patrick.net

SQT Says:

One way to contain stupidity is to make sure that people are held responcible for stupid acts. If someone stupidly commits a crime, they usually face some sort of punishment.

The problem with American society is that accountability for one's own actions is nil. Criminals can plea insanity. Your obesity is the fault of the fast food industry. Parents blame poorly raised kids on the schools, schools blame it on the parents. I kid you not, there's a movement afoot to include the diagnosis "explosive rage disorder" in the new psychiatric diagnostic criteria (DSM).

In that context, do any of us really think FB's/banks/shady lenders/appraisers/The Fed/Bush will get any blame for this debacle?

Max,

Your site is just awesome. This is precisely the type of information I was hoping to compile for BA. Not just the flippers, but to chronicle the price reductions and crazy gains that happened in previous years. But it was just too time consuming. So I know how much effort you must have put in. Hats off to you.

I second the suggestion to put the "Loss" in bold red ;-)

On a side note, I had posted your site to this forum on 20th - in the "Cry for help" thread. Unfortunately not many - except DinOR - noticed it. Better late than never.

Criminals can plea insanity.

To me, insane criminals should still be removed from the society.

I kid you not, there’s a movement afoot to include the diagnosis “explosive rage disorder” in the new psychiatric diagnostic criteria (DSM).

People who cannot contain their "explosive rage" should be removed from the society.

We give criminals so much benefit of the doubt that undesirable behaviors are not sufficiently disincentivized.

I kid you not, there’s a movement afoot to include the diagnosis “explosive rage disorder” in the new psychiatric diagnostic criteria (DSM).

I have no problem with that, as long as it's used to put people away someplace nice and safe. (Which we all know won't happen).

Parents blame poorly raised kids on the schools, schools blame it on the parents.

We should blame both.

Parents must control their kids. Schools must expell bad kids. There is no place for kids who disrespect the society.

I have no problem with that, as long as it’s used to put people away someplace nice and safe.

Someplace "nice", safe for the society, and cheap.

I think the same law should be applied to people regardless of their mental health. Having a rage "disorder" does not make a criminal less deadly.

Being kind to the wrongdoers is being cruel to everyone.

newsfreak: And what, pray tell, are the distinguishing characteristics of each such... species?

I suspect that most people would agree that people should not be bailed out of their stupid decisions (moral hazard). Therefore, bailouts are, generally speaking, a bad idea.

But should we actively prevent people from making stupid decisions? It is hard to answer in the abstract. On the one hand, I'm not sure the government should be involved in dictating loan terms between willing lenders and borrowers. On the other hand, at a certain point stupid decisions, in the aggregate, can be wasteful and destabilizing. I would say that this was true of the tech bubble and probably also the housing bubble.

But who is really going to get burned? The housing finance system is so complex that it is hard to know how this will all shake out. Many FBs will probably walk away and declare BK. Painful, but not exactly debtor's prison. Many banks will have to take large loan losses on their retained portfolio. Weaker banks who have retained too much leverage will go BK. The banks which have managed to offload a lot of their risk will probably do ok. But someone is holding on to all that risk. Whether or not the government explicitly adopts a bail-out policy, it is easy to see how the taxpayers could end up footing a large part of the bill. (For instance, a lot of companies could go BK, which means that PBGC will need to assume a lot of pension liabilities for banks, finance companies, etc.)

People can declare BK, but they can't leave behind their equity loans, or credit cards - as I understand it - due to the new bk laws, and the IRS will be after them for their cut of the debt forgiveness that any bank makes on the repo'd home. So, I wonder what effect that will have on them?

I suspect that most people would agree that people should not be bailed out of their stupid decisions (moral hazard). Therefore, bailouts are, generally speaking, a bad idea.

It is more complicated than that.

Expectation of future bailouts is bad because it incentivizes irresponsible behaviors. The bailout itself is usually well justified. The only problem is whether the bailout will reinforce the expectation of more bailouts.

The solution: bailout the entity but punish the natural persons behind the entity. This way, irresponsible behaviors can be disincentivized but the adverse effects of a crisis can be avoided.

requeim says:

I have no problem with that, as long as it’s used to put people away someplace nice and safe. (Which we all know won’t happen).

My fear is that this will be another excuse to let crimes go unpunished, as in, "the explosive rage disorder is the reason I beat the crap out of my kids."

Maybe there will soon be a sub-diagnosis of "FB-related explosive rage disorder."

He has savings for a down payment. So I am trying to stop this NOT STUPID person from doing a stupid thing.

I always tell my friends that if they can afford the house for the long term then it is good to buy.

You should probably convince your friend that he cannot afford the house if that is really the case.

re_cycle,

I have never tried to convince anyone to buy or not buy a house. Until recently, I never even uttered the word "crash" in front of anyone. But not even Leslie Appleton Young has changed her tune, it is perhaps socially acceptable to mention that in a Greensapnisque way.

"Given the sudden and abrupt change of tone of prediction from a leading economist may make one feel, albeit tentatively, that a reversal in the rate of appreciation is such a possibility, however remote, that if it continues to deteriorate further may have the potential to cause actual reduction in asset prices."

If you search Ben's blog, you will find links to many articles in MSM, including the one that quotes Leslie AY.

He has savings for a down payment. So I am trying to stop this NOT STUPID person from doing a stupid thing.

If he's not making 6 figures, and if it's a "might" even if his wife joins in, then he can't afford the house. If you have a new kid you don't borrow a half-million to place a wager that house values will keep rising.

If he’s not making 6 figures, and if it’s a “might” even if his wife joins in, then he can’t afford the house. If you have a new kid you don’t borrow a half-million to place a wager that house values will keep rising.

If he and his wife are making $99,999 each, it is not too bad. $199998 a year should be able to afford an acceptable condo in SF.

So….does that mean Surfer-X should be removed from society????
BTW Where have you been Surfer-X?

I thought Surfer-X is 73% nicer in person. :)

Do any of you know anyone personally that actually admits to the fact that they are stupid?

I know someone. That stupid person is me.

He is a very nice person….who has explosive rage at trolls.

I no longer have no rage at trolls. I kind of miss Marina Prime now. :)

Of course, I miss surfer-x too. :(

Are you guys going to have another blog party?

On Ben’s blog today, they were saying how they missed the bull argument…as they no longer frequent our blogs.

Perhaps they are busy getting cash-out refi's to pay for their mortgages.

Lefantome,

I have not noticed what you say. I will look at the charts again. But not everyone has their salary deducted on 15th and 30th. Some are on biweekly schedules that do not align to monthly boundaries.

But these are typical bear market rallies. Huge upswings on the upside for a short term, then continued descent (sometimes slow) to lower support levels. Most people hate to admit this, but IMO we are very much in a bear market for equities.

I would not try to time these rallies.

NOT AN INVESTMENT ADVICE

capitalism and bubbles are stupid...

I kid you not, there’s a movement afoot to include the diagnosis “explosive rage disorder” in the new psychiatric diagnostic criteria (DSM).

it's been in there for quite some time, since DSM-IV -- may have been more of a suggestion at the time for a new diagnostic category. they were going to put in a 'swearing disorder' once, but had to give up on the idea because so many people swear these days (not counting tourette's syndrome and similar). so DSM is often a social construct, or exaggerates normal tendencies to create a syndrome. for instance, it's rare to find a 'pure' personality disorder, the traits tend to cross-cut a lot. homosexuality was in the early revisions as a disorder, and has been gradually changed to a lifestyle preference, i.e. is not there at all.

My answer to the question is: yes! The vast majority of people are not equipped to evaluate risks properly and need some guidance. Furthermore, there are a small proportion of people who are risk takers and could act in a manner that harms the collective (flippers come to mind). This government doesn't even trust people to smoke dope and drink responsibly (when the consequences are either minor or very well known), to let people have a free-for-all on money/legal matters will lead to rather bad things.

While regulations are awkward things and can be counterproductive, a free for all can be an even scarier situation.

ajh,

I don't think it's just stupid people that need to be saved. Time and again, very smart and very well meaning people have been taken down by their short term myopia and greed. Most people just aren't equipped to deal with information in a thorough and dispassionate manner. Consequently, they make flawed decisions based on their hopes, fears, and personal experience.

I think the bigger problem is that the government is also becoming less dispassionate and more shortsighted in its policing.

Case in point: the reason we’ll never have tax reform is because less than half the people pay taxes. Not a troll; just an example.

Sorry, everyone pays taxes. Some more than others, but everyone pays. Who told you othewise?

Hey all,
The June existing home sales numbers are out:

http://www.realtor.org/PublicAffairsWeb.nsf/Pages/06JuneEHS

Nationally, sales volume down again, -1.3% compared to May 06, -8.9% compared to June 05. Median price is only up 0.9% ($2000) YoY.

In the West, sales volume was compared to May 06, and down -17.1% compared to June 05. Prices are completely flat compared to June 06.

Condos are dropping in price: "The median existing condo price was $226,900 in June, down 2.1 percent from a year earlier."

Nice.

A lot of good posts (in spite of a "rocky" start).

This is one of the most basic questions we have to ask ourselves as a society. Because defining "stupid behaviour" can be chore in and of itself there is a temptation to stand back and say "well, as long as they're not hurting anyone else". Here's a simple rule that has helped for years and still works today, it's called;

The Prudent Man Rule!

If you, as a stockbroker (where it all started) mortgage broker or realtor WOULDN'T DO IT, why would you advocate some else do it?

If I (in my own account) wouldn't buy a bond with a 1 pt. mark-up on the buy (and 1 pt. mark-down on the sell) dump the bond the instant it reaches a 2 pt. upside why would I expect someone else to do it?

This distills the situation down to basic economics and in fact is the cornerstone of many litigation cases. The next thing the atty. need do is establish "a pattern of abuse". Was this a "one time incident" or a regular occurence? Believe me, you're in enough trouble even if it only happened once, but if this was part of a pattern then you've got real trouble as financial professional. As you should.

Placing someone that is self employed (or with great potential for increased income) in an IO CAN be O.K! Putting a teacher (where they have to wait for someone else to die before they can advance) in an IO is a No-No! Simply go back to the "prospectus" (if you will) and re-examine the original charter and design of that particular financial product and wether it's in investments, loan originations or home purchases things should be pretty cut and dried as to who was duped and who is just plain stupid. Prosecute accordingly.

SFWoman,

I recall seeing similar articles and the basic gist is that for people earning below a certain threshold (varies by area) they get more in services (fire, police etc.) than they pay in the form of taxes.

Conor,

I can't believe with all that's been revealed over the last few weeks that Tom Stevens (NAR Pres.) would even try to put a "buyer's market" spin on this pig! That's not even consistent with LAY's statement of just a few days ago. How did we go from "soft landing" to "I'll have to get back to you" to "it's a buyer's market" again?

George,

In order to really get our arms around this thing we need to weigh a lot more than just "property values". It's everything. From the market caps of the homebuilders and suppliers, the 60 bil. in realtors comm. in 2005, the fees generated from mort. brokers AND the value of the housing inventory in 1997 and at market peak, say OCT 2005. Even this would not take into account the increase in property taxes paid (or not) by FB's.

Conor,

I really really do see where you're coming from. But in a society such as ours, the irresponsible behavior of others can cause consequences on the rest of us. A society with high bankruptcy rates will mean higher interest rates even for people who do not intend to default. Homeless people still get taken in by shelters and clinics for treatment and care. We're still building jails... So I do see collective goods at stake, and where there are collective goods, there's at least philosophical justification for intervention in the public interest.

George,

You have to do your own calculations. You can find a lot of raw data at http://www.bea.gov/beahome.html

I don't disagree with you and others that this particular asset bubble doesn't have the potential for some of the most "damage" of any historical bubble. I'd say it could possibly result in the 2nd worst post industrial fallout in US economic history.

The reason the housing asset bubble is nowhere near the worst is a function of the overwhelming size of US GDP. In the past, GDP was orders of magnitude smaller, thus resulting in past bubbles consuming a greater portion.

Download the Excel sheet 'Current-dollar and "real" GDP'.

1929 GDP was $103.6bn or $865.2 adjusted*
2005 GDP was $12,487.1bn or $11,134.8 adjusted*

The reason this bubble isn't the "biggest" is because the denominator is so overwhelming. 1929's bubble was bigger, because there was so much less economy for the bubble to consume.

*adjusted via 2000 chained dollars, so as to not agitate the inflationists.

George,

Agreed. Just attempting to wrap your mind around the enormity of this thing leaves me staggering. That's why I couldn't understand why Randy H would even want to take this thing on. It's a bubble BEYOND measure. BEYOND quantifying. When it's said and done we'll be a lot more concerned with measuring the "fall-out". The defaults, the short sales, the foreclosures.

You can also download this HSBC research for reasonably granular historical national home prices and comparisons to real income, debt loads, etc.

Conor,

You might be able to find reasonably accurate 1929 debt data. I know that the 30s-40s debt data is very dubious and estimates of the true debt vary widely (especially during the war years). Things like lend-lease weren't on the books. Even in the early 30s there was lots of arms sales related debt that wasn't being booked.

In due course I suppose I could make "measuring the bubble's girth" my life's work (and who knows) someone will write about, why not me? For the time being though it seems to make about as much sense as arguing how long it would take your face to melt off in a "ground zero" detonation (vice being at the fringe of the blast zone). Dead is dead.

Huh? Didn't this used to be a free country? Don't we still pretend to be one? Freedom includes the freedom to do stupid things. Also, points to consider:
1. Who decides what is stupid and what is not? The government? That would be the case of a soot-covered pot called the kettle black...
2. Entrepreunership is all about doing things that look stupid to most people initially (otherwise, they would have done it themselves!) and without stupidity, there will be no progress. Actually, this is the biggestpractical argument against a big, nanny state - something that liberals never seem to understand.

Sriram Gopalan,

O.K, o.k I can go with that. When you're doing it with YOUR OWN money! When this thing shakes out we'll find (as we're already seeing) that much of the "bail-out" involves borrowers with NO skin in the game falsifying loan applications (with the coaxing of MB's to "get in the game". Someone is going to get stuck with that bill.

I agree though, making money involves risk. If you don't have the stomach for risk pull the covers over your head and go back to bed! Willingness to take on risk or calculated risk doesn't mean abandonment of principles. FB's will need to own up.