Personal Responsibility and the Housing Bubble 25 comments
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The author of the editorial, Jim Sollisch, actually notes:
...one culprit continues to get off scot-free: HGTV. The cable network HGTV is the real villain of the economic meltdown.
The editorial continues:
HGTV is an evil empire that never rests. You can loathe your current domicile 24/7 with programs such as "Stagers" (move a few things around and double the value of your home); "Designed to Sell" (you can sell your house, even if the house next to yours is in foreclosure); "Design on a Dime" (see, it's cheap); and "Property Virgins" (losing your virginity was fun, wasn't it?) Every show features highly attractive hosts who show you how to "unlock the hidden potential" in your home, how to turn a $10 thrift-store table into a "wow" media center, and how to make everything "pop." Pop is the word of choice on HGTV.
Isn't it time for individual homeowners to accept personal responsibility for their own actions, as many of them have lived beyond their means for far too long. It can be argued that the economic growth achieved since the early 1980s is attributable largely to consumers taking on increasingly higher amounts of debt (see below chart). This will have implications for economic growth in the next recovery cycle.
click to enlarge
The increase in debt in and of itself is not necessarily bad, however, the below chart shows household debt as a percent of disposable personal income grew ever higher since the 1980s.
click to enlarge
Unscrupulous mortgage brokers certainly duped some mortgage holders, but I would say many real estate buyers thought they could buy more house than they could afford thinking real estate prices always increased. What happened to putting 20% down on a home? What happened to taking out a mortgage where the payments were affordable for the duration of the loan? I saw a 60 Minutes show recently that interviewed a doctor who purchased a number of homes in order to flip them. The doctor admitted to not reading any of the loan documents saying she did not have time to do that since she was busy running her medical practice.
Individuals need to learn to live within their means going forward. Placing the blame on a television show is an insult to ones intelligence.
Source:
- Blame Television for the Bubble, by Jim Sollisch, The Wall Street Journal, January 3-4, 2009.
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This article has 25 comments:
The media made the market and the media broke the market
If you'd like housing prices to deflate another 50%, then requiring a 20% dp would do nicely.
[What happened to taking out a mortgage where the payments were affordable for the duration of the loan?]
Now there's a good question. Pre-2003, you couldn't sell an adjustable rate mortgage with a shotgun in your hand.
[The doctor admitted to not reading any of the loan documents saying she did not have time to do that since she was busy running her medical practice.]
She's really not that unusual. Due diligence is a chore. How many average investors read a prospectus, much less get on any conference call, or check a company's financials before buying a stock? Watching Cramer or reading a blog is what passes for research.
course with FREE labor it always is!) that you would be a fool NOT to run out and buy 5...6...7 or more houses !
HGTV SUCKS!!!!!!!
Since the eighties it's been a commonly held belief in America, that success was judged by how much debt you had. Today, people might feel a little differently. This belief has now morphed into something more like success is judged by how much debt you had, how much crap you purchased through debt, and how much risk you transferred to the bank through non-recourse loans.
Madison Ave. is to blame because they facilitate a society that continues to be a market-driven nightmare, where modern marketing's mission is to "create demand". In times past, entrepreneurs generally identified a demand and figured out a way to supply it, or at least supply it better or for less. Today, demand is created in America more than anything else. Modern often entrepreneurs "create" something of questionable value, or figure a better way to market, come up with a catchy name, etc. to better sell some existing product. Case in point- the 70's' TigerRag(Chamois-like) to "Sham-wow". The best one yet, IMHO, is HDTV. I mean, come on, who the heck really needed a clearer T.V. picture than they had a few years ago? People pay thousands of dollars for a technology that they're being forced into with the help of the U.S. government (Digital TV mandate), and they go singing to the economic gallows of debt. Here is a product that was not good enough, on its own merits, to prompt people to part with money, or take on debt, for. Somehow the Fed's get involved and virtually mandates the technological change to a better picture for the masses.
The market-driven internet, rife with new technologies to track what people are looking at, more obnoxious but stimulating ads placed in every blinking nook and cranny is a prime offender in the needs v. wants confusion. Where it can be seen by human eyes, advertise. If they don't notice it, make it blink, or find a better way to assault the senses to force recognition not previous granted. There's getting to be little escape from it. But, that's another story/rant for another time.
The American people need to "re-recognize" the difference between what they need and what they want. America's companies must then go back to satisfying needs, not creating the weak perception of needs and confusing them with wants. If we do this, things will then get better by steady increments. A return to rational living, a return to reasonable expectations, a return to satisfaction. A return to success.
Collectively, we deserve our fate. Individually, those who scrimped, saved and managed their finances wisely are being forced to pay some of the bill for the less mature. It's not fair, but then life isn't.
Working for a homebuilder, I had a front-row seat to the breakdown of personal responsibility. Our in-house mortgage company would turn someone down, they would come back with a loan commitment from a mortgage chop-shop. If you are in the business of selling housing and someone comes in "approved" for a loan, you have to be very careful to whom & when you try to say "no." Only when we started requiring several thousand dollars additional deposit on deals like this did most of the hi-jinks stop. By then it was too late, the damage was done.
The entire gammit of consumer laws have been put in place because consumers are easy targets. Real Estate and Mortgage documents are way more complex than car documents or many other contracts yet consumer protections are required for those.
Buyer beware is alive and well. The first advice to all consumers based on this type of article is... do not trust anyone in the transaction, they are not protecting you.
Second advice, take all of your documents at a closing, do not sign them, take them home and read them for the several days it will take to understand them.
Third advice, all consumers should be required to take a debt counseling course BEFORE they buy to educate them on the pitfalls of the transaction.
Fourth advice, all consumers should be required to have the transaction reviewed by an independent party to advise them of all the negative aspects of the transaction.
That should get personal responsibility addressed properly and put a halt to this problem. Also will slow down transactions incredibly and more important... cause more than 50% of the transactions to be rejected.
Remember, the golden rule, he who has the gold makes the rules... the rules by real estate folks, mortgage brokers and lenders were bad. Personal responsibility would not be a discussion if they could not get those loans in the first place.
> People who allow "Billy Mays" to be their financial guru deserve
> their consequences.
Billy Mays got the nickname "Oxy-Moron" in my household back in the days when he was hawking "Oxy-Clean".
He has only gotten worse. He's the reason the "Mute" button is worn smooth on remotes across the land.
I have pretty much quit watching TV in favor of good internet articles and podcasts. Who needs the OxyMoron?
What mortgage pedllers did was explain these numbers better than I may have done, over and over again.
These people claim that they did not even know what their payments would be. Either there was fraud or they were irresponsible. One or the other. I would guess that fraud accounts for maybe 5% of the foreclosures. Greed accounts for the rest.
On Jan 04 09:52 AM rm wrote:
> [What happened to putting 20% down on a home?]
>
> If you'd like housing prices to deflate another 50%, then requiring
> a 20% dp would do nicely.
>
> [What happened to taking out a mortgage where the payments were affordable
> for the duration of the loan?]
>
> Now there's a good question. Pre-2003, you couldn't sell an adjustable
> rate mortgage with a shotgun in your hand.
>
> [The doctor admitted to not reading any of the loan documents saying
> she did not have time to do that since she was busy running her medical
> practice.]
>
> She's really not that unusual. Due diligence is a chore. How many
> average investors read a prospectus, much less get on any conference
> call, or check a company's financials before buying a stock? Watching
> Cramer or reading a blog is what passes for research.
It's Bush, Paulson, greedy banks, dishonest brokers, and now TV.
Now I get it. It's never my fault. It's always someone else's fault.
Whew - glad I'm not to blame....oh, and you either.
I moved to another state to find work. Now I am paying rent and a mortgage.
Am I irresponsible? Many people in Michigan are in this situation.
At the people told me I was a dweeb for paying rent. There is a lot of social pressure to be a home owner if you are higher income.
However buying a home was the worst decision I ever made.
100% agree, but sadly, there are some pretty silly people out there...
And not just silly too, but uneducated in this area. I guess many of us would not be interested in hearing about mortgages and savings and interest and similar if it were taught to us as 15-year-olds in school, but it really would be beneficial for most people to at least get a little history lesson.....
When I bought my first home, I had no idea interest rates in my country had ever been as high as 18%, and was astounded. I had no idea that 10% down was really a pretty small down-payment - it was what all my peers were doing. Yes, we should be more responsible, definitely, but I think a few of the meatier facts should be provided as part of our education too. I will certainly be passing on some facts to my kids before they take the plunge and buy their first home, whether they are watching silly HGTV or just fantasizing about their dream home as they walk down a nice street.
See the article entitled GM Announces Plan to Save Homeowners, Auto Industry and Retailers at:
watchingmarcitz.com/20.../
bearkitty67, you made a decision based on the information you had at the time. you got some tax breaks and you also would have received more benefit if prices of homes had continued to escalate. even if home prices remained the same, you would have out maneuvered all the renters. you took a risk and things turned out poorly, instead.
happens all the time, doesn't make you irresponsible, but also doesn't mean that anyone should bail you out. if you cannot tolerate any risk, you should buy insurance. same goes for those people in new orleans, those people who continue to build in areas that are frequently flooded or whatever.
the real disservice provided by television and other medias is the disproportionate attention given to rich athletes, movie stars, lottery winners and get rich quick schemes. if those people are the standard by which you measure your life, you are being misdirected.
all of us have to assume a certain amount of risk and be willing to live with the consequences. that's not only what it means to invest, it's also what it means to have free will and live in a democracy. if you want to live where the state handles everything, please move to china or russia.
Happy New year planet earth.
fundys.com
That said, I agree that HGTV did contribute to the bubble, it didn't cause it.
With shows like "Flip This House" and "The Property Ladder" on TLC, a person was led to believe that he could make a quick buck with a bit of labor and luck. Very unrealistic, but made for good entertaiment. Then greed comes in and guess what? Lots of folks who are totally lacking in knowledge of this task, jump in to try it. Oops......harder than they thought, well, lets just let the bank have it back.
All the other crazy shit that goes on and that people do is a consequence of this ugly bit of musical chairs where a certain proportion of the population will by design drop into the abyss when the music stops.
The real solution is for us to get back to basics, reorganize the economy so that work is available to all at decent wages, corporations are again strictly under the control of society and tax rates on the wealthy are back were they were in the '60.
We need to reindustrialize so that we start making our own stuff again. Real economists know that that is the only real way to create wealth.
With the fiasco created by the our politicians and banks if Chinese style was applied a lot of these people who be executed.
Now you think that is not fair. However if they have destroyed the retirement savings of probably about 100 million people (or at least those who saved for their retirement) do you not think there should be punishment. People like you are blind. You think the government has no responsibility and if someones money was stolen by the government it is the persons fault. The real reason is you are scared to death of your and are afraid you will be added the the 3 million in prision (the highest per capita of any country in the world). And you talked about the troops. America spends more money on its military then the rest of the world combined, which proves that the US military is full of corruption and totally INCOMPETENT. The like American heathcare. Why are guys running hospitals fired for driving up the cost of healthcare and lowering the quality. You guys are a front the hate filled RNC that is bankrupting this country. And G HW Bush thinks we need another Bush in the whitehouse. Does he not GET IT....
On Jan 05 02:15 AM curious cat wrote:
> the ills of capitalism are many, but most of them come from government
> intervention. when you save people from the consequences of poor
> decision making, you end up with more people who are willing to make
> poor decisions. they become children of the cornucopia. all they
> see is the plenty in the horn, but the horn doesn't always blow,
> sometimes it sucks.
>
> bearkitty67, you made a decision based on the information you had
> at the time. you got some tax breaks and you also would have received
> more benefit if prices of homes had continued to escalate. even if
> home prices remained the same, you would have out maneuvered all
> the renters. you took a risk and things turned out poorly, instead.
>
>
> happens all the time, doesn't make you irresponsible, but also doesn't
> mean that anyone should bail you out. if you cannot tolerate any
> risk, you should buy insurance. same goes for those people in new
> orleans, those people who continue to build in areas that are frequently
> flooded or whatever.
>
> the real disservice provided by television and other medias is the
> disproportionate attention given to rich athletes, movie stars, lottery
> winners and get rich quick schemes. if those people are the standard
> by which you measure your life, you are being misdirected.
>
> all of us have to assume a certain amount of risk and be willing
> to live with the consequences. that's not only what it means to invest,
> it's also what it means to have free will and live in a democracy.
> if you want to live where the state handles everything, please move
> to china or russia.
As I said above, these industries sponsor networks and shows like HGTV's. They hammered the message into people's heads for years that they ought to own a home even if it mean using toxic financing. Of course they didn't call it toxic, they called it The American Dream of Home Ownership. The CEO's calling the shots at these companies were in some cases committing fraud, and they were certainly being unethical and destructive. Their pals in govt also knew. These people were in it for short term huge profits for themselves, it was never about homeowenrship. They of all people should've known it was wrong and dangerous. So let them take some personal responsibility, too, maybe by first being stopped from their incessant whine for a multi-billion dollar bailout for their industry. They should be investigated for fraud instead.
Those borrowers who lied or were complicit in fraud should also face charges. But many were not lying, they were duped, fooled, suckered...and in some cases outright defrauded by lenders forging documents.