September 29, 2008

Speculators in Exurban Bubble Markets

With the financial crisis, we might start seeing a few more defaults in Greenwich, CT (we can all hope, can't we?), but so far, the defaults have tended to hit marginal areas hardest. Here in California, people in Santa Monica aren't defaulting, it's the poor bastards out in the high desert or even down in Bakersfield in the hot, smoggy Central Valley.

In these godforsaken places, all sorts of mini-McMansions have gone up on the theory, apparently, that, hey, they're in California! Every peon in Guatelombia has seen Baywatch and wants to move to California (even though Lancaster, CA looks more like Death Valley Days). So prices can only go up, up, up!

Imagine you're a homeowner in Santa Clarita in 2005, now a nice established exurb 35 miles north of LA. You bought your house in 1995 at the bottom of the market for $175,000 and a decade later it's worth three or four times that much. You can take cash out with home equity loans, so why not find an investment property?

Of course, you'll have to look farther out, deeper into the dusty high desert, like in Lancaster, 70 miles from downtown LA. They're building many new 3,000 s.f. homes on culdesacs with all the amenities. You should buy one up now and resell it when new refugees from the LA Unified School District arrive.

The family you sell it to will, no doubt, be moving to the exurbs to get their kids away from all the Guatelombians in the LA public schools. It's not like Bush is going to close the borders and stop the flood of Guatelombians. So, there will always be refugees looking for "good schools."

That's one reason, you realize, why these new homes in the exurbs tend to be so big -- they're expensive in the hopes of discouraging low rent people from moving in next door. Sure, they cost a fortune to air condition during Lancaster's summer (March-October), but it's all in a good cause.

You start shopping around outside Lancaster. The Cypress Creek Estate sales agents talk about the new high school that's going to be built to serve these new neighborhoods. It will be diverse, but not too diverse, if you know what I mean. Two-thirds white, one fifth Hispanic, enough Asians to show your neighborhood's a good investment, enough blacks so that the football and basketball teams will be competitive. Sounds good!

You get the feeling that there aren't any cypress trees within 100 miles or creeks within 20 miles, but that's not the point. The point is that with low down payment mortgages available, you have all sorts of speculative options available. For example, with a 3% down payment, you could buy a new $400,000 house in a development of 3000+ square foot homes for only $12,000 in cash (not counting the usual points and fees). So, why not buy two? Only $24,000!

If each house goes up 10% in value the first year you own them, you've made $56,000 on your $24,000 investment. Try getting that rate of interest on a CD. Leveraging 33 and 1/3 to one does wonders for your ROI.

Granted, that's exaggerated because you have to pay the monthly mortgage, but you can get a two year teaser interest rate that makes things easier. You're going to be cashing in before two years are up!

Of course, that assumes you can flip them, which often turns out to be more difficult than you initially anticipated. After all, when such easy profits can be made, builders build. Sure, the ecology rules slow them down for years, but in Lancaster there really isn't a whole lot of ecology other than scorpions stinging each other, so eventually a flood of new housing comes online.

Then, there's the problem that not too many people actually deeply, truly want to live in Lancaster, unless they have a job there. Back in the Cold War, there were good jobs at Edwards Air Force base and in aerospace plants. There still are, but nobody's too sure why, or exactly how long the federal government will go on funding new fighter planes to fight ... well, nobody's too sure who.

So, most of the new jobs there are building more houses for Even Greater Fools. Or, you could get work standing by the side of the road as a Human Sign, twirling a big arrow to attract attention to the new housing developments. (Here's my 2005 VDARE article on Human Signs as the personification of the Expensive Land / Cheap Labor economy.)

So, the flipping goes a little slower than you expected. And even at the teaser rate, the monthly on those two empty houses is starting to gnaw away at your net worth. What do you do? What do you do?

Well, you could always rent it out until the market takes off again like you know it will.

But that raises the question of who exactly would want to rent in Lancaster, when you can buy a home in Lancaster for $12,000 down, or you can rent for a reasonable rate in the San Fernando Valley, 40 miles closer to work and 15 degrees cooler, with no dust storms.

Q. So, who wants to live for awhile in Lancaster?

A. The Guatelombian construction workers who are building all the new McMansions down the road.

So, you get some bunk beds and rent out your five bedroom house to 12 Guatelombians. They work hard all day and pay on time. Sure, the neighbors are complaining because your tenants are drunkenly singing along to mariachi music in the backyard all weekend and one fellow got a little too celebratory and started shooting his gun in the air. But, you don't live next door to them, so what do you care?

And then you rent your other house to a couple of families of Guatelombian construction workers. The parents are fine, but you start to notice grafitti around the neighborhood. There are rumors of a gang shooting at the strip mall.

But the money is good in the meantime while you're getting closer to your big payday.

But then you notice that the nice quiet street isn't so quiet anymore. The other speculative owners are doing the same thing you did: renting to construction workers. Soon, there are cars up on jacks on front lawns and Cypress Creek Estates is a big Guatelombian slum. If only you had done it, it would have been okay. But once all those other jerks followed your example, you were hosed. Now, nobody wants to buy into Cypress Creek Estates.

After awhile, they stop constructing new homes in Lancaster, so some of your tenants go home to Guatelombia, while the others hang around Home Depot looking for day labor. It gets harder to collect your rent. So you toss out the construction workers and bring in a Section 8 family. The great thing about Section 8 is that you get your rent checks straight from the federal government, so you don't have to go knock on the door, because, well, to be honest, your new tenants haven't (a single grandmother of 38, her three daughters and their three children, plus a fluctuating cast of boyfriends) don't seem as polite as the Guatelombians.

Then, your two teaser rate runs out and and the monthly resets to considerably higher. You start Googling queries like "non-recourse loan California."

In summary, the essential problem is that there aren't enough people with the human capital to earn enough to pay for all the new homes that have been built in this low, dishonest decade out in the middle of damn all. Screwing around lowering down payments just pushed the discovery of this fact off into the future, after we've wasted all that money on homes, which aren't really investments in the sense that they generate new wealth, they're just expensive consumer durables. And, they aren't all that durable, either.

My published articles are archived at iSteve.com -- Steve Sailer

44 comments:

Anonymous said...

Where is Greenwich, CN? Or do you mean Greenwich, CT?

Anonymous said...

This is what happens when the focus is to lower the capital gains tax rather than the income tax.
Lower capital gains tax = more focus on capital goods
Lower income tax = more focus on human skills

simon said...

Very enlightening. All is now clear.

I'm glad I bought a 95 year old brick terrace house that looks like keeping its value.

rightsaidfred said...

Loved the story.

>>>>Cypress Creek Estate sales agents

Ha Ha. My ex bought a house in the Big Cypress swamp in Florida with one of these liar loans, promptly refinanced it twice, then dumped it. We're talking negative human capital here.

guest007 said...

Steve,

You should have supported your narrative with more data. In looking at the pubic schools at greatschools.com in Lancaster, the public high schools are poorly rated with large Hispanic populations.

milam command said...

Classic post. Made my morning. Thank-you sent to tip jar.

Freddie said...

You and your commenters are saying "Look, in this community where there are a lot of black people, the foreclosure rate is high!" Of course, this conveniently ignores the fact that in the national averages-- you know, the numbers that actually matter-- of foreclosures, minorities are either represented equivalent to their percentage of the population, or are actually under-represented. Just taking the data from communities that you assume fits your preconceived idea... what's the term for that? Oh yeah, cherry picking. I mean it really is breath-takingly dishonest, choosing communities with high minority foreclosure rates (you assume) and ignoring the fact that nationally, minorities have no greater likelihood of being in default than white people. But let me guess, it's another conspiracy, and the profounder truth is that even though minorities don't actually default at greater rates, and even though CRA has been on the books 30 years, and even though CRA mortgages have outperformed non-CRA subprimes in terms of defaulting, and even though a huge portion of the subprime mess is from mortgages that started out as prime and were refinanced to subprime, well... somehow, this is once again the fault of the black people. Just like everything else in your worldview!

I really wonder, Steve, if you have a self-critical process at all. Do you ever actually say to yourself "Maybe the fact that I think black people are responsible for every ill in American society says something about my feelings towards them?"

No, I'm quite certain I don't. You, of course, will drop some anti-PC bromide, pull something from your bag of standard "I'm an aggrieved minority in that I'm a conservative white racialist male" whines, and cluck your tongue. Which is fine. But god save me from the point in my life when I have utterly shut my mind to the possibility that I could be wrong.

Ron Guhname said...

I knew we would see this headline: "Minorities a convenient scapegoat for U.S. financial woes".

http://www.baltimoresun.com/news/opinion/oped/bal-op.viewpoint28sep28,0,6004405.story

beowulf said...

It was the late Brian J. Finegan who pointed out that the US has the curious practice of wasting billions by subsidizing the population move from cities to built from scratch inner suburbs, then to outer suburb, the back to the core city; instead of just maintaining the existing city housing stock all along like they do in Europe.

While the US was putting the big bucks into real estate and defense contracting, the Europeans built factories, rail networks and nuclear plants. When the French build public housing, they put it in the outer suburbs so, in case of riot, a single tank and infantry squad could block the highway leading to the city.

Which reminds me, why do we let immigrants live where they choose?
OK, leave aside all the illegals. Even legal immigrants tend to live in coastal cities, presumably because of family or other cultural ties.

What if H1-Bs and other economic immigrants were allowed in (or jumped to the front of the line) on the condition the visa holder lives in a slow growth or declining population state? North Dakota comes to mind. The regions who need people will get them, and the regions that don't need people won't.

zai said...

Here are the google trends for non-recourse http://www.google.com/trends?q=non-recourse&ctab=0&geo=US&geor=all&date=all&sort=0

Reg C├Žsar said...

They're building many new 3,000 s.f. homes on culdesacs...

Many fine points made, but please, it's culs-de-sac. (Or better, if less common, culs-de-sacs.)

If we insist on using highfalutin Continental euphemisms, we should be consistent and use the proper highfalutin Continental euphemistic plural.

At any rate, it's lipstick on a pig. There was nothing wrong with the old Anglo-Saxon dead end, except perhaps it inched uncomfortably close to the truth. "Butt-of-the-bag"-- wow, that's a real improvement!

On the surface this looks like a trivial point, but it's a window into the mindsets of both buyers and sellers, mindsets which set them up for disaster. Paul Fussell wrote in Class that when agents sold you a home rather than a house, they were messing with your mind.

bbartlog said...

Nice picture. The fundamental problem was the government, as so often happens: here's my favorite Cassandra, Ron Paul, writing in Oct 2005 - http://www.lewrockwell.com/paul/paul282.html

Anonymous said...

So if you were going to move to the Lancaster area due to a hypothetical potential job with that Cold War infrastructure, where would you live? The Lancaster area is out; even the 'better' west side has been annihilated by foreclosures.

Anyone out there have a no-B.S. assessment of Rosamond or Tehachapi?

RKU said...

Well, I still don't necessarily agree with all this analysis, but I do think it's much closer to the mark than the previous nonsense about "NAM" (black+Latino) homebuyers given loans through government pressure.

I think the huge spike in "investment properties" bought for flipping and meanwhile rented out is a bigger factor. And the (stupid) people who bought all those "investment properties" aren't exactly at the bottom of the income ladder...though they may be once they go bankrupt!

Anonymous said...

That droves of people would look to the Antelope Valley as a refuge from LA speaks reams about our current crisis. The place is strictly Six Flags Over Nowhere.

Anonymous said...

"after we've wasted all that money on homes, which aren't really investments in the sense that they generate new wealth, they're just expensive consumer durables"

Wow, Steve, you get it right again and again and again. A house is NOT an investment any more than a car is. The only way a house can be said to "generate" income is that if a prudent mortgage is taken and PAID OFF as quickly as possible, then the occupant can save a rent payment, just as owning a car free and clear can save in bus or taxi fare.

Of course, "rent-free" assumes the roof and foundation are sound, just as the car must be mechanically sound, so repair costs are not astronomical.

The WWII generation, in their old age, made statements like, "This house was the best investment we ever made." That was true during the postwar era of increasing standard-of-living expectations, so long as the house was in a desirable area -- which as you constantly demonstrate, can change in a heartbeat.

Constantly rising house prices beyond what the average working stiff can pay is unsustainable. There is an old proverb: That which cannot continue forever -- won't.

outlaw josey wales said...

Pretty good article.

TooTallJones said...

In summary, the essential problem is that there aren't enough people with the human capital to earn enough to pay for all the new homes that have been built in this low, dishonest decade out in the middle of damn all. Screwing around lowering down payments just pushed the discovery of this fact off into the future, after we've wasted all that money on homes, which aren't really investments in the sense that they generate new wealth, they're just expensive consumer durables. And, they aren't all that durable, either

Fair enough, You say the eessential problem is the people who don't earn enough to pay. Most of your post though deals with the other side of the problem, owners or speculators who took excessive risks. If the people they rented to were noisy, trashy tenants, whose fault is that? Landlordism 101 is NOT to rent to such people. So singling out Hispanics misses the point. The hypothetical landlord in your post also is a speculator, hoping for a quick flip of the property among other things. He should be taking responsibility for his failure at speculation and property management.

Furthermore, it is by no means clear that because the Hispanics cause demographic change in the formerly white 'hood that this means less profts. Landlords going this route are not necessarily "hosed". To the contrary, many have been able to make a nice profit from such people, particularly those who cram several people to a house. They can charge more to offset extra building repairs or other problems. This is nothing new. It happened with white Irish, Italians and Jews when they first started moving into urban US neighborhoods. They showed the same characteristics as the "Guatelombians" you sneer at. White Irish street violence, unsanitary conditions and gang activity for example is common in the history of urban America. Don't take my word for it. See Sowell's 'Ethnic America."

As for neighborhood change, it can be quite negative, but that is part and parcel of the American experience, and bad neighborhoods can change. In the history of Boston in various eras for example, there was "black flight" when the rowdy, uncouth white Irish moved in. The Irish trashed these areas, but in time, things improved.The same pattern of "flight" was repeated in various cities when only white ethnic groups are involved. Such "flight" can be a good thing. As Sowell shows, the main reason blacks got to buy better housing for example was not due to gubment mandated "affirmative action" or the goodwill of white people. Indeed for most of US history, gubment at various levels was actively hostile to blacks. It enforced restrictive covenants for example, despite flowery talk about "equal opportunity".

What helped blacks is the free market. Their "green" dollars induced whites to sell or rent, even racist whites, thus opening up many previously "forbidden" areas. This is not necessarily a bad thing. Why shouldnt minorities have the same shot at home ownership as everyone else? The people who sold out to blacks are not "jerks" but ordinary people looking to earn a profit. In earlier eras, they sold to white Irish or Italians or Poles. What's wrong with that? Those who runinate about "changing neighborhoods" too often would lock out the operation of the vaunted "free market" when it operates as it should, and when minorities are getting a piece of the action.

This illustrates another weakness in your argument. The hypothetical landlord need not be "hosed" at all. In fact if rents are getting harder to collect and the 'hood changing, he need only do what landlords have done for centuries. SELL TO THE MINORITIES THAT ARE MOVING INTO THE 'HOOD. A landlord can squeeze all he can out of a property then sell it. This is Real Estate economics 101. It happened with the white Irish, jews, Italians and others. It is happening with blacks and Hispanics as well. In modern South Central Los Angeles, once heavily black, this is exactly the scenario unfolding - black landlords selling out to Mexicans and moving someplace else, having scraped as much as they could out of their properties.

In the 19th and 20th century, you had landlords doing the same thing to the white Irish and Jews. That is how many of their ethnic 'hoods developed. Blacks and Hispanics are no different. Those who point the finger at minorities too often forget their own histories.

l. ron hoover said...

As a side note, Lancaster, CA is where Don van Vliet, a.k.a. Captain Beefheart, and Frank Zappa are from. I suppose the area was a bit different when they were growing up in the Fifties.

LDS on LSD said...

great writing. enjoyed reading the first half of it :P

Anonymous said...

Steve
thank you for this -
this is a great summary of why the situation in the mortgage market had to collapse.

Right now land in the pacific palisades is still selling for $9 million an acre - or rather i should say that teardown houses on a sixth of an acre still are moving at 1.5 million each

the interesting question is - will the depression further inland impact the PP

Michael said...

Brilliant and funny piece.

SteveWood said...

I guess the Lancaster CofC won't be hiring Steve as a spokesman any time soon.

How much of this scenario could apply to Phoenix or Las Vegas? They are ever more hellishly hot and barren than the high desert, and they're filling up with refugees from LA. As an Easterner, I'll never understand the appeal of these places, with their dead-brown mountains in the background and the ugly, dusty emptiness that takes over wherever there's no irrigation. I can't believe people hate rain and cold so much that they'd rather live with that ugliness than move to the East, Midwest or South.

Anyway, are there really neighborhoods of new, large, nice houses that have become immigrant slums? I mean, are there many of them, not just one or two? I'm not doubting you, but I haven't seen anything like that around here and am wondering if it's a SoCal thing.

Anonymous said...

Peter Schiff predicted exactly how this real estate bust would unfold. Americans don't create enough wealth to support high home prices. No doubt this is doubly true for low skilled immigrants.

Here he is on Kudlow & Company on August 26, 2006. Peter eviscerates former Reagan econonic adviser Arthur Laffer (creator of the Laffer Curve) and explains how and why the economy would implode.

YouTube: Peter Schiff Predicts The US Economic Collapse With Unbelievable Accuracy (8:14)

When you watch this you'll think Schiff had a time machine. He nailed it.

RobertHume said...

And I gather that the bailout bill had nothing in it along the line that any new purchases had to have a 10-20% down payment together with a prospective cash flow sufficient to make the monthly payments.

If that had been done then new house prices would be low enough for working folks to afford. Those who could not afford them could rent them from whoever did own them, for example, the government.

But of course that would result in NAMs not having the same ownership rate as non-NAMS; unacceptable.

And would result in NAMs not making a windfall over the craziness of the banks.

Anonymous said...

Great post. I suspect you speak for millions of Californians. But Connecticut is CT, not CN, you westie!

Anonymous said...

As a former property flipper in Lancaster, you got it pitch PERFECT!

We, however, got out when we saw the dark clouds. If we hadn't been so hyper, we'd have made a lot more, but money in the pocket beats "woulda shoulda coulda."

In our case, we had problems getting renters so we looked to HUD to make our dreams come true.

Got a HUD rental applicant right away. Guaranteed rent! Yes!

It was a black woman with five kids, three of them belonged to her homeless crackhead sister.

Every time I went over there, they acted like the Cosby family. House was clean. 50 inch large screen television showing R-rated black gang movies featuring Tupac running non-stop for the kids.

One day, just on a whim, I decided to knock on a neighbor's door, and ask how things were going in the neighborhood.

She said since our tenants moved in, her neighborhood had gone crazy. There had been a all out gangfight on our front lawn the night before, complete with 8 police cars and a helicopter.

Seems our tenants boyfriend got the only other HUD property on the block upset with some crack selling complications, and the residents of that house converged on the residents of our house.

Also, a month earlier, she said one of your tenants boys, all of 11 years old, had been arrested for burglarizing their next door neighbor's home.

She begged me not to tell our tenants that she'd spoken to us, because they had recently confronted her in her driveway about their suspicions of her calling the police, and told her they'd "beat the shit out of her" if they suspected her of doing it again.

This lady was 75 years old! She'd lived in that house, in a nice neighborhood for 20 years!

I had to inform my partner that we were now SLUMlords, and we just trashed a neighborhood, thanks to our HUD decision.

We decided to evict them, but how, to do it worried us, since we thought evicting them might implicate the lady who told me what was going on.

Luckily, the woman we rented to broke our toilet. The whole bowl was broken into pieces, spewing water and sewage all over the apartment, so we said it would take a long time to fix all of it, and they should get HUD to move them, which they did.

Our insurance paid to fix everything, New paint, new carpet, new toilet, and the house was on the market. Sooner than we wanted, but we were getting nervous.

We sold for a decent profit to a 20 year old female black college student. Only made possible from the help she got help she got from... freddie mac.

At the time, I puzzled over how a 20 year old female black college student could qualify, let alone afford to buy a house at her age, under her circumstances. It seemed insane to me. She didn't strike me as a go-getter real estate investor type. She didn't seem like a homeowner type.

But she bought it.

I hope she's doing okay. : )

Anonymous said...

nonsense about "NAM" (black+Latino) homebuyers given loans through government pressure.

RKU is willing to deny that the very sky is blue if it can make Hispanics out to be equivalent to whites.

S/he is just wrong here. The government DID threaten, cajole, incentivize, and sue most banks into giving out loans to NAMs who couldn't pay. Disparate impact doctrine led to universally debauched lending standards led to this mess. And that's what caused the foreclosures.

http://www.nytimes.com/2008/09/27/nyregion/27about.html


“We demanded down payments,” Mr. Gecan said, “and we resisted government attempts to have us waive down payments. Over the last six or eight years people kept suggesting various programs with zero down. We kept saying, ‘That’s ridiculous — that’s how you get into mass foreclosures.’ ”

Anonymous said...

"White Irish street violence, unsanitary conditions and gang activity for example is common in the history of urban America. Don't take my word for it. See Sowell's 'Ethnic America."
Yeah, I used to believe that too, thought maybe blacks wouldn't ruin every place they took over as they got more educated. Guess what. They're as educated as they're going to get. I mean they get into Harvard with B- averages.
And that's only a slightly hyperbolic statement.

Rape was an extremely rare crime among the Irish and so was murder. Historian Hasia Diner, in her study of Irish women in America notes that the Irish of both genders were disinclined to sexual irregularities of any sort. Illegitamacy was fairly rare even among the poor.
Irish crime was mostly drunkeness and street brawling. It was largely over as a major social, ethnic phenomenon by the turn of the 20th century, or two generations after immigration. Of course there are still criminals of Irish origin, but they are not high enough percentage-wise to destroy whole cities.
Black crime is notable for the vicious sexual violence and homicidalness of it, and the fact it never seems to get any better (in the sense of declining). In fact, no matter how much opportunity and taxpayer money blacks are given (which the Irish and other Euro immigants never got), their crimes against whites (not to mention each other) keep on keeping on. Tens of thousands of rapes, of murders, of armed robbery, of ruined neighborhoods.
The Irish even at their worst never went into WASP raping and murdering in cold blood on a regular or even irregular basis.

The crime and mayhem perpetrated by blacks and, I guess, a lot of mestizos, is totally beyond anything the 19th century immigrants perpetrated, and I have no illusions about them either.
Despite horrendous conditions, 19th century immigrants improved steadily, with little help from the government, little concern from the outside.
Despite millions of taxpayer money, forced integration (blacks can go anywhere, whites cannot go into black neighborhoods without risking their lives), blacks still rape, murder, rob, sexually harrass, on an appalling scale. Not all of them certainly, but enough that that is how I think of them, when I remember the past 35 years of living among them.

native arizonan said...

"I can't believe people hate rain and cold so much that they'd rather live with that ugliness than move to the East, Midwest or South."

There is also the lack of humidity; I never knew how uncomfortable 80 degrees could be until I moved out east. Also, the evening sky is just gorgeous much of the year.

I'd suggest that that's not enough to outweigh the heat and poor growth policies, but there are some positives.

Ghorbag said...

In the latter part of the 1970's my high-school girlfriend's parents lost money "investing" in land out near Palmdale. In the latter part of the 1990's my brother in law (wife != HS girlfriend) lost money "investing" in land out near Palmdale. If I got a mistress I wouldn't be surprised to hear that her kin were losing money they invested in land out near Palmdale.

Palmdale, Lancaster, and so-forth are places which are always about to boom but never do.

tootalljones said...

RKU is willing to deny that the very sky is blue if it can make Hispanics out to be equivalent to whites. S/he is just wrong here. The government DID threaten, cajole, incentivize, and sue most banks into giving out loans to NAMs who couldn't pay. Disparate impact doctrine led to universally debauched lending standards led to this mess. And that's what caused the foreclosures.

Dubious, and the weblink you post actually contradicts your claim, because it shows minorities (in the church cooperatives) actually carrying out their financial obligations in full. Your own link fails to support your assertion. It fact, it mentions nothing about your claimed "disparate impact."

http://www.nytimes.com/2008/09/27/nyregion/27about.html


Again, what credible evidence do you have to back up your shaky claim that the gubment "forced" banks etc to make loans to poor-credit minorities? You havent produced anything credible.

Indeed, the COmmunity Redeve Act (CRA) which is often fingered by some conservatives for its anti-redlining stance, only covers banks and thrifts. Only about 25% of the bad loans were floated from such institutions. The rest of the bad loans were floated by mortgage companies and other financial institutions and arrangements. There lenders were not "forced" to give loans to minorities. They made those loans because the profits were good.
See:
http://www.baltimoresun.com/news/opinion/oped/bal-op.viewpoint28sep28,0,6004405.story

Contrary to pictures painted by some conservatives of minorities walking off with wagonloads of easy cash, said minorities paid higher interest, and higher fees for their loans (as anyone should who does not have good credit). What needs to be shown is how significant a proportion of the total dollar burden is made up of so-called "minority" loans versus so-called "white" loans. If minorities took out 70% of the loans but only borrowed 20% of the pot, their "contribution" is hardly earth-shaking, compared to the white borrowers, speculators and agent who may have walked off with the other 80% of the total pot.

The crisis was caused by politicians of both parties who pushed "easy credit" ACROSS THE BOARD to everybody, not simply minorities, however satsifying it may be to single them out as scapegoats.

Your own weblink undermines your argument. here's what it says:

Through the 1990s and until the last few months, the banner of universal homeownership was flown high by Democrats and Republicans. Behind this virtuous cause was a jungle of counterintuitive arrangements, like loans with no down payment or income verification. These practices make sense only under a system in which the most valuable aspect of the loan papers themselves is that they can be bundled together and sold without any scrutiny of their actual worth. The result was a system of agreed-upon hallucinations.

The push was for home owernship ACROSS THE BOARD, not shoveling cash to "preferred" minorities.

Svigor said...

Don't these mere elected representatives understand how many gallons of diet soft drinks the self-appointed authors of the bailout had consumed over the last two weeks?

Hehe, body blow.

Obama had me nodding with him for the first time the other day when I heard his response to McCain's announcement of campaign suspension on the radio. He mentioned his opposition to golden parachutes. That's one of the biggest things for me - altruistic punishment, BIG TIME. I'd rather no bailout than a bailout with golden parachutes.

Too bad the messiah couldn't follow through (from what I heard on Savage a few minutes ago, FWIW).

Svigor said...

Whoops, wrong thread!

tootalljones said...

Beowulf said:

It was the late Brian J. Finegan who pointed out that the US has the curious practice of wasting billions by subsidizing the population move from cities to built from scratch inner suburbs, then to outer suburb, the back to the core city; instead of just maintaining the existing city housing stock all along like they do in Europe.
Europe is one model, but that model comes with heavy gubment regulation. I am not at all sure if that level is necessary. When such regulation has been implemented here it has caused some impact on private property rights. Just ask those conservatives that see their property rights usurped by grasping city or state bureaucrats. It is also unclear if the Europeans maintained their "existing" housing stock. Urban housing stock changes all the time.


While the US was putting the big bucks into real estate and defense contracting, the Europeans built factories, rail networks and nuclear plants. When the French build public housing, they put it in the outer suburbs so, in case of riot, a single tank and infantry squad could block the highway leading to the city.
Dubious. The US has built plenty of factories and rail networks in various eras, although it slowed excessively on nuke power. As for French public housing, much of it is located in places besides the outer suburbs, the inner city core for example. It just depends on what area you are in. And rioters in projects on the edge of suburbs do not need to march on the city. They are already INSIDE the city in many places, and even on the outskirts, have plenty of material to burn and loot.


Which reminds me, why do we let immigrants live where they choose? OK, leave aside all the illegals. Even legal immigrants tend to live in coastal cities, presumably because of family or other cultural ties.
If your logic was followed then the vast number of Italians, Irish, Jews and Poles would never have made it into America's urban centers. Immigrants go where the jobs are, although family ties as yous ay play a part. If that means urban areas or jobs, that's where they will go. As farms become more mechanized for example, it means less farm labor is needed. Hence white people in an earlier era moved to the city as less farm labor was needed, and today's Mexican farmhands (legal or illegal) likewise move increasingly to urban areas as rural jobs decline.


What if H1-Bs and other economic immigrants were allowed in (or jumped to the front of the line) on the condition the visa holder lives in a slow growth or declining population state? North Dakota comes to mind. The regions who need people will get them, and the regions that don't need people won't.
An inefficient proposal because the skills of say Indian computer programmers would be wasted in rural Montana, compared to their more productive use in say, Dallas. Perhaps you could argue a case revolving around skill shortages, on a temporary basis. Rural areas for example are often short of doctors. Said visa holders who are doctors, could be required to spend a set period serving these rural communities, after which they are free to move around. This happens all the time with various scholarships given to college students. They may be required to work in a certain area as part of the schoalrship conditions. But just shifting people on the basis of perceived population "overcrowding" is inefficient. Rural North Dakota or Idaho will NEVER get the amount of population growth that a coastal state like NY would. Moving immigrants out there to "balance" numbers makes little economic sense, since the numbers and the economic potential, are massively unbalanced to begin with.

Mariel said...

Steve,
I just can't fathom how bizarre California has become. As a life-long New Jerseyan (though I'm only 24 years old), the more I realize that we just don't have these problems in the Northeast. Well, we do of course, but they pop up in radically different ways. Yes, there have been many foreclosures in New Jersey, New York, etc. However, they have been almost entirely concentrated in the overwhelmingly heavy NAM neighborhoods. Perhaps this is because of the nature of the demographics of the Northeast, as it seems to be much more segregated by race than the West. However, there have been very, very little foreclosures in the suburbs of New York City, unless you count "suburban" ghettos like East Orange, Irvington, etc. Do you think Chicagoland (as you used to live there) is more like the Tri-State region or LA?

Anonymous said...

TootalJones:

"If your logic was followed then the vast number of Italians, Irish, Jews and Poles would never have made it into America's urban centers. Immigrants go where the jobs are, although family ties as yous ay play a part."

I think Steve was referring to federally supported housing in general.
Since Section 8, for example, is so corrupt, it's been serving as a financial boost to drug dealers, and professional mooches.
Section 8 allows their participants to move in whatever area will take them, thereby allowing a poor crime-ridden black family to move into a middle-class blue-collar neighborhood, and completely disrupt it.
If more landlords in the neighborhood allow section 8 participants, drug dealing and violence tends to ensue and dominate the area.
When this occurs, the blue-collar folks tend to move, their properties tend to be rented to... section 8'ers, and the neighborhood is absolutely devastated.
I've seen it happen personally, and repeatedly.
So the question is, if "beggars can't be chooser's," and section 8 practices, as they stand, contribute heavily to crime, why not make a provision that if you are section 8, you can only secure residence in Palmdale or Lancaster, which are on the outskirts of LA county, where it's easier for police to track your movements, and a regular cities cherished middle-class remains intact?
Why should people taking handout's get relatively prime real estate to rent?
Of course, this reasoning should have also applied to interest free loans to houses everyone knew they could never afford.
I think that's what Steve was getting at. Not why the poor are allowed to be anywhere they can afford.

Anonymous said...

I really wonder, Steve, if you have a self-critical process at all. Do you ever actually say to yourself "Maybe the fact that I think black people are responsible for every ill in American society says something about my feelings towards them?"

Your ruined an otherwise good post with this bit of moral showmanship.

Toadal said...

While returning from the Sierra on Sunday I was astonished to hear a 9 second thoughtcrime from a Sunday
radio 'Winston Smith' network newscaster referring to Mexican drug violence increasing the demand for bulletproof cars.

"Kidnappings have soared in Mexico in recent years with gangs using increasingly sophisticated tactics to trap their victims, setting up fake roadblocks or surrounding vehicles with commando-like operations.

Drug violence killed some 3,000 people in the country this year as heavily armed cartels fight each other and government security forces. In violent towns near the U.S.-Mexico border, civilians are often killed or injured in the cross-fire."

You can find the Reuters link:

here


I've often wondered whether kidnappings may soon increase in California's exurban, hardscrabble central valley.
There are a lot of wealthy sea-to-mountain travelers, doh! Thoughtcrime!

Anonymous said...

http://weekendamerica.publicradio.org/display/web/2008/04/24/gated_foreclosure/

Foreclosures are not the only thing affecting San Niccolo. With the sagging market, investors who have avoided foreclosure still can't sell their vacant houses right now. Instead, they are renting the homes out. Houses designed for single families are being rented to college kids, or multiple families at a time.

"The house on the corner, we believe, is a half-way house," Lewis says. "There are about six cars -- seems like a bit of an AA meeting." Lewis says she fully supports Alcoholics Anonymous. "I think it's a wonderful thing. But they don't say 'hi.'"

ben tillman said...

I think the huge spike in "investment properties" bought for flipping and meanwhile rented out is a bigger factor.

And I think you're confusing an effect with a cause. A rise in prices must predate any notion that one can profit by buying and "flipping" houses.

ben tillman said...

As a side note, Lancaster, CA is where Don van Vliet, a.k.a. Captain Beefheart, and Frank Zappa are from.

I'm pretty sure Zappa is from Baltimore.

Big Bill said...

Anonymous, that story about San Niccolo was chilling.

Talk about a classic case of Stockholm Syndrome. I feel so sorry for Ms Lewis.

Glaivester said...

Fair enough, You say the essential problem is the people who don't earn enough to pay. Most of your post though deals with the other side of the problem, owners or speculators who took excessive risks. If the people they rented to were noisy, trashy tenants, whose fault is that? Landlordism 101 is NOT to rent to such people. So singling out Hispanics misses the point. The hypothetical landlord in your post also is a speculator, hoping for a quick flip of the property among other things. He should be taking responsibility for his failure at speculation and property management.

You're missing the point. Steve is not blaming the poor people for not having enough to pay. He is blaming the speculators for not realizing that there were not enough people with enough incomes to pay for all the housing they were building.

The problem here is that even though there were not enough people with enough human capital to pay for the type of huge, expensive houses htat were being built, the idiot landlords and wannabe landlords ignored that fact and built all that housing anyway.