Time to do Without?

[2 Much Whine]

I think back to days gone by when we were at war and people had to ration everything from sugar and tires to nylons and meat. As a nation we did that because we knew that to survive it was necessary. We are again engaged in war and experiencing financial meltdown yet it seems our consumerism has reached new highs. I don’t hear talk of cutting back on anything, in fact, I hear the opposite. To be “healthy” we need to consume more. Consumer spending needs to go up. It seems counterintuitive to me. If we are sending much of our money overseas and that is contributing to our debt wouldn’t it make sense to reduce our consumption and live within our means? Wouldn’t it be a good sign if more people spent less and saved more? What am I missing here? I’d be willing to eat Top Ramen a couple days a week and put off buying that new thing (Ipad, car, electric dog polisher, etc.) if I knew that it would help our nation as a whole. . . . . (note: no dogs were polished or harmed in the making of this post).

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[rockhills]

I think many people are treating their personal economics this way already. As for the macro, every time I have expressed a similar thought, I’ve been called naive at the most polite. We MUST continue building this economic house of cards, it’s just the way things have been done for 80 years. Even though the current system has stopped working for us, the short-term consequences of transitioning to what would be a better long-term outlook are far too painful for most people to contemplate.

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[lucky chick]

In the Carter years we were called upon to make [minor] sacrifices (if you can call wearing a sweater in winter a sacrifice). Now we are taught that everyone “deserves” a house, “deserves” a nice car, “deserves” more than our parents had. Even people who never did a single selfless thing or worked for the greater good feel entitled. We expect all kinds of services but cry like babies when asked to pay for them. On the contrary, we want tax cuts! We “deserve” them! If everyone ate Ramen once a week and used the savings for the greater good in some way, we wouldn’t need to raise taxes. But we are selfish. And we cannot get over our bloated sense of entitlement.

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2 Much Whine, you are right on. It would serve our country well to act in a fiscally responsible way as individuals, but just try telling people they can’t have the latest toy they can’t afford…

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[365Stairs]

Spot on 2 much whine…we aren’t out of this by any stretch…I take nothing for granted anymore – each meal is precious and more family focused than ever!

The common sensed folk consumer and small businesses that embrace an essentials only process for the next few years will win in the long term…

Realistically (which starts with reality) determining Need vs. Want every day. Everyone has their definition of essential.

Alternative personal choices to save are easy – “sacrificing” always starts with the little things…

Choosing a different place to shop or patronize (big box vs. local…name brand vs. knock off)

Skip the Triple Venti Mocha Frappawhatte for $7 and go with grande drip for $2…”it works if you work it”…

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[Huindekmi]

A century ago (or even 50 years ago), the US was a manufacturing and agrarian powerhouse. We built and exported goods to the rest of the world. We were a breadbasket to the world as well. The populace could cut back on spending significantly without hurting the economy much.

Even then, when our economy tanked, it took massive government spending to spur our manufacturing and build infrastructure to get the economy rolling again. Most of the rationing during the war was to cut back on personal use of the raw materials needed to manufacture the machines of war.

Today, we have ceded our manufacturing base to other countries who could or would do the work cheaper (often using what we would consider to be slave labor here in the states). A large portion of our economy is now commercial (services and retail) and financial. It’s such a HUGE part of our economy that when the populace cuts back on spending for goods and services, our economy suffers as a result.

The manufacturing isn’t coming back any time soon. Thus, we are told that the consumer needs to come back in order for the economy to get going again. From the Macro view, that is.

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[lucky chick]

Good point, Huindekmi. We are told to spend spend spend to get our economy rolling. Of course, it’s overspending (mostly home loans) that got us into trouble in the first place.

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Lots of discussion to be had here, but it’s a workday :).

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[JoB]

lucky chick

overspending on home loans wasn’t the problem

banks writing bad loans and selling them as good loans to our pension systems was the problem

when that house of cards came tumbling down the resulting tighten your belts business mentality brought our economy down.

when people lose their jobs, they can no longer pay back mortgages they made in good faith

and speculators don’t even bother trying when the housing market goes south.. pushing the housing market still further south.

it’s a slickery slope and the only ones bailed out of financial failure were the banks that created the mess in the first place.

We do need to spend to fuel our economy…

but we don’t need to spend on products manufactured overseas and sold by huge business conglomerates.

we can buy locally from the small businesses that hire locally and produce wage earners in our community.

we can buy locally from small businesses that source their products from local producers adding even more wage earners to our local community.

We can reuse, recycle and purchase and reuse again producing jobs in our local economy.

we can buy locally from farmers to ensure a local food supply if our economy collapses.

Our dollars are powerful agents when it comes to producing a strong local community.

strong local communities will be the backbone of any possible economic recovery in the United States..

because they employ locally and increase that ever elusive revenue that provides services and a safety net for us all.

you don’t have to buy the pressure to spend thoughtlessly to help fuel our economy… intentional spending will have a much greater impact.

think globally

buy locally

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[DBP]

Per 2 Much Whine:

I’d be willing to eat Top Ramen* a couple days a week and put off buying that new thing (Ipad, car, electric dog polisher, etc.) if I knew that it would help our nation as a whole. . . . .

And just what would it take to convince you that you were helping the nation as a whole?

I’m afraid you’ll either have to look in the mirror and smile a lot or hang out with like-minded people who reflect your values and will visibly appreciate your contribution to the common good.

You know I love you, 2 Much, but then I’m just one person. And sometimes not even.

*BTW: If you’re eating Top Ramen, you’re still not doing as much as you could be for the planet.

Try new Bottom Ramen® — Now with 95% less flavor!!

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[Jiggers]

Job..again you are the voice of reason. It is so simple, but yet they make it be like calculus.

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[DBP]

Liberals tend to let individuals off the hook for their bad decisions. Meanwhile, they blame corporations and government for everything. It’s not a balanced view, and it perpetuates the cycle of people ducking personal responsibility and refusing to learn from their mistakes. (Psssh! What’s new, right?)

banks writing bad loans and selling them as good loans to our pension systems was the problem

What? —So pension funds had no responsibility for due diligence? Anybody could have seen the housing collapse coming. Anybody. During the go-go ’90s pension fund managers were as giddy as corporate CEOs. They all played the game. So did a lot of house flippers.

I have sympathy for some home buyers who went bust. Some. Not all. I take it on a case-by-case basis.

Whenever I hear someone moaning over it, I’m like, OK:

1) Did you read your mortgage contract?

2) Did you calculate your monthly payments and debt load?

3) Did you factor in the security of your job?

Oh. You didn’t? Well, well . . .

I don’t care WHAT your lender told you, if you borrowed 300 grand on a house you couldn’t afford, my heart just don’t bleed for ya. Cuz ya know what? While you were living large, I was saving hard and taking piddly-ass rates for my CDs. And when I finally did buy, I bought a house that was considerably less than I could afford. And I put 20% down. Then I paid the house off.

Then I got fired from my job for refusing the wax the boss’s bikini.

That was six years ago.

Still got the house, y’all.

Livin’ small, but still livin’ good.

[zucchini munching sounds]

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[B-squared]

right on, DBP (and 2 much)!! i am constantly amazed at the debt people are willing to take on in the name of getting what they want instead of what they need. I am even more blown away when i see so many new cars on the road…. at least a house can be considered an investment. what’s going into retirement? Even Angela Merkel is encouraging fiscal austerity for Europeans instead of encouraging the wallowing in personal debt. Remember Bush telling people to go shopping after 9/11? Americans self medicate with their visa cards. and the effect is very short-lived.

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[JoB]

DP

i don’t let individuals off the hook for their bad decisions…

but i do let them off the hook for the extenuating circumstance of fraud.

yes, some people willingly entered into loans they couldn’t afford…

but others were just plain bamboozled by a loan industry that saw enormous profit in loan churning.

i wonder why the media doesn’t talk about them

or about those who simply got caught when the finance bubble burst taking the stock market and jobs with it.

or those who lost their home when they found the medical insurance they thought they had wouldn’t pay their bills

or lost their jobs due to chronic illness

when the housing market falls 20% even the most cautious investor can find themselves unable to sell the asset they invested in for more than the loan value…

and that six month safety cushion we are all encouraged to create for ourselves.. not enough when you are out of work for years at a time.

it’s very comforting to blame individuals for their economic woes citing the lifestyles of the over-consuming poor that are bandied about on our televisions ….

it makes it so much easier to pretend that this couldn’t happen to us.

The truth is that it can happen to any of us through no fault of our own.

We were caught in an unexpected downturn in the housing market when we moved from Minnesota to Seattle.

The collapse of that freeway bridge had a sudden devastating effect on the housing market in the burbs on the wrong side of the river… right in the middle of liquidating the house we bought there.

We were able to sell the house but pretty much lost all equity…

You might say we picked a fine time to move…

I think the hwy department in Minnesota picked a fine time to delay maintaining their bridge.

Frankly i am tired of all of this endless harping on the bad choices of homeowners who find themselves foreclosed.

The truth is that soaring medical costs and the inability to maintain jobs while ill have caused about a third of those foreclosures.

job loss and the inability to find another living wage job caused most of the rest…

yes, there were individuals who entered into loans in bad faith

and more than a few who were sold loans in bad faith…

and a few speculators who walked away from loans because the asset lost too much value…

but mostly… the people who have lost their homes are people just like you and me.

there but for the grace of god go I

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[redblack]

What? —So pension funds had no responsibility for due diligence?

those mortgage-backed securities were rated AAA, despite the well-known fact that they were poisoned.

you’re right: anybody could have seen it coming. and they did. and they were warned. and the financial sector ignored the warnings.

i’m with lucky chick: it’s all about personal responsibility… until it comes to tax day, then it’s “woah, daddy! get your hands off of my money!”

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[anonyme]

It’s been touched on here, but I’d like to see some ideas for a totally new brand of economics. Banking, the stock market, consumer indexes – what about completely re-thinking, perhaps even eliminating certain elements of this system? I’m not talking about anarchy, but revolution – quite possibly. Current systems are based on unending consumption; isn’t such a system doomed, given the fact that resources worldwide are finite and fast diminishing? I’m not an economist or a politician, but it seems to me that more needs to change than just personal, or even corporate, frugality – although that’s a good thing and an OK place to start.

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[kootchman]

A house is not an investment. A house is a speculative instrument. It does nothing to create wealth. You buy and hold it the hopes it rises in value. Only a real estate broker will tell you it is. Code changes can vastly increase your wealth,.. or turn the home into a pig you would dump at any price. Put a rehab sex offender unit down the street, or take three or four adjoining properties and get code variance..for a high rise..jackpot! Most homes are over priced…still. The bottom of the market ? As soon as the mortgage home deduction is phased out…and your “investment” property is no longer subsidized…then we will find the true value of an unsubsidized property. You “speculated” when you bought on a rising price bubble. The bubble burst. At best ya got some subsidized rent via the tax code. Watch… lots of people are buying gold… it too will burst… you did exactly what your government wanted you you to do… own a home. It puts lots of people to work, sucks up raw materials, sells tons of durable goods…and the true market values were kept inflated..because we all know… nothing raises government revenue faster than inflation… not even a 90% tax rate on bajillionaires. your government feasts and feeds upon growth….. good luck training that beast. Fact most people are calling for more… go figure.

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[kootchman]

JoB it’s just like stock prices…. they aren’t worth shit til ya sell em’…there is no such thing as “equity”…. unless you are actually the sole owner of the property…. the equity for most is in the hands of the bank..while you are charged mortgage interest while they ride the bubble up or down…either way, they get theirs. Call em crappy greedy loan sharking bastards..but they played the game exactly how our national housing policy laid it out. Curious..ever wonder WHY our pension funds were sooooo willing to buy them? Could it be that the defined benefits plans were so over inflated with assumptions (iike 5% compounded returns..) they were the only instruments that had the remotest possibility of meeting those plans…and the rah rah cheering section of Fannie and Freddie…. mind you we have yet to address the broken pension funds…see CalPers … or even good old WA state… our dumbass legislators… assumed an 8% growth rate as the basis for calculating benefits and contributions…. no they don’t want us paying mortgages anymore… they want our cash. Tell me, when have you ever seen a compounded 8% growth rate in any market/industry… (excpet government employment) for 30 years Never!

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[JoB]

kootch..

i would say thank you for that helpful primer…

but it really didn’t add a single thing to my knowledge…

nor did it change the fact that circumstances entirely outside my control and far beyond my expectations..

and we will hope outside those of the state hiway dept…

made a huge dent in the selling price of my home.

and that was the point

one week earlier and that equity you speak of as though it was air would have been safely nestled in my bank account.

We bought in good faith.

We read our loan documents carefully before signing them.

We paid like a slot machine.

Hubby wasn’t out of work a single day in that transition.

and still…

We weren’t speculating Kootch..

We weren’t looking for 8% or even 5% growth

although we bought in the right place at a time that should have provided that kind of growth

we would have been happy to get back what we invested.

as it turned out, since we put a sizable chunk down and bought wisely we were able to sell the house and pay off our mortgage…

which is more than too many people are able to do now.

I consider us lucky even though we weren’t able to sell for enough to recoup our down payment…

Even if your house is worth more than your loan.. finding a willing and capable buyer is not so easy these days.

bad stuff does happen to good people

even to good people who do everything right

good thing to remember next time you are feeling smug about the choices you made…

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[redblack]

A house is not an investment. A house is a speculative instrument.

sheesh. a house is a place to live, dude. preferably with extravagant luxuries – like publicly-owned electricity and running water.

you know things have gone too far wrong when we start talking about basic shelter as some kind of financial instrument or a retirement scheme.

and i know this is going to blow your mind, kootch, but everyone should have a place to live – without having to give a g*d*mn*d kidney to get it.

and, having said that, no one should have to give up his house to get a g*d*mn*d kidney.

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[kootchman]

uh uh… oh no I am not feeling smug..far from it..in fact I was pretty content to “let it ride”…but I am now pissed off..we who did it right and played by the rules..we got played…. I had realtors knocking on my door too… some theoretical amount of $$$$, I am doing great, went up in smoke here too. We are at the vagaries… redblack every realtor in town was quoting home ownership as an investment. It was the primary retirement supplement of two generations. I am in for a good, sanitary, safe shelter for all…and perversely enough…the affordability index when we emerge from this morass…should be better for all. However… home ownership my friend was touted as “the way” to middle class security. I know this may blow your mind … but… has your property tax been reduced 40% yet? Or your landlords? Nooooo. So who benefitted most for the 15 year home price run-up? Who was sending out annual appraisals with every market up tick? Who took the most cash out of the housing “crisis’? JoB… It is not an accusation of some pirating nefarious get rich quick thing… I merely point to the definition of speculation… buying something in the belief it will rise in value. As good as the plan was, as sensible as I made it sound…as promptly as we paid… the plan failed, miserably … other than that , I have good neighbors, it’s safe, great place to raise critters..it was still a good value for those reasons. she doesn’t have to worry about an estate tax anymore, the market took care of that future vexation. All I am hoping for…transit gets so damned gridlocked, I can finally parley L2500 into high rise and get my two pissed off neighbors to sell off 4 1/2 lots as a high density commercial lot…. and some developer can put 150 units of 1400 per month 1 bedrooms up high in the air..with views of the sound…before the inevitable medical disaster hits…

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[JanS]

redblack…from your mouth to God’s ear. Those of us who need kidneys find that over time, we are unable to work as much as we could before…and it’s a damned scary proposition when you have to worry about rent each month…

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[JoB]

Kootch…

“All I am hoping for…transit gets so damned gridlocked, I can finally parley L2500 into high rise and get my two pissed off neighbors to sell off 4 1/2 lots as a high density commercial lot…. and some developer can put 150 units of 1400 per month 1 bedrooms up high in the air..with views of the sound…before the inevitable medical disaster hits… “

now that.. is pure speculation.

i hope it works for you

but it is pure speculation.

the point is that it is too easy to sit there saying how stupid other people were

and that if they hadn’t been so stupid this wouldn’t have happened.

the problem here was not stupidity..

but venality

pure speculation

done by people who would never live in the houses funded by the mortgages they speculated with…

have a little compassion for those who were caught in a mess that definately wasn’t of their own making.

the next mess could very easily catch you

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