Yesterday at the sales meeting a new agent brought up a really, really important topic that I feel compelled to write about. It is an age old problem anytime someone is selling just about anything. It has been compounded in the housing industry, however, with the volatility and the tremendous swings we have had in the last 10-15 years. The problem is, of course, pricing what you have for sale and, conversely, figuring out what to pay for what you are buying.
Real estate, at its core, is actually very simple. People have a need for housing. Other people build houses. The first people find one that fits their personal tastes, needs, etc. They agree on a price and the home transfers ownership.
Of course it is not that simple. There are legal requirements for registering ownership, lender requirements, laws to follow when marketing, etc, etc, etc. The main complication I want to focus on today is in pricing. How does the seller offer at a price a buyer is willing to pay? I specifically want to look at the current climate we are in.
Let's rewind about 15 years. In the late 90s, we saw growth, lots of it. Government started telling people to buy homes. Lenders starting making that more possible. Lots and lots of people wanted to buy and lenders said "yes". This flooded the market with buyers. That means that sellers could get basically what they asked for. Life was good if you were a seller. Agreeing on price was a fairly simple process. Seller asked for $----- and buyer, if he liked the home, said ok. They did this because there was a shortage of homes available. Now move forward a few years. The feeding frenzy escalates beyond anyone's imagination. Literally anyone who wanted a loan could find SOMEONE to give them one. This means we basically have an infinite supply of buyers and sellers are making tons of money. If the seller did not want to sell, they could still make money by taking out the equity in their home. This volatility (and yes, it was volatile--just volatile upwards) made it somewhat more difficult to agree on a price because sellers started trying to sell at what the house could be worth at some unknown time in the future. Buyers still were buying because they thought it was their right to own a home. Lenders were still lending because it was their paycheck (and lots of big ones at that!). Plus, if they didn't lend, someone else would. Then it got really complicated.
Depending on where you lived, the crash started in 2007, 2008 or even 2009. Basically, a few lenders realized people were not paying their bills. Then a whole bunch of people weren't paying their bills, then a WHOLE bunch of people weren't paying their bills. Lenders were in hot water and so they retracted--big time. It became harder and harder and harder to borrow. This meant the infinite supply of buyers that were driving prices up and up and up dried up--AND FAST. The momentum swung way more quickly than we could stomach and thus prices dropped big time. This meant that you could have literally had your house appraised at $200k one day and $175k the next--or sometimes worse. The media compounded the problem by using fear tactics and a sort of "self fulfilling prophecy". In other words, they started talking about how awful the housing market was, buyers pulled out and the market became worse.
Normally there are a handful of people that can't pay their bills. The market absorbs those issues with no problem. When the market becomes flooded with those issues, prices drop further. This compounds the problem that we started talking about--agreeing on a price. Lets look at a hypothetical that I deal with on a regular basis.
Homeowner wants to sell his home. First step is to figure out how much it is worth. They had the home appraised in 2008 when they refinanced and took out $20,000 to buy a new car and pay off some other debts. They now owe $175,000 on the house. They paid $185,000 in 2005. They have $10,000 in equity still, right? When they invite the Realtor over to evaluate the home and price it for them, they find out that their neighborhood has had 10 homes sold in the last year. 3 of those were foreclosures, 4 were short sales and 3 were "normal" sales. Based on comparables, the home should sell for around $170,000. This causes an array of emotions--anger--at the market, at the Realtor that sold them the house, at the Realtor that is in front of them, at themselves, Sadness and hoplessness--like they are stuck, and of course, defiance. They are determined to sell the house and, further, to sell the house at their price--$190,000 because it is silly to think they could actually LOSE money on their home. So they interview a few Realtors. Most of them tell them the same story. Then they find one that is willing to list it at $190,000. That Realtor works hard with good pictures, a well crafted marketing plan, open houses, etc. Surprisingly, they get no activity. So the homeowners fire the Realtor and get another. This time they agree to $185,000. This time they also get a buyer. The buyer wants the home for... $170,000. They disagree because of what they paid and what they owe. Negotiations ensue. Finally, they settle on $180,000. Then the home appraises for $170,000. This seller did not have an accurate perception of the market.
On the flip side--there is a buyer that watches all the "experts" on TV talk about how bad the market is. They watch the late night infomercials about buying homes for pennies on the dollar. They know everything there is to know about real estate except how to get into the homes. They call a Realtor to open doors for them. They only want to see homes that are "great deals." They look at 30-40 homes. Some of those homes are great deals based on condition, price compared to the market, location, potential, etc. They aren't good enough because they aren't "pennies on the dollar." What they don't realize is that the media shows a national picture and we live in an ultra local market for housing. What happens in Smyrna is not the case in LaVergne or Antioch or Nolensville. They get discouraged and angry that the Realtor is not showing them the best deals. Then, as humans are prone to do, they fall in love with a home. They want to offer 30% less than asking price. The Realtor tells them that the home is priced pretty close to right and it should only be about a 5% reduction. They make the offer anyway and the seller doesn't even acknowledge them. 2 weeks later it sells for 3% above asking price with closing costs.
The point is this, both sides have misconceptions about the market right now. Both are selective in the information they retain. Both are wrong. Obviously it is not always this way. Deals are still going on. I am as busy now as I have been so far in my career. Bottom line, if you are on one side or the other, find a Realtor you can trust, one who knows their local market. One who will explain the position to you. Also, take in all types of media but do so with a critical mind. Verify facts and pay attention to the scope of the report. If they talk about "national housing trends," pay very little attention to them because, just like "averages" they include all the extremes. In our area, in particular, we are a solid upper middle. We took some hits but nowhere near as bad as many other places. Even then, some areas were hit harder than others. There are some parts of Nashville, at some price points, that NEVER really lost value. Find an expert and trust him or her.
Wednesday, February 22, 2012
Wednesday, February 15, 2012
Religion
I've always enjoyed a good religious discussion. I find religion to be fascinating. How do people get so incredibly zealous about something they can't see? How do people get to the point where they are willing to kill others or themselves over something they can't empirically prove? How can people so emphatically deny that there is a being larger than us and insist that humans are the pinnacle of existence? How can GOD evoke such strong reactions whenever he is mentioned in discussion? It truly is fascinating.
I am a Christian. I do believe that God created the Earth and all its contents. I also believe that Jesus was born to a virgin and was sinless. I believe he performed all the miracles (and many more) that are chronicled in the Bible. I believe he was hated then (as he is hated now) by people that refuse his love. I believe he was crucified and was buried only to arise from the dead 3 days later. I believe he was God in the flesh and that he provides atonement for the sins I commit.
All that said, I respect other religions. I respect that they are just as adamant in their convictions as I am. I still disagree with them but I respect them. Where I get tripped up is how to make them all work in the same world. If I am having a discussion with a devout Muslim, we will have a few things that we can agree on and a whole bunch we disagree on. How do we reconcile those differences? Do we need to reconcile those differences or can we coexist with no problem? I don't know the answer to that question. I know the task I am charged with--Go out into the world and make believers or all men. I believe this is an important task and one I should do with gusto. So do other devotees of other religions.
I guess the point of this blog is to open up dialogue about this topic. I struggle with this part of religion. I know some of my friends will say something to the effect of, "well, that is why I don't believe in God" and "the zealots are who drove me out of organized religion". I get that. I really do. I don't think you have to be obnoxious to get your idea across. I think my mission is to present a great example of Christ's love and give the raw materials for someone to form their own faith while providing the instructions if they want them. Any respectful conversation is welcome.
I am a Christian. I do believe that God created the Earth and all its contents. I also believe that Jesus was born to a virgin and was sinless. I believe he performed all the miracles (and many more) that are chronicled in the Bible. I believe he was hated then (as he is hated now) by people that refuse his love. I believe he was crucified and was buried only to arise from the dead 3 days later. I believe he was God in the flesh and that he provides atonement for the sins I commit.
All that said, I respect other religions. I respect that they are just as adamant in their convictions as I am. I still disagree with them but I respect them. Where I get tripped up is how to make them all work in the same world. If I am having a discussion with a devout Muslim, we will have a few things that we can agree on and a whole bunch we disagree on. How do we reconcile those differences? Do we need to reconcile those differences or can we coexist with no problem? I don't know the answer to that question. I know the task I am charged with--Go out into the world and make believers or all men. I believe this is an important task and one I should do with gusto. So do other devotees of other religions.
I guess the point of this blog is to open up dialogue about this topic. I struggle with this part of religion. I know some of my friends will say something to the effect of, "well, that is why I don't believe in God" and "the zealots are who drove me out of organized religion". I get that. I really do. I don't think you have to be obnoxious to get your idea across. I think my mission is to present a great example of Christ's love and give the raw materials for someone to form their own faith while providing the instructions if they want them. Any respectful conversation is welcome.
Wednesday, February 8, 2012
Doom and Gloom and Dr. Who
I am a Doctor Who fan. I have been watching the most recent run of episodes on Netflix. If you are not familiar with the phenomenon, The Doctor is a character that originated on TV way back in 1963. It ran from 1963 until 1989 and then was resurrected in 2005 (the ones I have been watching). It is a very exciting, British sci-fi serial. I don't know that I have necessarily "gotten anything out of it" but I have been entertained and there is one theme that keeps popping up. Humans are a remarkable race and are incredible survivors.
You see, The Doctor travels throughout space and time and even dimensions and no matter where he goes, he is reminded of how resilient Humankind is. I think this is an important message. We keep hearing nothing but doom and gloom--if Obama is re-elected the country will turn into a communist state, if Romney is elected the Christians will revolt, if Paul is elected the country as we know it will cease to exist, Republicans hate poor people, Democrats hate rich people, they all hate Hispanics and Muslims but yet want to cater to their vote. It never ends. We are a quarrelsome, yet resilient species.
The bottom line is this, ALL of them, every single politician is in it for themselves at least to some extent. In the meantime, they can help others but at the end of the day, they are in it for them--period. The other piece of that, we will survive no matter what. Our country will move on. Other countries around the world will move on. It is all cyclical. Other countries may even move "ahead" of us, but we will keep going. Housing prices will rebound, unemployment rates will drop. We will experience a Renaissance of sorts. Then, we will decline again. That's just how it works.
I guess I am challenging you to block out as much of the hysteria as possible and believe in our people, believe in humans and trust that it will all come back around. I believe that there is a greater source of power than us and He is in control and knows whats best. He controls the cycles. You may not believe like me but you cannot deny the cycles. Take a deep breath, do your part to help the system. Work, innovate, think, question and make the world a little better before you die.
You see, The Doctor travels throughout space and time and even dimensions and no matter where he goes, he is reminded of how resilient Humankind is. I think this is an important message. We keep hearing nothing but doom and gloom--if Obama is re-elected the country will turn into a communist state, if Romney is elected the Christians will revolt, if Paul is elected the country as we know it will cease to exist, Republicans hate poor people, Democrats hate rich people, they all hate Hispanics and Muslims but yet want to cater to their vote. It never ends. We are a quarrelsome, yet resilient species.
The bottom line is this, ALL of them, every single politician is in it for themselves at least to some extent. In the meantime, they can help others but at the end of the day, they are in it for them--period. The other piece of that, we will survive no matter what. Our country will move on. Other countries around the world will move on. It is all cyclical. Other countries may even move "ahead" of us, but we will keep going. Housing prices will rebound, unemployment rates will drop. We will experience a Renaissance of sorts. Then, we will decline again. That's just how it works.
I guess I am challenging you to block out as much of the hysteria as possible and believe in our people, believe in humans and trust that it will all come back around. I believe that there is a greater source of power than us and He is in control and knows whats best. He controls the cycles. You may not believe like me but you cannot deny the cycles. Take a deep breath, do your part to help the system. Work, innovate, think, question and make the world a little better before you die.
Wednesday, February 1, 2012
Privacy
Privacy is an interesting topic. Every company has a "privacy policy" and we all have private information. Yet, we are, as a culture, all too eager to willingly give up the lion's share of our private lives. I am not passing judgement on this, just making an observation today.
Last week Google rolled out its new privacy policy. If you read the words around the policy they say something to the effect that the changes will not affect your privacy per se, they will just share your habits, information, key words, etc. with all of their affiliated sites in order to make your "online experience more meaningful". You should read this to mean that any time you use a Google product (YouTube, Blogger, Gmail, Google Groups, etc.), Google is watching and recording what you do. They will then use that information to post ads, make page suggestions, etc. to make the price of their ads go up. Its a brilliant move by Google and I am sure their revenue will soar. The vast majority of people will not read the policy and will certainly not change any of their habits. I will probably not change any of my habits but it will always be (and has been for a while) in my mind that Google Big Brother is always watching, always. That said, lets look into this a little more.
It's always funny to me to see people ranting on Facebook about other people "getting into their business." Can anyone else see the irony in that? We all think we want privacy and to be able to live our lives without the scrutiny of others yet we willingly give out some of our most private information and moments on Facebook, Twitter and other outlets. It makes the identity thief's job so much easier. People do terribly private things over video chat that is so easy to record and redistribute. Once its out there, its out there forever. Yet we still get upset when we feel our privacy is invaded. My question is, "where is the line anymore?"
Another interesting development is the information jealousy that has arisen out of this purging of private information. I have seen this firsthand. I post something on Facebook before telling someone close to me. I fail to realize that some information is special enough that it still warrants a phone call and that there are hierarchies of importance for people to learn info. In other words, it is more important for my mom and dad to learn about something first than it is for my old high school chum to read about it on Facebook. It's not that I don't love them if I mess this order up. Its just that it is easy to post it and disseminate to all 1000 of my "friends." Besides, if they love me, they will be hanging on every moment to read the information, right?
I am starting to wonder where this voluntary forefeiture of privacy is leading. Some people already expect you to put everything on Facebook. Basically, if you didn't post it, it didn't happen. I don't blame them. Outlets like Facebook have replaced our ability to actually keep up with people and have conversations. I have witnessed people put terribly private things on Facebook that involve others before they even discuss it with that person. I recently saw a friend of mine post very revealing information about the state of their marriage. Whats really crazy is that some of that person's friends "liked" it (it was not good news by the way)! I know for sure that the other marriage partner did not, would not, could not have been very happy about this. Its one thing to air your dirty laundry to a friend or two but to post on Facebook, come on! This to me is especially insidious because it is not just your information that you are willingly giving up, it is your spouse's also. You revealed information about someone else without their consent. You should not ever have the right to confess someone else's sins or misgivings.
At what point do we shift the other way and start to value our privacy again? Why do we feel the compulsion to share EVERYTHING with everyone? Do people value privacy at all? What do you think?
Last week Google rolled out its new privacy policy. If you read the words around the policy they say something to the effect that the changes will not affect your privacy per se, they will just share your habits, information, key words, etc. with all of their affiliated sites in order to make your "online experience more meaningful". You should read this to mean that any time you use a Google product (YouTube, Blogger, Gmail, Google Groups, etc.), Google is watching and recording what you do. They will then use that information to post ads, make page suggestions, etc. to make the price of their ads go up. Its a brilliant move by Google and I am sure their revenue will soar. The vast majority of people will not read the policy and will certainly not change any of their habits. I will probably not change any of my habits but it will always be (and has been for a while) in my mind that Google Big Brother is always watching, always. That said, lets look into this a little more.
It's always funny to me to see people ranting on Facebook about other people "getting into their business." Can anyone else see the irony in that? We all think we want privacy and to be able to live our lives without the scrutiny of others yet we willingly give out some of our most private information and moments on Facebook, Twitter and other outlets. It makes the identity thief's job so much easier. People do terribly private things over video chat that is so easy to record and redistribute. Once its out there, its out there forever. Yet we still get upset when we feel our privacy is invaded. My question is, "where is the line anymore?"
Another interesting development is the information jealousy that has arisen out of this purging of private information. I have seen this firsthand. I post something on Facebook before telling someone close to me. I fail to realize that some information is special enough that it still warrants a phone call and that there are hierarchies of importance for people to learn info. In other words, it is more important for my mom and dad to learn about something first than it is for my old high school chum to read about it on Facebook. It's not that I don't love them if I mess this order up. Its just that it is easy to post it and disseminate to all 1000 of my "friends." Besides, if they love me, they will be hanging on every moment to read the information, right?
I am starting to wonder where this voluntary forefeiture of privacy is leading. Some people already expect you to put everything on Facebook. Basically, if you didn't post it, it didn't happen. I don't blame them. Outlets like Facebook have replaced our ability to actually keep up with people and have conversations. I have witnessed people put terribly private things on Facebook that involve others before they even discuss it with that person. I recently saw a friend of mine post very revealing information about the state of their marriage. Whats really crazy is that some of that person's friends "liked" it (it was not good news by the way)! I know for sure that the other marriage partner did not, would not, could not have been very happy about this. Its one thing to air your dirty laundry to a friend or two but to post on Facebook, come on! This to me is especially insidious because it is not just your information that you are willingly giving up, it is your spouse's also. You revealed information about someone else without their consent. You should not ever have the right to confess someone else's sins or misgivings.
At what point do we shift the other way and start to value our privacy again? Why do we feel the compulsion to share EVERYTHING with everyone? Do people value privacy at all? What do you think?
Wednesday, January 25, 2012
What Do I "Deserve" in Life?
I'm having a hard time writing this morning. I feel like I have griped and complained a lot here lately. I also don't think I've written enough about real estate to even call this a sometimes real estate blog. So, I am going to frame this discussion with a discussion on the real estate "crisis."
Very little in life chaps my hide more than the mentality where someone thinks they are "owed" something simply because they exist. In this blog, I am going to talk about this mentality coupled with the housing crisis. It is a worthwhile discussion and one that can be applied elsewhere.
Adam Smith published "The Wealth of Nations" in 1776. This was a groundbreaking work and discussed pretty much every aspect of an economy. One of the central themes (among many) in the commentary was the idea that, basically, if you take care of yourself, you in turn take care of the nation. If you can support yourself and your family, you are not a drain on anyone. Additionally, you must be contributing something worthwhile because you would not be able to support the family otherwise. In other words, the unintended consequence of taking care of yourself and being as productive as possible is that the entire community around you benefits. It is not a new idea but it does seem that we have departed from this standard. There are an endless array of directions we can go with this discussion but lets instead focus on housing.
Many, many things led to the collapse in the housing market. In my opinion, there were two things that were the overriding ideals that got us there. Number one is greed. Greed from politicians that tried to win votes by framing home ownership as a right and creating an environment for corporations to mask greed in the name of helping everyone attain that right. Number two was the mentality of so many Americans that they deserved the home, no matter their circumstances, no matter the cost, etc.
Let's look at number 1. Everything in our government is linked. Nothing happens in a vacuum. When the president makes a statement that he is going to work toward everyone owning a home, he sets a goal for congress. Congress reacts with a bill, the bill becomes law, someone challenges it, the judiciary confirms or denies it, the people react. Several bills have been passed toward this "goal" of home ownership for everyone since the late 70s. Several different presidents have had a hand in this "goal" as have countless senators and representatives and others. It is definitely not one single person or even party that is responsible here. See past all that label business. Politicians piled onto this "goal" because it made their constituents like them. On the surface it seems like a noble goal--"everyone owns a home because that is the American dream." The problem is that it is completely unattainable and not even a good goal to begin with. First, not everyone wants to own a home. Second, not everyone has the cash to pay for a home outright. Third, not everyone without the cash should be extended credit. Fourth, when the government meddles in this portion of private life, there is no way for them to be unbiased, no way for them to be smart and absolutely no way for them to actually "help" the situation that was fabricated to begin with.
One of the ways the government helped create the mess was to push guidelines for Fannie Mae and Freddie Mac. It may be good at this point to give a brief synopsis of these two Government Sponsored Enterprises (GSEs). Then we will see how this all happened from the top down.
What GSEs do? Basically, they buy mortgages from private lenders. If a bank or mortgage company writes a loan to someone that "conforms" to a certain set of guidelines, then Fannie or Freddie will buy that loan. They will keep some of the loans as investments but the majority are then packaged up and sold as securities to investors.
What does the government have to do with it? When these loans are sold off, it is implied that they are guaranteed by the agency and backed by the government. Both GSEs have a line of credit with the Treasury. The GSEs also do not have to hold the cash reserves that other banks do. Instead, they borrow from the treasury and repay with the revenue they get by selling the securities at a higher price than what they bought them.
What did this have to do with the crisis? This is where you have to stick with me... Government sets the goal to get more people in homes. The government holds the purse strings of the treasury that is the life support of the GSE. The government tells the GSE to get more people into homes. The GSE loosens the criteria to make a loan "conforming". For the private lenders, this creates a FIELD DAY. They can now loan to more and more people with the guarantee that the GSE is going to buy the loan. It's a no brainer for the lender. More loans+no risk (they are selling the loans as soon as they make them)=pure profit. This initial feeding frenzy starts up some other secondary market companies (Fannie and Freddie started the "secondary mortgage market--they buy the mortgage after it has been written, they don't actually lend money to the consumer) that are not GSEs but can get in on the fun. They use the same pool of investors, promise a higher return because the risk is a little greater and start encouraging lenders to make riskier loans because they will buy the loan at a premium.
Why are they riskier loans? Lots of reasons--lower credit scores, less job history, "stated income" instead of verified income, second homes, investment property, over inflated values, no down payments, cashing out equity that is not even there yet (110% loans), interest only payments counting on the increase of the market to grow equity, the list is endless.
So what happened? They failed to recognize one key, central element in all economies--they are cyclical. Sometimes they are up, sometimes they are down. NO economy will rise indefinitely. It can't. It has to have some down times. When it came down, it came down hard. First you saw the riskiest loans start to go sour, investors panicked a little. Then you saw the GSE loans start to go south. Investors panicked a lot. This caused a major retraction of investor money. With no one to sell to, Fannie and Freddie (and all those other secondary market companies) had no way to unload the loans they promised to buy. They had a real problem. It only got worse when the low standards of lending came to roost and people defaulted on their mortgages. Interest rates adjusted up in order to cover the problem--this put even more people in bad situations. This flooded the market with properties. When you oversupply, the price has to drop. Couple this with some other bad market conditions (companies closing, people losing jobs, etc.) and you compound the issue. When the prices drop, all those people who were counting on the increase in value to supply their equity get burned. There is no equity anymore. In fact, they are all upside down. If you are upside down, your interest rate has adjusted up because you did an interest only ARM, and you lose your job--you lose your home. More people do this and the prices drop even more because there are even more distressed homes. It really was the perfect storm of bad banking practices, corporate greed, politicians buying votes by flexing control over the lenders, some natural slumps in employment and the second issue--the people buying into the "I deserve it" mentality.
I am guilty here. I catch myself frequently justifying purchases because I deserve something. I work hard and thus I deserve that new ____________ or whatever. We have a lot of help in programming this mentality into ourselves. And honestly, its not that hard to believe it.
We live in such a wealthy nation it is easy to see the success of others and to hear the stories of people starting from nothing and going to millionaires (or more). The sad part is, we only hear those stories AFTER they have made it. We don't get to see, really see all the work that goes into getting them there. When we see that success we get inspired to be millionaires also. The problem is, we don't (usually) get inspired to make the sacrifices and work toward that goal. Instead we frequently adopt the "if ___________ is that rich or has that _______, I should too." Jealousy creeps in. Politicians love to use this in their quest to keep power. If we throw the plebes a bone, they will love us for it. Thus, we have the situation I outlined above. And we, as a society, play right into their hands. A lot of the people that were involved in the housing bubble knew that what they were doing didn't make sense. These were not stupid people. They got caught up in the moment. When they laid down their heads though, they knew that it was not going to last and it was not a good idea. It doesn't make any sense to borrow more than what a house is worth using that house as collateral. It doesn't make any sense to pay interest only on a tremendous debt in order to be able to afford MORE DEBT. But we, as a society, did it. Why? Because we could. It allowed us to be that much closer to "the haves". We deserve it. We work hard and the government says everyone should own a home. The banks agree and they are nice enough to give us our dream even though we are uneasy about the payment and the possibility of future payments being higher. Think about it.
If we had been a society that inherently delays pleasure and rejects jealousy and truly understands that we deserve only what we work for, we would have NEVER been in this situation. We would have rejected the notion that everyone deserves a home and replaced it with "everyone that deserves a home has worked to earn it." Think about that.
I work and save, work and save, work and save. I pay all my debts on time because I don't take out debts that I cannot repay. I live within my means. I work hard at my job and earn a salary commiserate with what I contribute to the company. I do what is best for my family and I buy within my means. I earn a home because I planned to get it, worked toward it and secured the way toward it. I didn't wake up one morning and decide it was my right even though I spend everything I have and never work toward a plan and always live outside my means.
Here is the bottom line and how it all relates back. When you start to think that it is unfair that so and so has whatever, look in the mirror and ask yourself, "what did I do to earn that?" Sometimes you do experience setbacks that may not even be your fault. Sometimes you make a mistake due to inexperience or trusting the wrong person. That happens. Sometimes people are very fortunate and maybe even dishonest and get stuff they don't earn. That happens too. But, at the end of the day, if we are truly honest with ourselves, sloppy management, poor planning, laziness, ignorance, lack of research, naivity, jealousy and greed (all of which we can control for ourselves) are going to be the root of your money and housing problems 99% of the time. I know they have been the cause of all of my money problems in life.
The answer to my initial question, "What do I deserve in life?" is pretty easy to figure out. What I have worked for, no more, no less. If you feel that you deserve more compensation out of your job, quit, learn a more valuable skill or demand a raise. If you feel that you deserve more for your money, negotiate sales or clip coupons or whatever. DO something about it instead of relying on the government to TELL you what you deserve.
On a COMPLETELY different note, the college ministry that I work with has started a new prayer ministry. It is pretty cool. Basically it works like this, if you need prayers or know someone that does, you text your request to 61JESUS4U2 (615-378-7482). You can be completely anonymous or give all the details you want. We will not keep your number, solicit money, sell your info or anything else. We will not even contact you back unless you want us to. All we will do is pray for your request. So far we have about 20 signed up to pray. I suspect in the next few weeks we will have over 100 on the chain praying.
Very little in life chaps my hide more than the mentality where someone thinks they are "owed" something simply because they exist. In this blog, I am going to talk about this mentality coupled with the housing crisis. It is a worthwhile discussion and one that can be applied elsewhere.
Adam Smith published "The Wealth of Nations" in 1776. This was a groundbreaking work and discussed pretty much every aspect of an economy. One of the central themes (among many) in the commentary was the idea that, basically, if you take care of yourself, you in turn take care of the nation. If you can support yourself and your family, you are not a drain on anyone. Additionally, you must be contributing something worthwhile because you would not be able to support the family otherwise. In other words, the unintended consequence of taking care of yourself and being as productive as possible is that the entire community around you benefits. It is not a new idea but it does seem that we have departed from this standard. There are an endless array of directions we can go with this discussion but lets instead focus on housing.
Many, many things led to the collapse in the housing market. In my opinion, there were two things that were the overriding ideals that got us there. Number one is greed. Greed from politicians that tried to win votes by framing home ownership as a right and creating an environment for corporations to mask greed in the name of helping everyone attain that right. Number two was the mentality of so many Americans that they deserved the home, no matter their circumstances, no matter the cost, etc.
Let's look at number 1. Everything in our government is linked. Nothing happens in a vacuum. When the president makes a statement that he is going to work toward everyone owning a home, he sets a goal for congress. Congress reacts with a bill, the bill becomes law, someone challenges it, the judiciary confirms or denies it, the people react. Several bills have been passed toward this "goal" of home ownership for everyone since the late 70s. Several different presidents have had a hand in this "goal" as have countless senators and representatives and others. It is definitely not one single person or even party that is responsible here. See past all that label business. Politicians piled onto this "goal" because it made their constituents like them. On the surface it seems like a noble goal--"everyone owns a home because that is the American dream." The problem is that it is completely unattainable and not even a good goal to begin with. First, not everyone wants to own a home. Second, not everyone has the cash to pay for a home outright. Third, not everyone without the cash should be extended credit. Fourth, when the government meddles in this portion of private life, there is no way for them to be unbiased, no way for them to be smart and absolutely no way for them to actually "help" the situation that was fabricated to begin with.
One of the ways the government helped create the mess was to push guidelines for Fannie Mae and Freddie Mac. It may be good at this point to give a brief synopsis of these two Government Sponsored Enterprises (GSEs). Then we will see how this all happened from the top down.
What GSEs do? Basically, they buy mortgages from private lenders. If a bank or mortgage company writes a loan to someone that "conforms" to a certain set of guidelines, then Fannie or Freddie will buy that loan. They will keep some of the loans as investments but the majority are then packaged up and sold as securities to investors.
What does the government have to do with it? When these loans are sold off, it is implied that they are guaranteed by the agency and backed by the government. Both GSEs have a line of credit with the Treasury. The GSEs also do not have to hold the cash reserves that other banks do. Instead, they borrow from the treasury and repay with the revenue they get by selling the securities at a higher price than what they bought them.
What did this have to do with the crisis? This is where you have to stick with me... Government sets the goal to get more people in homes. The government holds the purse strings of the treasury that is the life support of the GSE. The government tells the GSE to get more people into homes. The GSE loosens the criteria to make a loan "conforming". For the private lenders, this creates a FIELD DAY. They can now loan to more and more people with the guarantee that the GSE is going to buy the loan. It's a no brainer for the lender. More loans+no risk (they are selling the loans as soon as they make them)=pure profit. This initial feeding frenzy starts up some other secondary market companies (Fannie and Freddie started the "secondary mortgage market--they buy the mortgage after it has been written, they don't actually lend money to the consumer) that are not GSEs but can get in on the fun. They use the same pool of investors, promise a higher return because the risk is a little greater and start encouraging lenders to make riskier loans because they will buy the loan at a premium.
Why are they riskier loans? Lots of reasons--lower credit scores, less job history, "stated income" instead of verified income, second homes, investment property, over inflated values, no down payments, cashing out equity that is not even there yet (110% loans), interest only payments counting on the increase of the market to grow equity, the list is endless.
So what happened? They failed to recognize one key, central element in all economies--they are cyclical. Sometimes they are up, sometimes they are down. NO economy will rise indefinitely. It can't. It has to have some down times. When it came down, it came down hard. First you saw the riskiest loans start to go sour, investors panicked a little. Then you saw the GSE loans start to go south. Investors panicked a lot. This caused a major retraction of investor money. With no one to sell to, Fannie and Freddie (and all those other secondary market companies) had no way to unload the loans they promised to buy. They had a real problem. It only got worse when the low standards of lending came to roost and people defaulted on their mortgages. Interest rates adjusted up in order to cover the problem--this put even more people in bad situations. This flooded the market with properties. When you oversupply, the price has to drop. Couple this with some other bad market conditions (companies closing, people losing jobs, etc.) and you compound the issue. When the prices drop, all those people who were counting on the increase in value to supply their equity get burned. There is no equity anymore. In fact, they are all upside down. If you are upside down, your interest rate has adjusted up because you did an interest only ARM, and you lose your job--you lose your home. More people do this and the prices drop even more because there are even more distressed homes. It really was the perfect storm of bad banking practices, corporate greed, politicians buying votes by flexing control over the lenders, some natural slumps in employment and the second issue--the people buying into the "I deserve it" mentality.
I am guilty here. I catch myself frequently justifying purchases because I deserve something. I work hard and thus I deserve that new ____________ or whatever. We have a lot of help in programming this mentality into ourselves. And honestly, its not that hard to believe it.
We live in such a wealthy nation it is easy to see the success of others and to hear the stories of people starting from nothing and going to millionaires (or more). The sad part is, we only hear those stories AFTER they have made it. We don't get to see, really see all the work that goes into getting them there. When we see that success we get inspired to be millionaires also. The problem is, we don't (usually) get inspired to make the sacrifices and work toward that goal. Instead we frequently adopt the "if ___________ is that rich or has that _______, I should too." Jealousy creeps in. Politicians love to use this in their quest to keep power. If we throw the plebes a bone, they will love us for it. Thus, we have the situation I outlined above. And we, as a society, play right into their hands. A lot of the people that were involved in the housing bubble knew that what they were doing didn't make sense. These were not stupid people. They got caught up in the moment. When they laid down their heads though, they knew that it was not going to last and it was not a good idea. It doesn't make any sense to borrow more than what a house is worth using that house as collateral. It doesn't make any sense to pay interest only on a tremendous debt in order to be able to afford MORE DEBT. But we, as a society, did it. Why? Because we could. It allowed us to be that much closer to "the haves". We deserve it. We work hard and the government says everyone should own a home. The banks agree and they are nice enough to give us our dream even though we are uneasy about the payment and the possibility of future payments being higher. Think about it.
If we had been a society that inherently delays pleasure and rejects jealousy and truly understands that we deserve only what we work for, we would have NEVER been in this situation. We would have rejected the notion that everyone deserves a home and replaced it with "everyone that deserves a home has worked to earn it." Think about that.
I work and save, work and save, work and save. I pay all my debts on time because I don't take out debts that I cannot repay. I live within my means. I work hard at my job and earn a salary commiserate with what I contribute to the company. I do what is best for my family and I buy within my means. I earn a home because I planned to get it, worked toward it and secured the way toward it. I didn't wake up one morning and decide it was my right even though I spend everything I have and never work toward a plan and always live outside my means.
Here is the bottom line and how it all relates back. When you start to think that it is unfair that so and so has whatever, look in the mirror and ask yourself, "what did I do to earn that?" Sometimes you do experience setbacks that may not even be your fault. Sometimes you make a mistake due to inexperience or trusting the wrong person. That happens. Sometimes people are very fortunate and maybe even dishonest and get stuff they don't earn. That happens too. But, at the end of the day, if we are truly honest with ourselves, sloppy management, poor planning, laziness, ignorance, lack of research, naivity, jealousy and greed (all of which we can control for ourselves) are going to be the root of your money and housing problems 99% of the time. I know they have been the cause of all of my money problems in life.
The answer to my initial question, "What do I deserve in life?" is pretty easy to figure out. What I have worked for, no more, no less. If you feel that you deserve more compensation out of your job, quit, learn a more valuable skill or demand a raise. If you feel that you deserve more for your money, negotiate sales or clip coupons or whatever. DO something about it instead of relying on the government to TELL you what you deserve.
On a COMPLETELY different note, the college ministry that I work with has started a new prayer ministry. It is pretty cool. Basically it works like this, if you need prayers or know someone that does, you text your request to 61JESUS4U2 (615-378-7482). You can be completely anonymous or give all the details you want. We will not keep your number, solicit money, sell your info or anything else. We will not even contact you back unless you want us to. All we will do is pray for your request. So far we have about 20 signed up to pray. I suspect in the next few weeks we will have over 100 on the chain praying.
Wednesday, January 18, 2012
A Confession
I have a hard time with depression. I am not depressed myself, I have a hard time understanding the ailment. I have a hard time calling it a disease. I have a hard time dealing with people that cope with it. For the longest time I did not even really think it was "real." I believed that people suffering from depression were weak and just needed to snap out of it. "Toughen up cupcake!"
I know now that I am wrong.
This epiphany did not come overnight. I have several close friends and relatives that cope with this issue and over the past 10 years or so I have come to understand that it is, in fact, a real disorder. There is actually something chemically "off" when you struggle with depression. Medicine is actually needed and those people are not just being weak. Just because I don't struggle with depression does not make me "stronger" than someone who does. I am just blessed not to have that particular chemical imbalance.
Why am I writing about this? I'm not really sure. Sometimes I sit down and just start putting things out there. I guess the take away from this is that you can't really understand something like depression unless you have coped with it. Even then, I doubt you really "understand" it. Also, the human body amazes me. A system of chemicals working together to create a living, breathing, thinking, feeling, emotional being. There's no way it was all accidental.
Have a great week.
I know now that I am wrong.
This epiphany did not come overnight. I have several close friends and relatives that cope with this issue and over the past 10 years or so I have come to understand that it is, in fact, a real disorder. There is actually something chemically "off" when you struggle with depression. Medicine is actually needed and those people are not just being weak. Just because I don't struggle with depression does not make me "stronger" than someone who does. I am just blessed not to have that particular chemical imbalance.
Why am I writing about this? I'm not really sure. Sometimes I sit down and just start putting things out there. I guess the take away from this is that you can't really understand something like depression unless you have coped with it. Even then, I doubt you really "understand" it. Also, the human body amazes me. A system of chemicals working together to create a living, breathing, thinking, feeling, emotional being. There's no way it was all accidental.
Have a great week.
Friday, January 13, 2012
The Lie: The First Ammendment Entitles You to Say Whatever You Want With No Consequence
"Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances."
Words are very powerful tools. In a lot of ways more powerful than guns and bombs. Words plant ideas. Words cause harm. Words leave scars. Words can build people up and tear them down. Words can erase pain and cause it. Words cannot be taken back. Always keep that in mind when you use words. Always make sure you have thought through the gravity of your words.
My favorite college class session of all time was my very first one. I had Dr. Larry Burriss for an honors section of Intro to Mass Communication. By all accounts it appeared to be a dull class. Then he opens up with the question, "What does the First Amendment mean?" Everyone kind of looked at each other and one brave soul says, "Freedom of speech." He says, "Ok, what does THAT mean." Someone else chimes in with, "You can say whatever you want." This is exactly what he was waiting to hear. For the next 5 minutes he goes on a tirade of separating the class by every racial slur, offensive name calling, and rude category of person you can think of (and some you can't). At the end he says, "If I didn't touch on your particular group, don't worry, I will get you next class. I am an equal opportunity offender." We of course just stare at him with huge eyes and mouths agape. Perfectly executed. Complete silence. Then Dr. Burriss says, "so, do you still think you can say whatever you want?"
What followed was an incredibly thoughtful, well mediated discussion on the First Amendment and what it really means to have "freedom of speech." I never looked at it the same again.
Many of you may have seen the discussion on my Facebook page on Sunday. That incident is the catalyst for this blog post. Here's the gist of what happened. After Church I got home and logged into Facebook. Jonas was in the room right next to me. As soon as I logged in, the second post in my "newsfeed" was a JPEG image of text. The text was supposed to be some "instructions" to men on how to properly satisfy their women. It was incredibly vulgar with a plethora of "F words" and some other vulgarities. Normally, I just ignore those types of posts (though I have never seen one on FB that was that vulgar). For whatever reason though, I started to read the comments. First, the post I was reading was actually a "share" that my friend had done from one of his friend's pages. The very first comment was basically saying that the post was way over the line. What ensued was a barrage of "freedom of speech!", "if you don't like it don't read it!", etc. Though I normally agree with those sentiments, I take exception to public forums. In other words, if I am walking in a park and someone with a bull horn is shouting those types of things, I would get riled up. In that setting, I do not have the option to "not listen". Same goes for Facebook in a lot of ways. It is an online public park with everyone shouting whatever is going on in their little corner of the universe. It also happens to be one where the more attention you get, the longer that shout stays in front of everyone. It also happens to be one where the only way you ignore something is after you have already taken it in. THIS is what motivated me to very nicely explain that freedom of speech isn't as cut and dry as the commenters were trying to make it. Then it got out of hand.
I am typically a pretty savvy guy when it comes to technology. That said, Facebook is constantly evolving, constantly changing the way you interact. If you don't truly stay on top of every little change, the technology can easily get away from you. This is what happened to me on Sunday. My comment, though trying to be a lesson in civility and trying to help a young man better understand good taste, tact and community, ended up splashing the offensive "picture" on all of my friends' (over 1000) news feed. Thankfully, Stephanie Wright alerted me to this incredible lapse of knowledge and I started damage control. My wife finished the damage control by making my comment go away but not before numerous people saw it and commented on my apology post. I am sure that many others saw it and did not comment. I was, and still am, very embarrassed to have shared that with so many others. That said, it did give me the inspiration for this particular blog (that is two days late because of all the stuff I wanted to include).
The First Amendment DOES NOT Mean You Can Say Whatever You Want With No Consequence
Many, many people have a misconception about what the First Amendment does and does not do. It only says that (and I am paraphrasing) Congress shall not abridge the freedom of speech. This simply means that the government, specifically Congress cannot pass laws making it illegal for you to say what you want to say. There is no constitutional protection from your peers, from other authorities, from the general public, etc. Let's talk about some examples.
Let's pretend you go into a movie theater for the premiere of the next great movie and it is totally packed. You take a seat at the back of the theater and you take out your camera phone because you want to capture the next viral video. As everyone sits, you yell, "FIRE!!! SOMEONE SET THE CURTAIN ON FIRE!! (when in fact it is not)" Mass hysteria breaks out and everyone starts running for the door. Will you get in trouble? Yes probably. In Brandenburg v. Ohio in 1969 the commentary (the actual cliche comes from 1917 case) the rule is that the first amendment does not protect speech that is meant to and likely will incite imminent lawless action (riots) or that is reasonably believed to cause malicious actions (like stampeding out of the theater).
Let's pretend now that you are on Facebook or in front of a group of people or you tweet that you have devised a plan to kill the president and will begin execution of said plan in 48 hours. What do you think will happen? At the very least you will get a visit from the Secret Service. There is ample evidence that you will get quite a bit more depending on the veracity of your claim and the way you deliver it. It could be as much as 3 years in jail and a $250,000 fine (its true, look it up).
But I though we had free speech? I was only joking when I said I wanted to assassinate the president. I was making a documentary when I yelled fire in that theater. The law does not protect all speech. And we didn't even look at censorship--truly limiting the speech to certain audiences.
Let's look now at some other ways free speech is not as free as you might think. Society is not bound by the same rules the government is. In other words, our culture at large can be very, very judgemental and even cruel. Three great examples come to mind immediately. Don Imus, Hank Williams Jr. and the Dixie Chicks were publicly berated because of stupid comments they made. They were not arrested, not jailed, not fined by the government. They probably didn't get visits from the Secret Service but man did the public rake them over the coals. Of course various people called for punishments and various others said it was "free speech". In fact, both sides are wrong. The only punishment that is due someone in those situations is exactly the punishment they got--public reaction. Don Imus still has a radio show because enough people are entertained (or shocked) by his venom. Hank Jr. lost his job because the TV station was too afraid of the public backlash against his dumb comment. The Dixie Chicks were greatly harmed financially by that one stupid comment--but they weren't arrested. My point is this, we have freedom to say most things without oppression from the government. We do not have free reign to say whatever we want with absolutely no repercussions. Think about that the next time you are so quick to shout, "free speech, free speech"!!!!!
Words are very powerful tools. In a lot of ways more powerful than guns and bombs. Words plant ideas. Words cause harm. Words leave scars. Words can build people up and tear them down. Words can erase pain and cause it. Words cannot be taken back. Always keep that in mind when you use words. Always make sure you have thought through the gravity of your words.
My favorite college class session of all time was my very first one. I had Dr. Larry Burriss for an honors section of Intro to Mass Communication. By all accounts it appeared to be a dull class. Then he opens up with the question, "What does the First Amendment mean?" Everyone kind of looked at each other and one brave soul says, "Freedom of speech." He says, "Ok, what does THAT mean." Someone else chimes in with, "You can say whatever you want." This is exactly what he was waiting to hear. For the next 5 minutes he goes on a tirade of separating the class by every racial slur, offensive name calling, and rude category of person you can think of (and some you can't). At the end he says, "If I didn't touch on your particular group, don't worry, I will get you next class. I am an equal opportunity offender." We of course just stare at him with huge eyes and mouths agape. Perfectly executed. Complete silence. Then Dr. Burriss says, "so, do you still think you can say whatever you want?"
What followed was an incredibly thoughtful, well mediated discussion on the First Amendment and what it really means to have "freedom of speech." I never looked at it the same again.
Many of you may have seen the discussion on my Facebook page on Sunday. That incident is the catalyst for this blog post. Here's the gist of what happened. After Church I got home and logged into Facebook. Jonas was in the room right next to me. As soon as I logged in, the second post in my "newsfeed" was a JPEG image of text. The text was supposed to be some "instructions" to men on how to properly satisfy their women. It was incredibly vulgar with a plethora of "F words" and some other vulgarities. Normally, I just ignore those types of posts (though I have never seen one on FB that was that vulgar). For whatever reason though, I started to read the comments. First, the post I was reading was actually a "share" that my friend had done from one of his friend's pages. The very first comment was basically saying that the post was way over the line. What ensued was a barrage of "freedom of speech!", "if you don't like it don't read it!", etc. Though I normally agree with those sentiments, I take exception to public forums. In other words, if I am walking in a park and someone with a bull horn is shouting those types of things, I would get riled up. In that setting, I do not have the option to "not listen". Same goes for Facebook in a lot of ways. It is an online public park with everyone shouting whatever is going on in their little corner of the universe. It also happens to be one where the more attention you get, the longer that shout stays in front of everyone. It also happens to be one where the only way you ignore something is after you have already taken it in. THIS is what motivated me to very nicely explain that freedom of speech isn't as cut and dry as the commenters were trying to make it. Then it got out of hand.
I am typically a pretty savvy guy when it comes to technology. That said, Facebook is constantly evolving, constantly changing the way you interact. If you don't truly stay on top of every little change, the technology can easily get away from you. This is what happened to me on Sunday. My comment, though trying to be a lesson in civility and trying to help a young man better understand good taste, tact and community, ended up splashing the offensive "picture" on all of my friends' (over 1000) news feed. Thankfully, Stephanie Wright alerted me to this incredible lapse of knowledge and I started damage control. My wife finished the damage control by making my comment go away but not before numerous people saw it and commented on my apology post. I am sure that many others saw it and did not comment. I was, and still am, very embarrassed to have shared that with so many others. That said, it did give me the inspiration for this particular blog (that is two days late because of all the stuff I wanted to include).
The First Amendment DOES NOT Mean You Can Say Whatever You Want With No Consequence
Many, many people have a misconception about what the First Amendment does and does not do. It only says that (and I am paraphrasing) Congress shall not abridge the freedom of speech. This simply means that the government, specifically Congress cannot pass laws making it illegal for you to say what you want to say. There is no constitutional protection from your peers, from other authorities, from the general public, etc. Let's talk about some examples.
Let's pretend you go into a movie theater for the premiere of the next great movie and it is totally packed. You take a seat at the back of the theater and you take out your camera phone because you want to capture the next viral video. As everyone sits, you yell, "FIRE!!! SOMEONE SET THE CURTAIN ON FIRE!! (when in fact it is not)" Mass hysteria breaks out and everyone starts running for the door. Will you get in trouble? Yes probably. In Brandenburg v. Ohio in 1969 the commentary (the actual cliche comes from 1917 case) the rule is that the first amendment does not protect speech that is meant to and likely will incite imminent lawless action (riots) or that is reasonably believed to cause malicious actions (like stampeding out of the theater).
Let's pretend now that you are on Facebook or in front of a group of people or you tweet that you have devised a plan to kill the president and will begin execution of said plan in 48 hours. What do you think will happen? At the very least you will get a visit from the Secret Service. There is ample evidence that you will get quite a bit more depending on the veracity of your claim and the way you deliver it. It could be as much as 3 years in jail and a $250,000 fine (its true, look it up).
But I though we had free speech? I was only joking when I said I wanted to assassinate the president. I was making a documentary when I yelled fire in that theater. The law does not protect all speech. And we didn't even look at censorship--truly limiting the speech to certain audiences.
Let's look now at some other ways free speech is not as free as you might think. Society is not bound by the same rules the government is. In other words, our culture at large can be very, very judgemental and even cruel. Three great examples come to mind immediately. Don Imus, Hank Williams Jr. and the Dixie Chicks were publicly berated because of stupid comments they made. They were not arrested, not jailed, not fined by the government. They probably didn't get visits from the Secret Service but man did the public rake them over the coals. Of course various people called for punishments and various others said it was "free speech". In fact, both sides are wrong. The only punishment that is due someone in those situations is exactly the punishment they got--public reaction. Don Imus still has a radio show because enough people are entertained (or shocked) by his venom. Hank Jr. lost his job because the TV station was too afraid of the public backlash against his dumb comment. The Dixie Chicks were greatly harmed financially by that one stupid comment--but they weren't arrested. My point is this, we have freedom to say most things without oppression from the government. We do not have free reign to say whatever we want with absolutely no repercussions. Think about that the next time you are so quick to shout, "free speech, free speech"!!!!!
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