Evan, this is very insightful, interesting comparison between our country and Italy. It makes me glad I live here and only visit the lovely Italy!
I am interested however in exactly how Italians purchase a home. You say they don't take out loans for longer than five years. This means one of two things. Houses are cheaper. Incomes are higher. How much are homes in Italy? What is the average yearly salary? I am sure most Americans would gladly pay less for a house, or make enough money after taxes so that enough can be saved within a reasonable time to purchase a house straight out.
I just don't see how that is possible, especially here in Los Angeles were we both live. (unless of course you work as an actor on a hit show and then are participating in the movie version! LOL)
I just bought a 900 square foot fixer in Burbank for 419K. Even if the price drops, I'm able to rent it for 2400 per month to people like you who don't want to buy. I pocket 500 per month and get the tax break. I put a lot of people to work prepping the house for rent. My contribution to the economy. I guess I just don't see homeownership as the misguided idea of greedy Americans always wanting bigger and better. Homeownership is a lifestyle. And I'm buying it.
PS I loved you in SATC!
Brother, Can You Spare One-Point-Seven Million, at 6.25%?
I'm sorry to "go negative" here, but there are so many repulsive things to expound upon these days. There are minor, but not meaningless, matters, such as member after member of a congressional oversight committee hobnobbing with Roger Clemens in the days before they publicly interrogate him for possibly perjuring himself in earlier testimony (not to mention the fact that the New York Times has now given his testimony more prominent coverage than yesterdays' presidential primaries). Clemens' extensive series of meetings with elected officials is not a "completely unprecedented" occurrence, according to one expert on such matters -- though that leaves a huge swath of descriptive terms still available, from "unusual," to "unseemly," to "wildly inappropriate." It would be one thing if there were even an effort being made to justify his lobbying as an attempt to garner or clarify facts. But the most apparent fact is that a host of old, white, male baseball fans are ejaculating all over themselves with glee from spending a few private moments with one of their heroes -- the day before they're supposed to get to the bottom of whether he's lied to them already. If they had any seriousness about their work and their reputations they'd resist the urge to end their meetings by posing for photos and receiving autographs from the subject of their investigation. Or maybe the dumb ones would do it anyway, but try to hide it from view. None of them have done either.
Then there are the really serious abominations in the news, like yesterday's U.S. Senate vote to absolve the telephone companies that turned over legally protected private information about their customers to the government as part of its spying operations and insulate them from any lawsuits that have resulted. This is, in practice, an official sanctioning of the telecommunications industry as a partner with the U.S. government in the surveillance of American citizens. I don't know about you, but even if I were one of the people who think it's sort of okay for the government to listen in on private phone calls without demonstrating to a judge some reason for suspecting the wiretap's subject (which I don't), I sure as hell don't want AT&T and Verizon acting as my overseers. Those companies can't even keep my cell phone calls connected. And they haven't, in my experiences, been exactly straightforward and forthcoming about their own deceitful billing practices. Yet now they're in the law enforcement business, with my tax dollars helping to pay for their efforts.
But my gripe of choice today is about the so-called "mortgage industry crisis," because its root causes (and the complicity of many Americans in the dynamic) are so emblematic of more widespread problems in our society.
In case any readers are unaware, we are a society based on credit. People here think they can afford things if they're able to borrow enough money to possess them. Though it might be difficult for many Americans to grasp the notion, this is a serious flaw in logic.
As with many of my breakthroughs in perception, this one was precipitated by my exposure to my wife and her family. They are Italian citizens. Her parents have never lived outside the small town near Bologna where they were born, and she has only resided stateside for the past six years. Her father was a mechanic, as was his father, fixing lawn mower engines, motorcycles, and automobiles, until he trained himself to design software for industrial routers (the kind that shave metal, not the kind that send wi-fi signals) that would allow him to manufacture parts for agricultural machinery in his own factory, which was attached to his house, all by himself. The machine makes a hell of a racket through the wall when you're sitting in the living room, and the smell of industrial lubricant permeates the home. But the inconvenience (just like the inconvenience of living with his mother until he was in his forties, and my wife was nine) has allowed him to recently retire with a good amount of savings, and as the owner of several pieces of property.
And when I say "owner," I mean "owner." My father-in-law has never taken out a mortgage for a term longer than five years. Neither, I have learned, have most Italians. When they borrow money to buy a house, it's for five years maximum. They've never even heard of a thirty-year mortgage. When I explained one to an Italian bank loan officer, he stared at me in horror. What they'd think of the common American practice of refinancing a house repeatedly, sometimes annually for eight and nine years running, I can only imagine. They just don't buy what they can't afford, or won't be able to pay off in a reasonably foreseeable time period -- and when they use the word "afford" its meaning is "to be able to pay for completely, and own outright."
"It's like when I go to the store," my wife says. "I give away the money, and I take something home. The money is gone. And what I take is mine. Because I paid for it. Until I do that, I don't own anything."
According to this thought process, anyone who's put twenty thousand dollars down on a four hundred thousand dollar house doesn't own anything. And, if their mortgage is for thirty years they won't own anything until that time period is up. If they refinance for longer and longer periods, they'll never own anything during their lifetime. As the currently accelerating foreclosure rate demonstrates, their thought process is right.
Except many Americans won't agree. They'll point to their title, and the paperwork that says they own their home; they'll point to their pink slip that says they own the car they make payments on. They'll point to their credit card bills, and to the television they charged that's hanging on the wall of their mortgaged home. They'll insist that buying on time is a perfectly legitimate, time-tested way of getting to live well in the little time we've got. But foreclosures are exceedingly rare in Italy. People don't lose their homes. Because they don't pretend to own them when they really don't. In fact, they don't live in them at all unless they pay rent to the actual owner, or have paid for it in full - or plan to within just a few years - themselves. If they can't afford to do either of those things, they keep living with their parents, like my brother-in-law does. And he's thirty-nine.
Yes, I find the prospect horrifying as well. Don't worry Mom and Dad, I'm not moving back in. But, no matter how unthinkable the practice of living with your folks well into adulthood might seem, it's less financially insane than thinking you can "afford" a home simply because someone is willing to lend you enough money to move into it.
My wife and I would like to own a home, but we still rent. Modest houses in nice Los Angeles neighborhoods start at around a million dollars (and by "nice," I ain't talkin' Beverly Hills). The nicer parts of Santa Monica, near the ocean eleven miles west of us, cost considerably more. There, it's one point eight million just for the "dirt," as the real estate agents like to say - meaning that's the cost of a single residential lot with no structure on it. Yet at every open house we see the same thing: a parade of young couples who seem to be seriously shopping for the million-dollar two-bedroom town house, or the four-bedroom with a pool for three-point-five.
"How can they afford it?" I wonder out loud.
"They can't," says my wife.
"But the properties all sell," I go on. "Someone's going to move in here."
Because they're going to borrow two million dollars," she'll say. "They're not going to own anything." Then, as she passes the BMW parked out front, "They don't even own this car."
She's right. They don't. But they do get to drive it.
At least, that is, until something goes wrong.
A couple of years ago my father-in-law made the stunning statement that he'd like to help us buy a house. I explained our finances to him and told him what I thought we could afford, with the help of a traditional thirty-year fixed rate mortgage. He looked at me like I was nuts.
"No, no, no...listen to me," I said. "We can put this much down, helped by you, and we finance the rest. We borrow it."
His eyebrows arched.
"Hold on...hold on. First of all, we get a tax deduction for all the interest we pay. You see? Then, with interest rates so low, we can make just about as much by investing the cash we have left as the borrowed money is costing us. We'll be using the bank's money for thirty years at almost no cost!"
Which is true. We could. And most American's do. But "no cost" doesn't mean "no risk." Which the Italians seem to understand, and Americans don't.
"What if someone loses their job?" my father-in-law asked. "What if someone gets sick? Then you have nothing."
Or, as many who are now getting burned might ask, "What if my loan rate adjusts?" Or, "What if the value of the house goes down?"
But my father-in-law's caution, and the caution of Italians in general, doesn't prevail here. It's seen as quaint, or even foolish. If the money's there and it's cheap, the thinking here goes, you'd have to be nuts not to use it. Go for broke, some might say. And that might be exactly what you'd end up doing.
Except now the government is going to get into the act by helping to "save" some of the more misguided borrowers who were preyed upon by criminally negligent lending institutions. Or, those lending institutions will all help each other, and themselves, by taking measures to stave off costly foreclosures (if the prices of homes fall too much, or sales decline enough, the finance companies lose as well). But it's not just those companies that have been negligent. So has the government that's now coming to the supposed rescue. By imposing no effective oversight, and by aggressively encouraging every American to live in a structure they can't actually afford to own -- which they're now going to continue to do, through late-game interventions.
I keep hearing about how many Americans will be hurt if housing prices fall precipitously. Entire neighborhoods will be devastated. But those prices have gone up as much as five hundred percent over the last ten years. Prices should come down. And the only ones who'll be burned will be those who bought when prices were already ridiculously inflated, or who continued to borrow against houses whose "value" bore no relation to reality. That kind of borrowing is speculation, pure and simple. It's a bet that prices will go up forever. And when you bet, sometimes you lose.
Besides, even if a number of people do get burned, for all those who suffer financial losses, won't an equal number be helped who wouldn't have been able to afford a home if prices stay so high? Why shouldn't those who've been more prudent and sensible have the opportunity to buy at lower prices as the market adjusts itself down? It seems to me the entire system is geared toward rewarding those who take what could be considered ill-considered risks. What about those people who've stayed on the sidelines, realizing that the buildup in prices is unsustainable? That "adjustable rate" or "all interest" loans are unjustifiable? Who've waited patiently, perhaps even wisely, for the correction to occur? Are we really so committed to our credit-based way of life that we're willing to see those people penalized, while the speculators are protected? It appears so.
As with some of my other posts, I expect there'll be at least a percentage of people who'll say, "If you like Italy so much, go live over there." But I don't want to. It's a mess, for a whole different set of reasons. The government is corrupt, barely functional, and bleeding the people dry. (If you want to read some social commentary about Italy that'll put my American rants to shame, check out Beppe Grillo's blog, or read about him in the February 4 New Yorker.) But at least the people there have sense enough to protect themselves from the greed of their lawmakers and their lawmakers' corporate partners. They haven't bought anyone's argument that the most important thing in life is to get to possess that which you can't afford to actually own.
When my father-in-law heard me say, "But, by your reasoning, we won't be able to buy a house at all. Or we'd have to buy one so small, or so far away, that we wouldn't want to live there," he just shrugged. "So what?" he seemed to say (he doesn't speak English, so I'll never know for sure what he meant). "I lived with my crazy mother for forty-two years. Your wife slept in a dresser drawer, in our room, when she was a baby. Just how much more than that do you think you deserve?"
A lot, a lot of Americans seem to say. No matter what the risk. No matter what the possible cost.
Of all the proposed solutions, the only certain, long-term one would be the most unthinkable to many: stop buying what you can't afford to own. Meaning, what you can afford to pay for, completely, today -- or at least within a short-term time period, during which you actually plan to continue to inhabit what you've bought. Insane, you think. Right? But that's the way most of the rest of the world lives, and always has.
As my father-in-law might ask, "Just how much more than that do you think you deserve?"
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Terio...
The answers to your questions about home ownership are clearly stated in the piece. Many Italians don't purchase homes as young adults. They live with their parents well into adulthood, at least until they marry and often well beyond. In my father-in-law's case into his forties. I'm not endorsing the practice, only drawing the generalized comparison. Thanks for the kind words about SATC. And I hope you'll be paying taxes on that rental income you crow about.
E.H.
I agree with every single word you wrote.
Americans live on borrowed wealth, and it's not that much of a coincidence that the mess America's economy is in, is due to overspending and borrowing. When politicians encourage people to ceaselessly consume using credit to prop up the failing economy, it's no wonder people generally have no understanding of how to live within their means. Wages have remained stagnant, and the cost of living has skyrocketed over the last 2 decades. The gap between rich and poor has increased to almost astronomical proportions.
One of the reasons housing prices have become so ridiculous in LA and Sthn CA, is partly because of illegal immigration. Nobody wants to really address this issue but it's placing a huge strain on many areas of the economy in CA. When there are a few extra million people living in your state, the housing prices just reflect the demand, versus supply. Even with the recent prices dropping, the land and houses are still over valued.
Now that we have the mortgage crisis, I don't think as a taxpayer I should have to bail out others who are incompetent with money and who feel entitled to live beyond their means. Neither do I think as a taxpayer, I should have to bail out failing corporations, courtesy of Government handouts. This type of mentality in America has to stop. Excessive borrowing has created a debtor nation. When people borrow more than they can really afford to repay, it's dishonorable and it's dishonest.
Thanks for the words, Beyond....However, I have to state that I don't agree with your connection of exorbitant housing prices and undocumented residents. I've seen every peril of modern society these days connected to undocumented residents, and I don't subscribe to the trend of blame going around. I'd guess every dollar of increase in housing markets (if there have actually been any) have been more than offset in the many ways the abundance of low wage workers have cut prices in other areas - like construction, food prep, delivery and transport, and on and on. We're all immigrants here in the land of the free and the home of the brave, only once or twice removed. All the undocumenteds I know in LA work five times as hard as I ever have for one tenth the pay of anyone I know.
Just another man's view.
E.H.
I think you misunderstood my point. I'm not trying to place blame on illegal immigrants, or scapegoat them in any way. I'm merely pointing out a statistical parallel. As illegal immigration has increased in So-Cal, so have housing prices exponentially. There are studies that show immigrants have been simultaneously victims and contributors to the housing crisis in CA.
http://www.springerlink.com/content/hm021xp673066115/
Having lived on 4 continents, I know a lot about what fluctuations in population can do to the real estate market. How hard illegal immigrants work, or what they receive or deserve in comparison to legal citizens, is not under dispute nor relevant to my post or my point. Just another world traveler's view. :)
Sorry Italy is not a nation of economic brilliance
They have a massive government debt load. Their Lira used to be a joke. Their governments didn't last a full year in office.
Over 1/3rd of the Italian economy used to be underground, and not reported to the government for taxation.
If we Americans were able to hide 30% of our income from the government, we too would be able to pay cash for our houses.
I must confess that the entire financing industry is a mystery to me. I have never felt comfortable about CREDIT, whether it be credit cards or loans. In fact, the entire concept of MONEY baffles me when I actually think about it. Anyway¦
A few years ago, probably around the same time that the Bush administration was engaging in distorting the OCC in its "for the first time in its history" use against consumers (by aiding banks in making these predatory loans), my wife and I looked into buying a house. We both had very good credit ratings, according to the loan officer at the bank, but he still would not loan us the amount we needed to make the down payment on the home we were looking at buying.
As we left the bank scratching our heads as to why we were not considered worthy of the loan we needed, I was instinctively starting to recognize that this particular loan officer may have actually been honest with us on some level when he had said to us near the end of our session with him, "Well, you might try another bank; you may be able to borrow from another lender, but I would not be comfortable lending you the sum you requested." I was also instinctively starting to smell a rat.
At that point I became resistant to the pressures coming from my wife, her mother, and various other compatriots to seek a loan somewhere else. I could just sense there was something wrong, and decided to wait it out. I have been very glad I did ever since. And I have been grateful that the loan officer we talked to acted as he did, and helped to set off my instincts about being preyed upon by a predatory trend in our society.
At least it's good to know there are some decent people in the industry.
This all goes much deeper than we can know at present. Consider the following excerpt from a recent WaPo article by the governor of New York, Elliot Spitzer:
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http://www.washingtonpost.com/wp-dyn/content/article/2008/02/13/AR2008021302783.html?nav=rss_opinion/columns
Individually, and together, state attorneys general of both parties brought litigation or entered into settlements with many subprime lenders that were engaged in predatory lending practices. Several state legislatures, including New York's, enacted laws aimed at curbing such practices.
What did the Bush administration do in response? [...]
Not only did the Bush administration do nothing to protect consumers, it embarked on an aggressive and unprecedented campaign to prevent states from protecting their residents from the very problems to which the federal government was turning a blind eye.
Let me explain: The administration accomplished this feat through an obscure federal agency called the Office of the Comptroller of the Currency (OCC). The OCC has been in existence since the Civil War. Its mission is to ensure the fiscal soundness of national banks. For 140 years, the OCC examined the books of national banks to make sure they were balanced, an important but uncontroversial function. But a few years ago, for the first time in its history, the OCC was used as a tool against consumers.
In 2003, during the height of the predatory lending crisis, the OCC invoked a clause from the 1863 National Bank Act to issue formal opinions preempting all state predatory lending laws, thereby rendering them inoperative. The OCC also promulgated new rules that prevented states from enforcing any of their own consumer protection laws against national banks. The federal government's actions were so egregious and so unprecedented that all 50 state attorneys general, and all 50 state banking superintendents, actively fought the new rules.
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Note the "for the first time in history" component of this Bush adminstration approah. The Bush admin is simply beyond my ability to believe at this point. Has there been ANYTHING they have done that was not harming our nation? ANYTHING???
RixHex: wonderful post. It seems egregious that Bush (or Cheney or whoever) is using our Federal government to prevent states from enacting and enforcing laws that help people and help protect the environment. They have followed a similar strategy in trying to prevent states from enacting stricter laws to protect the quality of air and water.
What is wrong with these people and why have we allowed this to happen? I just want to say that I share your feeling of complete incomprehension and astonishment regarding the regressiveness of the Bush administration.
I assume your phone will be tapped under FISA now that you have voiced something un-American--less debt.....even if true! With so little of the early mortgage-payments going toward principle you would think it would cause an aversion to the 30-year-mortgage. Then add how many months we work to pay off all our taxes-- to about May or June. So, interest and taxes consume much of the result of our labor. And as long as future-money is available "now" the "game" is sustainable until the money is costly or unavailable. Well that time has come. Maybe all Americans will be willing to rethink our way of life. Maybe smaller homes and cars not traded-up for as often is advisable. Maybe not fussing about the "trendiness" of our clothes. Maybe eating healthy food at home more often and not paying to be "served" in restaurants will be considered. We need to reconsider much and like an addict that has hit bottom, it will be forced on us!
Granted, we have millions of crackerboxes out there. We have an enormous bubble just waiting to burst. But why should the government's response to it be a bailout (which can only be accomplished with .. yessir, more credit!).
Let's do this:
First, let's impose stiff regulations upon consumer interest rates, upon changes to those rates.
Then, let's reform the credit-reporting industry. If your credit rating is about to change, you should be given a written notification and have 30 days in which to dispute it. Right now, the worse your rating becomes (especially without your awareness) the better a banker likes it.
Third, let's re-price some loans. What's that "$500,000" home really worth? "$200,000?" Okay, poof, you now owe $200K. The other money really never existed anyway, and we're just going to stop pretending that it ever did. Also, we're going to stipulate that you cannot sell that house for more than $210K, and you cannot take out a second mortgage or otherwise further-encumber the house.
Fourth, let's re-price those interest rates. Poof, you now have a 5.25% fixed rate mortgage on your now-$200K fairly priced house. Keep the loan for 5 years and we'll drop the interest rate another 1%. We're going to put you back into a financial position that you CAN pay.
What we're doing with all these moves is, we're converting those non-performing loans back into performing ones. We're giving consumers a practical incentive to cause it to perform.
We're taking consumers out of this debtor's-prison that is caused by ... an illusion.
We're giving the banks actual income while we busy ourselves "stating the obvious" about where money actually does and does not ... exist.
I would argue that the above strategy does NOT "cost" anybody anything: the "money" does not exist in the first place. Even if I have a piece of paper that says that I loaned you half-a-million dollars on a pile of sticks that I claim is worth half-a-million ... if that statement is not grounded in reality -- in YOUR reality -- then it's just not real at all. It never was. Therefore, if I use my fiat-power as a lawmaker to impose "reality" upon this hyper inflated balance-sheet, I'm just erasing a bunch of obviously-already-meaningless zeros.
"Let's call a spade a spade" and get on with our lives, shall we all?
I like your ideas,... at some level they make massive sense,...
But of course barring some seismic shift in Corporate sensibilities, or civic responsibility from the ultra-rich and foreign powers that hold so much of our debt - it won't happen the way you spell out.
Having been one of those who bought beyond her means, I'm totally with you, Evan.
http://strictlyanecdotal.com/2008/02/11/there-should-be-blood.aspx
That's a great post you've linked to, Heywhat. I've never seen anyone be so forthright about their own responsibility. Everyone who's put their opinion up here ought to follow the link and read your moving story.
E.H.
Thank you, E.H., that's all, just thank you.
Let me give you a couple of technical points:
1) There is no "title" to a home. There may be a title policy, but it is a deed which conveys ownership and the deed is of record in the county where the real estate is located.
2) The mortgage or the deed of trust is effectively an encumbrance on an asset (real estate...dirt) conveyed to the purchaser with the help of financing from the bank. Indeed it is you, the obligor on the note, the mortgagor who owns the property. It is simply a legal matter... you'll find out when you go to court eh?
3) When you buy real estate you buy a legal plat of dirt. If your lot is 7000 sq ft, each sq ft should be $10 of value. If there is an improvement (home) on the legal plat the appraisal will describe, say 2000 sq ft and value at $100 per sq ft. So before you buy this "house" find out how much you pay for the dirt (per sq ft) and how much you pay for the improvement (the house). ($270000 in my exmpl)
The interesting thing you will find is this: The dirt in South Dakota looks just like the dirt around Santa Monica/Malibu. Why would you pay a "fools-price" when you could get a comparative steal in South Dakota? (Once you can answer that question, you'll know all about the denizens of disney land)
You are correct in saying that we americans spend way over our heads. It is almost impossible in many cities in the US, and now Italy, to find an affordable home. People are having to borrow more and more to get into a home. It has gotten out of control, in my opinion.
In Italy, wrt taking out short term loans, you are forgetting one component where Italians and Americans differ. Many purchase homes, paying a large portion in the black. When we were looking for our home, so many sellers listed a price, but then when you talk money, they actually want an additional large portion in the black, or a large chunk of the list price in cash/black. That makes the money borrowed a lot less, becauses a large percentage of the home was paid in cash/black.
My husband and I, and my sister in law all have 20 year loans. The houses in our town are very expensive (not saying I have an expensive home, they are just overpriced in our area - similar to Seattle).
The older italians are, as you said, content with their living conditions, going wihtout, and making due. They also repair things more then we do, as opposed to always buying new. I do think, however, the younger italians are becoming more Americanized, moving out, branching out, and buying more.
I love Bologna, it is a beautiful city.
I always love when Evan contrasts the Italian way from the American way.
Evan, read a book or two. Guess where modern finance originated from?
Italy.
Where was the promissory note born?
Italy.
And, your Italian relatives are wrong. In the long run, it is better to finance a house than it is to pay everything up front. It is called leverage. In other words, you pay as little as possible to borrow somebody else's money in order to maximize the return on your own investment.
And, when you consider the government pays for the interest, you are basically borrowing money for free.
You can't get a better deal than that.
Serfie...
I've chosen your blurb to respond to due more to its tone than content, but I'll weigh in on both. My post didn't intend to comment on where financial theories and practices originated. It's not a history lesson. It accurately portrays and compares general trends, in terms of living on credit, in two contemporary societies.
As for your insistence on the wisdom of leveraging purchases, your confidence is a perfect example of what my post attempts to point out. Your absolute faith in the leveraging system (and your naive belief that it is cost free) is, in my opinion, the result of having such views pounded into your head since birth.
I understand how to leverage purchases. But I'm open minded enough to see that, while I might be able to get through my own life without such leveraging blowing up in my face, not everyone will. There are risks to living that way: jobs lost, illness, market crash. Mortgage insurance can work as a safety net. But, if the insurance is needed, then premiums will go up to continue coverage afterward. If widespread insurance payments occur, companies go down, more jobs are lost.
So, yes...duh. It's great to live on someone else's dough, beyond what you can pay for in cash. And many can get away with it unscathed (unless you count the children who'll inherit your debts when you die; what happens if the leveraged house is worth less than the amount that's been borrowed against it when kick off?) My point was that it's not necessarily the most wise way to live, as a society, IF YOU'RE WILLING, AS A SOCIETY, TO LOOK BEYOND YOUR IMMEDIATE LUST FOR GRATIFICATION AND TAKE INTO CONSIDERATION THE WIDER RISKS AND COSTS THAT DO, INDEED, EXIST.
I love HuffPo and the exchange of idea. But, Serfie, next time you might want to ease off on the snide-ometer a little.
E.H.
1. You denigrate Americans every chance you get, so I think it is little disingenuous and hypocritical on your part to lecture me about snide comments.
2. Your notion that is society's responsibility to take care of people who refuse to read contracts or abide by the terms of their contracts is ludicrous. On the other side, banks and finance companies need to take responsibility for who they borrow to and the risks they take.
When you entered into a contract to do a show like Sex and the City(I thought you were awesome, btw), was it society's responsibility to make sure you got a fair contract, or negotiate a salary for you, or make sure that the producers had enough money to pay you? I am sure you have a lawyer, an agent, a union, and a business manager to help you out. I'm sure you pay all those people handsomely for their services.
In the larger picture, Americans have literally thousands of free and government resources available to help them make decisions about financing and buying a home. Real estate agents, loan brokers, banks, finance companies and buyers and sellers have to disclose all material facts in clear and comprehensible language. This is the law. Society has already done its part.
3. Children are not required to pay the debts of their parents when they die.
Further, I take offense that you think that buying a home is the same thing as an "immediate lust for gratification." Shelter is a need, not a want. It makes absolutely no sense to pay rent and throw money into a hole while saving so you can pay off a million dollar house completely. That is an inefficient use of money. It has nothing to do with greed.
"And, when you consider the government pays for the interest, you are basically borrowing money for free." -- What government are you talking about? Here in the U.S., interest on a mortgage is tax-deductible, meaning it subtracts from taxable income and reduces the amount of income tax to be paid. I don't know about you, but my mortgage interest is not covered by my tax refund.
No book required. Do a search on each of the following:
Medici (the banking family)
Pacioli (double entry accounting)
Pareto (Pareto optimality micro pricing)
Ricardo (comparative advantage basis for trade)
Pretty impressive list of thinkers.
Excellent post. Two points:
1) The US mortgage crisis has been caused in part by the lack of affordable health insurance. Millions of Americans refinanced houses that had been paid for in order to pay the outrageous cost of their medical care. These costs constitute an unacknowledged tax, one that falls mostly on the old and infirm. The mortgage crisis and the health crisis can't be looked at in isolation.
2) In my country, Canada, less than 5% of mortgages are sub-prime, compared to more than 25% in the US. Most of the mortgage gimmicks that are now causing such havoc in the US are illegal north of the border. Mortgage interest is not deductible in Canada. The result? The housing market, though robust, is far less speculative.
House prices are obviously way too high if it's typical and expected to put the pay-off date 30 years in the future. There's a lot going on with this, but basically, we as Americans are strapped for cash, and we've all been living beyond our means. In fact, the American public is simply mirroring the government, which continues to pump money into defense and military operations when it is already seriously in debt. Do we expect anything else? The highest of the high in political power pretend that money isn't real, that debt will never have to be paid back or if it is not anytime soon. And that even if the debt is real, it's 'good debt,' like a college loan, when it's really just a way to continue war operations as usual. Until the majority of Americans are making a lot more money or are given a lot more money, the economy will suffer. It's based on consumption, and the only things we can afford to consume are necessities. So sorry to the retailers who experienced low sales...maybe wages could go up and then employees would buy.
The problem with the credit thing was that there was always the assumption of a government bailout. Government bailout, bailout, bankruptcy, all is forgiven, everything is Ok.
Or, IS it?
This speaks to the encirclement of D.C. by entrenched special interests. When all Congress gets to do all day is cut checks, they don't have time to do anything else. Sleepy king, sleeping on the job...give us money...give us money...sleep...give us money...give us money...sleep...
Posted February 13, 2008 | 05:31 PM (EST)