The long slow pop

That’s precisely what I meant by “stupid”.

Serious answer:

I believe both are factors, but I believe stupidity and shady lending practices far outweigh the greed factor. Going through a foreclosure and/or bankruptcy really fucks credit for a long time so it’s hard to imagine a well informed rational actor deciding to game the system for a few years of free high class housing considering that it will then be a looooong time before they can get a decent car loan, get another home loan, etc.

A bailout is an okay idea, but I’d want it to be carefully structured so that only people below certain income levels qualified, and the banks that made the stupid loans still lose a lot of money on the deal. That’s the only way to teach the lenders not to pull this kind of crap, hit them in the bottom line.

Okay. To be fair, there are two possible definitions, one being that they really are confused and unclear as to the loan terms, that they would have to pay them back, didn’t understand the finances. The second being that they really didn’t care (intentionally), because they just wanted to live high on the hog for awhile and figured, “Fuck it, someone else will clean up the mess.”

The first I have some sympathy for. The second should be made to pay for their decisions; no one else who didn’t make such decisions voluntarily should have to pay for someone else’s. Unfortunately, all of the second class will be lying and claiming they fall into the first.

I think you’re partially right, but I do not think the people who got ARMs way outside their price range were depending on some sort of safety net. I also don’t think they failed the basic math. Self-delusion was a far, far bigger factor.

They were stupid becuase they:
(1) Assumed, like most Americans, that one day, probably sooner rather than later, they were going to get really rich. This is exactly the same rationale behind your example Target employee who gets upset by the estate tax. They assume, naturally, it will one day impact them and their offspring.

(2) They bought the line likely being sold to them by the real estate hype machine – “don’t you know, real estate prices never go down!”. You buy the house on a 5 year arm you can’t afford, but in less than 5 years you can sell it for 40% profit! It’s not even necessarily that they were buying in with the intention of “Flipping”, but that was the “safety net” they had in mind – “well, even if I’m not rich in 5 years, I can at least sell the house for 40% more than I paid for it”.

I’ve seen lots of recommendations over the last few years that “buying” a house on a 5 year ARM with the intention of flipping it is preferable to renting.

Both really good points, and I think they both in their own way arise out of that same sense of entitlement. You can see it in the study done on narcissism in the U.S. Everyone is unique and special, and everyone will some day become a multimillionaire entitled to huge amounts of money.

What happened to people like my parents? They are blue collar, saw the houses I was looking at, and (politely) expressed their concern that I would get in over my head with those “outrageous prices.” Now bear in mind that part of that is because they are coming from a small town where everyone makes $30k a year, and so $200k for a home is “outrageous” to them. But the point is, they do not have college educations, they do not have the ability to crunch numbers, they just realize that there are “rich people houses,” and that “people like them,” can not afford half-million dollar homes, end of story. They would say getting ARM advice from a mortgage broker about how they could swing such a loan would be simple self-delusion, allowing themselves to be talked into something they know isn’t right because deep down, they want to be talked into it.

We have taught everyone to believe that everyone else but them will work in a cubicle for mid-level pay, but that they are a special individual destined for more. It has its good and its bad points.

Oh this is a keeper. I had to quote it before it got edited away.

If you take the disdainful classism out of that post all that would be left is punctuation.

Malphigian, this is almost certainly the reason for the masses going into subprime loans. Our economic system is pretty well developed: if you pitch it hard enough then the customers will follow. I have no idea how many new TV shows were created in the last few years about how to flip homes but it seems like more than a few. Further the real estate people on CNBC ( and I am sure on other channels ) constantly repeated the following lines: “real estate never goes down!”, “real estate goes up 15% per year lately due to a demographic shift!”, “they are not making more land, it can not go down!”, “real estate has not gone down in 25 years!”, etc. I remember the real estate people on Fox New’s money show to be exceptionally disgusting ( the woman on the show covered herself in diamonds, and he phrases she used reminded me of the guy in the 90’s how had an infomercial where he said “if you don’t do this you deserve to be poor.” ) she, and the others on the show to a lesser extent, hocked real estate endlessly.

Anyway, I’m sure SlyFrog will simply say that this is irrelevant. It is all about personal responsibility. The only way that jives with the fact that there is a significant portion ( maybe majority ) of the population that follow such misinformation is that these people are sheep and they deserve what happens to them. I don’t agree, but that seems to be his point.

I have a five year fixed/ARM, but that’s because I knew I wouldn’t live here longer than 5 years. I had no delusion that I would make a profit. I bought because I checked the market and determined that it was likely I could at least get back what I put into it, so it will end up being cheaper (overall) than getting an apartment or renting a house. And I get the benefits of having my own house. That said, we bought a house we could afford.

I bring this up because in the process the mortgage people hit me with about 20 different options, many of which had lower immediate payments. I didn’t take them because I noticed that almost none of the principle was touched for the first several years (exactly how many varied by plan). The result is that people who take on these plans literally get nothing out of owning a house. They get none of the money back that they put in, even if they do sell it for the same price they paid.

However, you only have to look at the payment schedule to see this. You don’t really need to do complicated math. The schedule tells you how much of your payment goes toward interest and how much to principle. All loans (AFAIK) frontload the interest, which makes you pay more over time. But some of them do this to such a degree that you make no headway at all really. I’m having a hard time believing that the people buying these houses couldn’t see that. So I’m going with the “willfully entered into a bad deal with either unrealistic optimism or a belief that they will be bailed out” theory.

Oh come on, Nick. Sly isn’t being classist about this. He’s saying that today’s average American has been pumped full of ideals of entitlement that are unrealistic and potentially dangerous. The bright side is that people dream bigger, but the dark side is that their motivation doesn’t always match their dreams.

Someday, when I’m worth like THIRTY MILLION DOLLARS, I’m going to send SlyFrog a check for a thousand just because I know he’ll be such a poor loser he’ll have to cash it and then I’ll own his soul. Then I’ll take my Ferrari Enzo and spin donuts on the unkempt lawn in front of his modest home. HAW HAW HAW.

“Needed” is an interesting choice of words there. The house that I “need” would probably be a 500 sq. ft. 3 room shack. I’d prefer something a bit more than that.

I would disagree with that. A house that small would harm my quality of life so I therefore need something larger. We bought a 1,350 square foot house because that’s what we need to be happy.

It sounded classist to me. He wasn’t suggesting that the poor should be educated well enough to handle complex financial issues like this, or that regulation should prevent predatory lending practices, he was lamenting the passing of the glory days where the poor were humble enough to not try to rise above their station.

No, he was lamenting the passing of the days when the poor had the common sense to realize they were poor and not get themselves in over their heads based on wild fancy. Being “educated to handle complex financial issues” is far far more likely to allow for errors in judgement that become very costly and that could have been avoided by a simple common sense attitude of “Based on the money I make, looking at an expense of that size is just silly”. That was my grandparents’ attitude, and that’s why my parents and I aren’t poor.

It’s not like it’s the first time this issue has come around, either; nor will it be the last.

http://www.kipling.org.uk/poems_copybook.htm

I did edit it, to make it clear that my parents are blue collar, not color (not being from Kentucky).

Other than that, take your sneering elsewhere. I stand by what I said.

Incidentally, I started the other thread before I even opened this one.

Heh, I’m kind of bummed you oepned the other one. Previously every time I saw this thread in the list I misread it as “the long slow poop” and it made me laugh. You’ve taken that away from me DICK.

We bought right around the valley for interest rates (actually, right at the time they started creeping up). When the loan officer was discussing ARM vs. fixed rate, I just looked at him and said, “We’re not stupid.”

I’m now getting ARM offers that are higher than my current fixed rate. BWAHAHAHAHAHAA

It is because they are stupid, and don’t realize that if everyone does a stupid thing, it is still a stupid thing.

Exactly. Acknowledging that there is a class system in the US is not the same as classism. People today have forgotten how to live within their means; the negative savings rate is proof of that.

Part of it probably is a self-perpetuating cycle. People tend to live and socialize with others in the same class. In our parents’ generation, that gave you a fairly good indication of what “people like us” could afford. You didn’t need to actually crunch the numbers to figure out whether you could afford the McMansion because everybody you know lives in a normal two- or three-bedroom house.

These days, with everyone running up huge debt on houses, cars and luxury items that they can’t afford, you do need to crunch the numbers, because it’s very likely most of the people you know are living beyond their means. If you restrict yourself to what you can actually afford, then to outside observers it will appear you are much worse off than your neighbours. If you just go by your gut and say “my buddies at work earn about the same amount as me and they have huge houses and two cars, I guess I can too,” you’ll end up over your head in debt.

Can someone claiming that the poor have forgotten how to save money and are now on incredible spending binges please provide statistical savings rate evidence for this? If I remember correctly, my vague poking around in an argument with Phil a while back got me nothing to support this in either direction. I found some stats showing a pretty clear dive in savings rates among the upper middle class and rich, however, with a strong implication it was due to the huge runup in the stock market.