The Deadman Night Rider

A forum for evening students of the SMU Dedman School of Law and other outlaws..

Sunday, September 28, 2008


I have to admit that the last few weeks have been somewhat disorienting for me. For example, I've seen Robert Reich on TV half a dozen times talking about the financial crisis, and he's made sense every time. On the other hand, I've watched the Republicans lurch from cynical denial (e.g., we're only seeing "core inflation", and there's really no recession--we're just whiners) to empty grandstanding (McCain's declaration that he would fire SEC chairman Chris Cox, which earned him a stinging, full-column rebuke from George Will).

Now, in the muddle of the extended bailout negotiations, the Democrats seem to be the ones who generated most of the good ideas (capping executive salaries and taking equity positions in "rescued" firms, a post-bailout fee assessment), etc.), and the Republicans didn't have anything to counter except weak charges of socialism. The major exception was the proposed change to the bankruptcy code, which thankfully got shot down.

I hate to say it, but the Republicans richly deserve to lose this election, and unless something wholly unexpected happens in the remaining debates, they will.

Saturday, September 27, 2008

Jack Hough, you just said a mouthful

This dude sums up my sentiments exactly. He even hits on something I observed over the summer:

The average renter makes about $34,000 a year, but while the percentage of renters declines after incomes exceed $20,000 and rents exceed $600 a month, it jumps again once incomes top $150,000 and rents top $1,200 a month. In other words, poor people rent modest apartments for lack of choice. Middle-income people buy houses. High-income people, presumably with a dose of financial savvy, often rent nice apartments instead of buying.

Unfortunately, there's no way this article would have seen print even one year ago.

Time to pay the piper

Here's a graph that plots US household debt as a percentage of GDP over the last fifty years or so (from Contrary Investor, via Fabius Maximus). Note the sharp rise starting at about 2000, just as the tech boom/bust was tailing off. Now, take a look at what happened to mortgage interest rates at that same time--they fell off a cliff. As the Fabius article points out, "[o]ver the past decade, deficit spending by consumers has supported the United States economy." It's easy to see why the idea of a credit crunch puts so many on Wall Street and in DC in a cold sweat.

Meanwhile, China has enough cash to allow its taikonauts to perform their first space walk, and are working to field an aircraft carrier soon, with technology provided by Russia. Russia is also making pretty good money selling arms to Venezuela, and tightening its grip on energy resources:

"During Friday's meetings, Putin also said that Russia was ready to cooperate with Venezuela on nuclear energy. Their ministries signed a memorandum of understanding that sets out plans for an energy consortium. The deal would give Russian companies greater access to fields in Venezuela, which would reap billions of dollars in Russian investments."

Back here at home, "Flip This House" decides to soldier on.

Thursday, September 25, 2008

NY Times supports state action when the feds fail to act

But only when in comes to global warming. On immigration, not so much.

Wednesday, September 24, 2008

I hope you really, really, really like houses

Because you're about to own even more of them--and overpay for them, at that. I'm sure the investment bankers thank you.

Hopefully, one positive outcome of this whole mess would be an end to the fetishization of home ownership. Hell, that's why we have a Freddie Mac and a Fannie Mae to begin with--to broaden access to buying houses. Part of the problem, though, is that the system is a relic from an economy that doesn't exist any more.

The thirty-year mortgage is a product of a time when a family (one where only one spouse usually worked, by the way) bought a house in their late twenties/early thirties, paid on the note over their working lives, then paid it off just as they were getting ready for retirement. To say that this is now the exception rather than the rule is an understatement. Given how many times the average person will change jobs, locations, and even marriage partners during their lifetimes, most people should only be thinking about buying a home now in their fifties, by which time a much shorter note--say 15 years--is more appropriate. As a matter of public policy, we've recognized this trend with portability of retirement plans and even, to an extent, health insurance. But,we'll probably never see the death of the publicly-backed thirty-year note.

Because the one truly empirical conclusion that the mortgage meltdown yields is that people are dumb, dumb, dumb when it comes to this area--they'll pay way too much for a house, spend 50%+ of their monthly income on housing, commit to usurious rates of interest, and so on. And we have tons of programs at every level of government to help them do it.

So, I'm not holding my breath. I'm most interested to see what happens when (and if) lenders try to impose stricter standards, since we've heard alot of tsk-tsking this week about how this all started when we stopped requiring down payments, etc. My guess is that any attempt at discipline will be short-lived. I don't think most Americans have it in them to save over five years of so to accumulate enough for any sizeable down payments, unless they start to raid 401(k) plans. And just wait for more news stories about how home ownership levels have dropped back to 1990 levels--especially for minority households. Plus, folks like DR Horton and Keller have a backlog of unsold homes they need to move--and getting tetchy about figures on the loan app doesn't put butts behind picket fences. I don't envy the job of loan officers for the next few years (especially since mortgages will probably be subject to being stripped down in Chapter 13 bankruptcies--but more on that later).

Houses, baby. We wanted 'em, we got 'em.

Thursday, September 18, 2008

Double rations until further notice!

Sunday, September 07, 2008

I hope you really, really like houses...

Because you now own alot more of them, at least indirectly. And with both parties espousing plans to keep people in houses that they can't afford and never should have bought in the first place, we're going to be picking up even more of the tab. The American Dream turns out to be targeted socialism.

Don't take my word for it--here's some advice from one of the folks who brought us this mess, straight from the Flip This House website:


"#2. Get past the B.S. belief that it takes money to make money. When I started I had zero dollars in my pocket and was $50,000 in debt. Who said it takes your money anyway?"

Indeed. Why risk your own money when you can risk ours?

Wednesday, September 03, 2008

OK, I'm sold

Just watched the convention speech. I think it's time to revive the phrase "sock it to 'em."