"How much further does housing have to drop?" - Answer: 10-15%
"Are we in a recession?" - Answer: Not yet
"I hate Bush, he's to blame for all my problems, including the crash." - Answer: Don't worry, I hear Obama will make it all better.
But one of my favorite responses is when inevitably they ask me who to blame, and I say, "sub prime borrowers" the knee jerk "everybody's a winner" reaction is;
"Well the majority of sub prime borrowers still pay their loans on time."
This response is typically based in pity or defense for those who are deemed "sub prime" and ergo are of a lower economic class and therefore deserving of all benefits of the doubts and are above criticism. And while technically true, the majority of the sub prime borrowers do pay back their loans on time, it's not the vast majority.
Based on "vintage" as The Economist refers to it, sub prime borrowers pain the rest of us with default rates anywhere between 20-40%. It is absolutely inexcusable that not only roughly 1 in 4 people default on their loans, but that banks and mortgage lenders were so poor at analyzing the creditworthiness of these borrowers that 30% of their client base is defaulting.
Now the modern day psychology in America is that, by default, these people are victims. Oh, the poor sub prime borrower. Boo hoo, they are in default. They must have come upon hard times. We need to help them.
I, of course, being the evil, right wing fascist who smashes butterflies and doesn't wash after going to the bathroom, am of the more old school American psychology; let them sink. I am also so bold to call these people what they would have been called all of 30 years ago;
Deadbeats.
Give it time, this too will become politically incorrect word you will no longer be able to use.
Those partygoers should ask if you predict whether or not there will be a recession. Which does beg the question, do you think there will be one?
ReplyDeleteYes. It was kind of interesting, but I had to write the book as the economy was slowing, but hadn't gone into an official recession. But the syntax and tone of the book operates from the premise we will.
ReplyDeleteIt's interesting in that pretty much every figure I've seen ASIDE from GDP indicates recession. But for it to be officially a recession, that is defined by two quarters of contracting GDP.
I could be wrong of course, but I would but it at a near certainty.
How much training did you get in financial matters in High School? Probably zip. So when the bank tells you they have a great new product and you can afford a house, they're the experts, right?
ReplyDeleteOn the other hand, I had a radical teacher in Senior High who took a full 50 minute class to explain compound interest to us. I also have a Dad who taught me about investing, the stock market and paying off your mortgage. He used to loan money out for private mortgages, and I remember one night when we children were tired and wanted to go home, and how he insisted that we were going to drop off the paperwork for a man who had made his final payment and now owned his house mortgage free. Maybe it's because I was feeling so miserable and tired that night, but the lesson stuck in my brain. Now I have two financial objectives; max out my tax sheltered retirement account and pay my mortgage of ASAP. Right now I'm on track to pay off a 25 year mortgage in 17 years, and I've moved my family from a townhouse to a single-family home in that time. I work very hard, and we don't take a lot of vacations, and yes I'm very happy that a couple of people cared enough to give me some knowledge!
Hey, El Capitan, do you have any figures on how much our economy is directly or indirectly related to housing? I would think it's a good chunk of GDP, depending on how it was figured, of course. As an example, I hear from everyone in the know that lumber is a lot cheaper than it was 3 yrs ago- falling demand. Not only do you have all the raw materials going into a new house, but there's appliances, furniture, HVAC, etc.
ReplyDeleteCapn - you may find this of interest.
ReplyDeletehttp://www.floppingaces.net/2008/07/13/acorn-another-example-of-obamas-judgment-and-associations/
So, add government to the list of "enablers" of the "deadbeats".
Someday, I need someone to enumerate the cost to our nation's economic strength because our government subsidizes deadbeats and the unproductive while discouraging success and self-reliance through tax policy.
Care to take on that challenge, Cap'n?
What's also fascinating in that chart, when looking at each vintage, is that the default rate is exceeding 20% in *only 6 months* and that the vintages show no discernible improvement. I'd love to see this benchmarked against the default rate of conforming loans. Basically this means that they've had several years to adjust underwriting, with full knowledge of the failures in their own systems.
ReplyDeleteThis spells three different possibilities:
1. The banks were all exceedingly stupid and could not improve underwriting capabilities with all this data at hand (possible, but hard to believe).
2. The banks could still turn a profit on this, plus some other combination of affiliate business (points paid, secondary fees, etc.). (Fundamentally untrue though believable as a fairy tale, as many have since gone out of business)
3. So fully sure of the pending bail-outs, investors so happy that they had made out over the prior 3-5 years that they stopped paying attention to risk fundamentals, the execs didn't give a damn about the pending doom.
This is exceedingly frustrating for all of us paying taxes, and who pay our bills. In any of the 3 events above, the banks and the leper colony of borrowers they brought with them should have been left to their own demise...dragging their blind and/or stupid investors in tow.