages to send the kids to private colleges they couldn’t afford? I must admit, the sense of entitlement I got from my fancy private college has stood me in good stead. But I went for peanuts and walked out with no debt. If my kid thinks she’s going someplace that costs $50K/yr for an 18-year-old to learn how to drink, she’s out of her mind unless some third party’s paying.
    My kid’s nanny had tens of thousands in student loans *for community college*, and she didn’t know what she wants to do. Her sister was a hundred grand in the hole for a private college. Her other sister decided to skip school (OK) and have a baby at 19 and hope her ne’er-do-well sweetheart will carry them all (dumb). They all have cars, nice clothes, they go out, have cellphones, etc. All look like nice middle/working-class people. And they keep on borrowing, because they can and it’s normal.
    You cannot shove all the blame over to McDonald’s because you’re fat; you cannot shove all the blame to bankers and regulators because there’s a huge financial boil popping now. (If Paulsen will let it.) Somebody took the bait — and while taking it, a lot of them had some vestigial memory of days when only rich people could’ve had _________, plus the knowledge that they weren’t, themselves, rich. Like I said, the ones who scare me are the young ones, because they _don’t_ have that memory of how to be poor.

  6. Amy P Says:

    “My kid’s nanny had tens of thousands in student loans *for community college*, and she didn’t know what she wants to do. Her sister was a hundred grand in the hole for a private college.”
    Easy credit has created some really weird distortions, particularly in higher education. People go into tens of thousands of dollars of debt for culinary school to prepare for jobs that would barely support them even if they didn’t have student loan debt. Listening to the Dave Ramsey show, I’ve heard one or two callers who were social workers with $40,000 a year salaries and $80,000 in student loan debt. Likewise, lots of callers have $500 a month car or truck payments on vehicles they are upside down on. For me personally, it hurts to even think about that last one: $500 a month, 12 months a year, for 6 or 7 years. Then, at the end of that, you turn in the truck for a few thousand dollars credit and start the whole process all over again, almost from scratch. Meanwhile, you’re spending $400 a month for gas.
    I think easy credit makes it hard for ordinary people to think about money. When credit is loose, you don’t need to prioritize or make choices, and you don’t realize that you’re broke. Worse, the credit industry has a very successful propaganda campaign going to persuade people that having access to credit is the same as wealth. (I’m looking at you, Citibank.)
    About a month ago we paid off our last debt (a car loan). It took just under two years (the last year was the most intense) to pay off all old credit card balances, the dregs of my student loan and the car, with a combination of one high five figure income, focus, planning, OCD budgeting, and the Dave Ramsey radio show for emotional support. We’re going to need to do the same thing for the next two years to put together a house downpayment. We’re not anywhere near poor, but it’s hard work, and once we actually have a house, we’ll be faced with property tax, home insurance, and maintenance expenses, as well as the need to be more aggressive about retirement savings and to start saving for the kids’ college. That’s scary. I’d say that there’s no end in sight, but that’s not true. If we are able to buy a house at a good price, we should be able to pay it off in 15 years or maybe even less, and then (according to theory), we should start paying that house payment into retirement. It’s pretty intimidating to think about how long the road ahead is, but we only need to do one step at a time.

  7. amy Says:

    And very few people look at the world as Amy P does now, which is the problem.
    The private student-loan business is one of few I regard as criminal in lending, and there the universities and K12 systems are as culpable as the lenders. You cannot reasonably expect 18-year-olds to have sense, and if you tell them boogeyman stories about life without a fancy degree, then make it look like starting adult life with a house’s worth of debt but no house is smart, they’ll believe you. Their parents, who should have more sense, can’t stop them from signing, because the kids are legally adults. The universities have been pushing tuitions & fees through the stratosphere, knowing perfectly well that the kids have access to endless loans, and that to them $20K and $80K and $200K are all the same. And K12 has shed responsibility for turning out employable kids who can read, write, & do arithmetic, which means much of business now regards an AA as an absolute minimum proof that you’re housebroken. Community colleges and universities both spend considerable time teaching rock-bottom stuff — I did it myself, teaching Schoolhouse-Rock-level stuff in community college. Actually I had to go a lot slower than Schoolhouse Rock did.
    Houses…alas. You really need a lot of financial cushion, and a lot of time on your hands, and pretty good discipline, to take care of a house instead of slowly letting it fall down around you. Which is why I was always disturbed by those 3% down and 0% down FHA loans. It sounds cruel on the face of it, but if you haven’t had the discipline, fortune, and ability to put away a decent down payment, odds are you can’t take care of that house. There’s no way I’d have bought mine on my own, and, really, it’s more work than I have time for. The only reasons I keep it up are a) it’s newish and, so far, very low-maintenance; b) local rents for 2-br apts will catch up with my mortgage payment within a few years; c) I’d never do better on property in this town, thanks to the terms of my divorce; d) if it were absolutely necessary, I could pay off the mortgage within a month by selling other assets; e) the rest of the world would have to blow up before I was in the position of not being able to make the mortgage; f) living here keeps my transportation costs very low — there’s a bus stop on the corner, easy walk/bike to shops and the center of town, it’s rare for me to drive more than a few miles in a day, and at this rate my ’93 Subaru will be my last car.
    Even so, the lawn guy was here this morning — and yes, the lawn is a property-value issue; let it deteriorate and it’s expensive to repair, plus you’re in trouble if you suddenly need to sell — and I thought, well, crap, I’ll have to pay them again in a few months. And then there’s the air-conditioning/heating guy, and the garbage disposal isn’t going to last much longer, and the missing roof shingle, and the handy guy to come do the weatherstripping and various minor repairs, and the taxes are nuts, and next summer I’d really better seal the deck and stairs, and the seals are gone in two of the windows, and if we have another wet year next year — well, I’m at the top of the hill, but the ground gets saturated, and I bet slab foundations crack more easily when the clay under them’s mush. And the garage floor needs epoxy and really, that one apple tree needs shoring up, and the door place never called me back about the runny resin on the front door, and someone broke my doorbell, and it’s time for carpet cleaning again, and the downstairs toilet’s broken. And I need to research burglar alarms again and this time actually buy one, and I’ve given up and will let the gutter guy install gutter guards. Must pay the city for replacing the non-regulation sidewalk square, too.

  8. amy Says:

    Oh — I think it’s very easy to say, “Well, of course Amy P. could pay down her debt; she’s working with a high-five-figure income.” I spent most of my adult life living under the $20K threshhold, and I did not accumulate debt. In fact I was very careful about that, because I knew the likelihood of my being able to pay it off while living like a writer was close to nil. Through that time, I had two chronic illnesses, one of them expensive in terms of healthcare, the other expensive in terms of limiting my ability to work.
    How did I do it? I lived like grad students used to. I found nice places to live where I didn’t need a car; I declined to procreate; I found ways to get good health insurance and free meds; I rented, then bought a small & inexpensive condo with a 15-year non-silly mortgage and planned to live there pretty much forever; I got into Fancy Graduate Program, and then declined when I found out it would cost me money (so they found money for me); I saved little bits of money. I baked a lot, picked and canned fruit from neighborhood fruit trees, went veg. When, eventually, I bought a car, I bought used, cash, with an inheritance. I picked an ugly, 7-year-old car with a great rep for longevity and high gas mileage. The car’s 16 years old now; I’ve put about 40K miles on it. I don’t pay to park it, and it costs me about $100/mo to run it, including repairs, insurance, gas, taxes. I lived that way till I was about 35.
    When did I take on debt? During the second health problem. It wasn’t medical debt; it was school loans in four digits. I couldn’t work normal jobs, but I could work “please just show up most of the time and we’ll love you” student jobs, and though I couldn’t go to work regularly I could certainly read. So instead of pursuing disability, I took out a loan and studied something I enjoyed, which also happened to be practical enough to save my ass as a single mother ten years later. The student job I found also turned me into a UNIX/Mac system administrator, which is practical enough if I have to lean on it. A small web-based, miniscule-overhead business grew out of that work, as well as a sideline in website design.
    In other words, it can be done. It used to be done routinely.

  9. Amy P Says:

    My husband and I did really well as graduate students, too, although we had a much fancier lifestyle than amy (used book stores and ethnic restaurants were my vices). Ironically, the wheels came off once my husband got a great job in the big city, we started a family, and I was home with the kid. Initially, a major culprit was the apartment that we had naively rented. It was beautiful and 15 minutes from the metro station, and it took roughly 50% of my husband’s take-home salary of $3k or so a month. I had a brief fit of frugality then, but it wasn’t until years later that I realized how dumb that rent ratio was. We eventually got free on-campus housing in DC in return for student programming work for four years (it was essentially a part-time job split between me and my husband). In some respects, those four years were a blown opportunity, since we should have walked away from that with a decent downpayment fund and no debt. The money that used to go to rent and utilities got sucked into “lifestyle” through lack of budgeting. By the end of our six years in DC, housing prices in suburban Maryland had exploded, and starter houses were now $400,000. My husband accepted a generous job offer in Texas and we moved, rented a single family home, and bought our first car. Our living expenses immediately shot up over $2,000 a month to cover rent, utilities, car payment, car insurance, gas and private school, but I had a plan. The old me would have continued on in her ways. The wiser 2007 version of me wrote budgets and stuck to them, canceled nearly all our credit cards, made plans for getting out of debt, stopped recreational clothes shopping for the kids, stopped Amazon one-clicking, and stopped going to restaurants. Plus, for the first time ever, we started giving a set percentage of our income to charity.
    If a person doesn’t know how their income relates to their outgo, it’s hard to stay afloat, no matter how large that income is. My radio guy says “you can’t outearn your stupidity.”

  10. Amy P Says:

    Just to clarify, I didn’t wise up all on my own. I got a lot of help from Dave Ramsey’s book “The Total Money Makeover.” It’s not rocket science, but for a debt-ridden financial beginner, it’s great to have a list to follow in order, one step at a time. (DR is an Evangelical guy and the book reflects that.) Here are the steps:
    0. Get current on bills (depending on the situation, this can be a tricky one)
    1. Save a $1,000 emergency fund.
    2. Use any savings over and above that $1,000 to start paying off debt. Every month, apply any extra money to the smallest bill. When it is paid off, use the money you were using for it to pay extra on the next biggest bill. Continue going up the list until all debts (except the house) are gone. They call this the “debt snowball.”
    3a. Using the money that you used to spend on paying off your debts, save 3-6 months basic living expenses for emergencies
    3b. Save a fat house downpayment. Buy a house you can afford with a 15-year mortgage.
    4. Start retirement investing. (DR suggests investing 15% of income–that makes me blanche a bit, but I’m not there yet. It may be easier than I think, taking in account the magic of tax deductions for 401(k), mortgage interest and college savings programs.)
    5. Start kids’ college savings
    6. Pay off home mortgage
    7. Pour the money that used to be the mortgage payment into retirement and other investments.
    We are working on 3a. I didn’t like the idea of going down to $1,000 in the bank, so we kept a month’s expenses while working on the debt. That slowed down the debt payoff process, but it gave us a jump on step 3a. We also kept a couple credit cards, whereas an orthodox Ramseyite would cut them all up. We may do that eventually (maybe after buying a house), or I may just have the limits lowered quite a bit. I definitely want to freeze everybody in the family’s credit eventually, to avoid having the three-year-old financing some unknown person’s vacation to Rio.
    Some people quibble about the arithmetic of the plan that I just laid out, but it has the merit of being easy to understand and follow through on. Maybe (in an ideal world) you’d be better off starting retirement savings earlier rather than paying off debt, but what if you never got around to paying it off, and just kept half-heartedly investing and half-heartedly paying minimums?

  11. amy Says:

    Heh, I like that. I also like Ric Edelman’s plan for paying off debt and getting rich:
    1. Make money.
    2. Don’t spend it.
    One of the things that’s nice about being poor longterm is that you become aware of being awash in consumer goods. Clothes, for instance — I just bought my daughter some clothes for the first time in about a year, because everybody gives us clothes, everybody’s dying to get rid of kids’ outgrown stuff. Some of it’s really nice, too. Somebody gave us a piano last year — she just didn’t want it anymore. Books, jewelry, electronics, toys. I haven’t bought her any riding toys, but she’s got a trike, a scooter, a hot wheels, a trailer.
    What I’m happiest about this week: I figured out how to cook like my daughter’s daycare people do. Speaking of people who live well & low to the ground. (We were watching _Hans Christian Andersen_ today and I realized Danny Kaye’s character bears a striking resemblance, attitude-wise, to the guy who runs the daycare.) I relied on them for years to feed her these beautiful vegetarian lunches and snacks — the kid grew up liking olives, asparagus, eggplant, mushrooms, salad, mint. The kids helped grow some of the food; some was bought, some came from local farms. Now I pack her lunch, and she doesn’t want anything to do with PB&J, she wants vegetables & pasta cooked Tim’s way and black bean soup. Fine by me.
    You know, Amy, the funny thing is, I always felt like I lived fancy. For one thing, I only worked part time, so I had tremendous liberty. Nothing makes you feel rich like walking around in the sunshine at two in the afternoon. I’d done the glamorous-life thing in the 80s, with the millionaire Manhattan boyfriend and working in halls of power and boozing it up at the Ritz, so I didn’t feel I was missing anything there. Though I do still wonder where the earrings went. (There’s no telling.) But yeah, all while poor, I was reading terrific stuff, watching fantastic movies, writing, enjoying boyfriends, traveling now & then. Just being young was riches. You’d get things like a perfect ferry ride with a perfect beer. I had a $10/hr job as a music librarian for a while, and I got to take home older records, and somewhere I’d got hold of an old Pioneer turntable, the kind with the stroboscopic light. So I discovered Gershwin, Babbitt, Bruno Walter, a Mendelssohn trio that still slays me. Horace Silver. Yeah, I was rich, the week I first played Rhapsody in Blue in my $330/mo apartment. And, you know, even now — what single mother gets to hang around arguing like this, reading about midcentury science and collaborating with guys who worked on Nobel-winning teams, drinking good coffee & wine & eating good food, writing stories, inventing & chairing university conference panels without bothering to be an academic? Who knows how long it’ll last, but any is pretty good. I should listen to more music, though.

  12. amy Says:

    Ah, well, this is nice.
    Apparently the beginning of this year, the Treasury sharply curtailed the sale of I bonds. I bonds are inflation-protected; the yield is a combination of a variable (changes every six months, but lasts the life of the I bonds bought during that span) plus the rate of inflation. Whether the inflation rate’s 2% or 200%, the Treasury guarantees you investment preservation plus an exceptionally anemic return. (Don’t ask me whose inflation rate; I don’t remember which they use. Essentially they’re a hedge against inflation.) I own some as a base layer to retirement and college savings.
    Used to be you could buy up to $60K per year in I bonds; now you can’t buy more than $10K per year. If you look at personal-finance boards from December and January, when the new rule came in, there’s endless head-scratching: Why was the Treasury cutting off I bonds?
    Well, I guess now we know. It’d be lovely, though, to see the memos and emails leading up to that announcement.

  13. urbanartiste Says:

    I find it unbelievable the idea that people today need to know how to be poor is being discussed. The economy is tanking and all I read and watch are articles and news about how rich people are still able to pay $10,000 a pop to take a helicopter out to their second home in the Hamptons. If anyone needs a lesson on how to be poor it is the 1% of wealthy robberbarrons on Wall Street.

  14. urbanartiste Says:

    And let’s take a look at countries that have no middle class. There is massive poverty and the rich have to take bullet proof, armored limos to gated shopping centers with security guards. I would not want to live in a country like that. This topic is more than economics and personal responsibility, but also about social class systems. One can only stretch the dollar so far and with wage freezes the way they have been I don’t see how many people are making ends meet. Yes, one does not have to have cable, a cell-phone, etc., but basic necessities have skyrocketed – food, rent, gas, and so on.

  15. Amy P Says:

    Rent is bound to become much less expensive presently–huge numbers of condos are coming online as we speak, and most will eventually become rentals. Housing is the most expensive budget item for most people, so if rent goes down quite a bit but renters are able to keep their income roughly the same, they should do pretty well even if food and fuel go up. (That’s a big if, I realize, and not much comfort to the heavily mortgaged.)
    The issue is not so much learning how to be poor again, but learning what it means to be middle class. There are lots of middle class families out there who have two $500 a month car payments who are in the middle of figuring out that that is not part of a middle class lifestyle. As to being able to stretch a dollar only so far, have a look at Amy Dacyczyn’s Complete Tightwad Gazette (all 900 some pages of it). The other amy and I are pikers compared to Amy Dacyczyn. The thing is, given the easy credit of the past few years, it was easy to become delusional over what you could and could not afford. When I listen to my favorite radio show, there are lots of broke people calling in who make $140k. Doctors are also notoriously bad with money. While you can’t survive at any income level, it is true that you can be broke at any income level. My family has an excellent income and we live in a low-cost area, but I would feel poor if we were spending more than $1,000 a month on mortgage (that’s our current rent), considering the other expenses (taxes, maintenance, insurance) that would go with the house purchase. I don’t like feeling broke, so I’m not going to allow us to get sucked into buying a house that will eat us alive.

  16. amy Says:

    urbanartiste, everyone who is poor needs to know how to be poor. And the fact is that for the last decade, and really more than that, we’ve had a country full of poor people with credit lines. That much was obvious to me 15 years ago.
    If you’re poor and you don’t know how to be poor — and don’t want to admit you’re poor — and you’ve got a pocket full of loans, you’re in big trouble very fast. And that’s exactly what’s happened. A hundred million poor people with shaky arithmetic out shopping with plastic and other smiley bank loans — this is a bad, bad setup for a country of 300 million.
    What bothers me is the number of people who don’t understand that they’re poor. I live on the fringes of academia, and I meet them all the time. Very respectable people with horrorshow credit reports and debt several times their annual income. If you don’t know that you’re poor, you’re going to go off Bambi-like buying plane tickets, hotel rooms, retail shoes, $4 slices of cake. And then, oh, the horror. It’s a bad thing on an individual basis, but when a large percentage of the population does it, that’s dangerous for everyone.

  17. amy Says:

    Also, Amy, rentals will become much _more_ expensive, not less, in the next few years. As credit tightens, as the job market suffers, and as people who borrowed recklessly lose their houses and are forced into the rental market, demand up fast, supply up slowly. Result: Higher rents. See California for a current demonstration. Supply will grow much more slowly now than it would have five years ago, because landlords will not readily get mortgages, which means builders won’t so readily build. Banks will want higher down payments and may assume a higher bad-tenant/vacancy rate than before.
    I remember Amy Dacyczyn’s stuff. I liked a lot of her tips but thought some of them false economy, like washing out used plastic bags when the world’s full of plastic bags, stuff like that.
    And yes, urbanartiste, I mean “borrowed recklessly”. I have a house and a rental property. I make little money, I don’t have impressive savings, and yet the economy would have to pretty much implode before I lost the house. I could pay off the rental tomorrow with cash.
    So: Without a disaster, the rental starts covering the house mortgage in about six years. With a disaster, I still have a little paid-off property to take my kid to live in — one that’s within walking distance of most of this town’s jobs, across the street from a school, on bus lines, etc. I’m 40. My kid is five, and that’s in part because I looked around and said, “Do I have money for this, if I have to do it solo?” and waited for the answer to be “yes” before I had a kid. I’d seen enough of the single-mom-and-kids-in-poverty story to know I didn’t want it.
    My ex is also debt-shy. We looked at a hella nice house around the corner, and we’d have qualified for the loan. Would’ve stuck us with a $160K mortgage. We didn’t want that much mortgage. At the time, we had a combined income around $70K. If we hadn’t found something more reasonable, we’d have stayed in my little place, with the $390/mo mortgage, made room for the baby, and saved. (Actually, I was in favor of doing that until the crowding became unbearable. We could’ve socked away $1K/mo.) But most people won’t do that sort of thing, not when the banker says yes to the loan.
    The solution, if you don’t like how the market handles it, is to regulate the banks so they can’t make loans that risky. But that runs smack into the lefty initiative of the 1990s aimed at “making the American Dream affordable”. Then your only solution is to appropriate money to _buy_ people houses, and that turns out to be remarkably expensive. More than the bailout, more than Iraq. It’s a big country, and even little houses cost to build and maintain.
    In the end, if we’re poor, we need to deal with that fact and with the basic problem: We are not competitive globally and have not been for many years. As bad as the income gap is, as much wealth as we’ve let collect at the top, this problem is peanuts next to the fact that we simply don’t bring the money in anymore.
    There’s much more competition, and much better competition, out there in the world than there used to be. We’re still not talking about that in all this national freakout about banks.

  18. urbanartiste Says:

    I see you point and where I live affordable housing is scarce. The developers don’t want to build them because they make more money selling luxury condos. I have a few friends that attend lotteries for the few homes within these developments that are slated for affordable housing (at the demand of local town boards for development approval). They tell the same story that 4x as many people show up than there are apartments available.
    Besides the lack of personal responsibility and subprime loan mess there is a huge lack of responsible urban and suburban planning on a national level. Some local governments in the southeast realized that as soon as boomers start dying off the local towns are going to have to rezone all those retirement developments to allow families. It does not take Steven Hawking to predict this stuff. Anyone with commonsense that is willing to plan for the future and not live in the present could figure this stuff out. This is where I fault government. And don’t get me started on all the luxury second homes in the west that are displacing local wildlife. Not to mention there are not enough natural resources, like water, in those areas to sustain such communities. Greed and gluttony are the driving force.

  19. Amy P Says:

    “I see you point and where I live affordable housing is scarce. The developers don’t want to build them because they make more money selling luxury condos.”
    I think you are going to be very pleasantly surprised in the next few years, even if the Feds really screw up the bailout. The builders have really overshot the luxury condo market. My crystal ball says there are granite countertops in your future if you want them (and maybe even if you don’t).

  20. amy Says:

    I sure hope you’re right, Amy. (I like granite, even though it’s this decade’s equivalent of Flock of Seagulls hair.) I think the problem is that before you can have a tenant, you have to have a landlord, which means someone must buy from the builder. What I’ve seen is that the builders can hang onto property for one hell of a long time if they don’t get a price that brings them back some money. The prospective landlords won’t want to pay much for the condos, because they’ll be renting to poor people — people who couldn’t make the mortgage, and who likely threw whatever assets they had at the mortgage before they lost the house. The builders themselves won’t want to be landlords unless they’re already set up in the landlord business. It’s very easy to regret landlording.
    Oh, oh…oh dear. I see where this is going. Block-grant money going through municipalities to make submarket condo sales reasonable to developers, so that the rental train get get moving. Bah.

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