Schadenfreude: The Psychology of Housing Retribution and Justice. The Fantastic AG, BB, and HP.
“Rearden had never given much thought to men like Bertram Scudder. But with every hour of his life, with the strain and the pride of every moment when his muscles or his mind had ached from effort, with every step he had taken to rise out of the mines of Minnesota and to turn his effort into gold, with all of his profound respect for money and for its meaning, he despised the squanderer who did not know how to deserve the great gift of inherited wealth. There, he thought, was the most contemptible representative of the species.â€
“Cash is available and we should use that in larger amounts, as is necessary, to solve the problems of the stress of this,” Greenspan said. “It’s far less damaging to the economy to create a short-term fiscal problem, which we would, than to try to fix the prices of homes or interest rates. If you do that, it’ll drag this process out indefinitely.”
Greenspan went on to also say the following:
“…cash bailouts, while creating a larger budget deficit, have the advantage of helping homeowners without distorting property prices or interest rates on mortgages.â€
“I do not doubt that a low
This guy is seriously doing some legacy damage control. He is trying to distance himself as far away from the mortgage mess by stressing that if anything, lowering rates may have had a tiny bit of influence of the current housing situation. You think? His current view has a complete disregard of a balanced budget and will institutionalize the current housing bubble prices. Instead of coming out and admitting that housing is drastically over priced, these banana republic politicians want to inflate prices into the stratosphere. What the hell happened to this Greenspan?:
“Anything that we can do to raise personal savings is very much in the interest of this country.â€
Or…
“History has not dealt kindly with the aftermath of protracted periods of low risk premiums.â€
“Dec. 17 (Bloomberg) — Treasury Secretary Henry Paulson said Fannie Mae and Freddie Mac, the largest sources of finance for American mortgages, may help “jump start†the market for the largest home loans.
Paulson said in an interview today that he favors temporarily allowing the two companies to purchase so-called jumbo loans, which exceed $417,000. He said the proposal should be part of a package of legislative changes governing the two government chartered companies. â€
“Bernanke indicated in a Nov. 8 hearing that he favored letting Fannie Mae and Freddie Mac buy mortgages of up to $1 million. He noted that it was up to Congress to determine the amount.â€
Yup, let us allow these two institutions to purchase bigger and uglier mortgages:
Sure seems like a great time to give these two mortgage giants more power to purchase larger and larger mortgages. Why stop at $1 million? Let us allow them to purchase mortgages up to $1 billion! Then everyone in this country can own a home on a negative amortized option ARM exotic mortgage and we’ll simply tack it on to our ever ballooning nationwide budget debt. At that point, you can use dollar bills as an alternative source of fuel to heat your home. This in conjunction with fluorescent light bulbs will make you the eco-friendly poster child.
What’s a few trillion between friends if it means we can push the homeownership rate from 68 percent all the way up to 100 percent!? Isn’t this the pinnacle of the “ownership society†that we’ve been all hearing about? Greenspan is a very smart man and he knows that historians will not deal with him lightly for engineering the largest credit bubble known to humankind. If he can hand this off to Ben Bernanke and insulate himself as far as possible from the detonation site, he feels that the collateral damage won’t be so great. Why else would he be advocating ideals that are so contrary to his original core beliefs?
Schadenfreude and the Art of Misery
All this is enough to drive fiscally conservative individuals to the brink of insanity. I’ve been reading from various permabull and delusional novice investor sites that many housing bubble bloggers are doom and gloom and now that housing is getting kicked in the twig and berries, many take joy in seeing people in pain. That in fact is not true. I can’t speak for everyone but I can say that I do have sympathy for someone that lost their job and has a hard time making their mortgage payment. I do not take joy in seeing someone with an illness and unexpected medical bills not being able to make monthly payments when they have to deal with something much more important than finances. I doubt many individuals will argue in these circumstances.
However, do I feel a sense of vindication when a wannabe Trump investor purchases a $750,000 home on an interest only mortgage thinking they would flip it for $850,000 one month later and is now stuck with a depreciating asset that they simply cannot sell? Damn straight. What about a fly by night mortgage operation that is no longer in business because of corrupt business practices that inflated this bubble to the next level and put many people into financial Armageddon? They are no longer in business because their model was unsupportable. It was mad speculation and there is a tremendous amount of schadenfreude being unleashed now that the bubble is bursting. Folks that felt they couldn’t purchase a home because speculators kept bidding up prices and the only way they would be able to jump in is compromise their principles of financial prudence and swallow a loan that converted their home into a speculative commodity are feeling that many are getting their comeuppance. Many said no way and tried to live prudently all the while credit flowed like the
I’ve also notice a play on words. When the hell did debt become credit? We keep hearing this, “we’ll expand credit†or “let us increase credit†over and over. All they are saying is let us go further and further into the blue abyss of debt. Let us expand debt. We should have more debt. Just to show you a perfect example of this irresponsibility playing out in the football field of life, we have a couple that lives up to each irresponsible financial move one can make. The Wall Street Journal profiles a few others in
“The Oropezas arrived at
As property values skyrocketed, they refinanced three times, most recently in late 2006, for $835,000, Mr. Oropeza says.â€
Okay, so they pulled out a whopping $278,000 in inflated equity out of their home over two short years. The article goes on to talk about how they used the money to add the ever-important backyard waterfall. What the hell is
“The couple listed the house several times, even before the final refinancing, which raised their monthly payments to about $6,300. Earlier this year, they were asking $839,000 for the house. But it just sat. Elsie Cambone, the Coldwell Banker agent who had the listing, says prospective buyers were put off by the vacant home next door.
The couple due to a job transfer needed to move to
“In the run-up to their move, she says, the couple lived off credit cards to “make sure we had cash for the house payments” in
Bwahaha! Can this get any more surreal? They are swimming in over $500,000 of debt and they go off to the
“Neighbors Ms. Lefranc and Mr. Saffold are dismayed over the Oropezas’ departure and note that shortly before leaving, the couple bought a new Lexus. “I think they took money out of their house and split,” Ms. Lefranc says.
Mrs. Oropeza says that she and her husband recently bought a Lexus and a Chevrolet Suburban with no money down. She denies that the family intended to abandon the house. The choice was straightforward, she says: “It was easier to keep the house in
We have a winner here folks! Not only did they conscientiously decide to forego their obligation to the debt on their
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24 Responses to “Schadenfreude: The Psychology of Housing Retribution and Justice. The Fantastic AG, BB, and HP.”
Thank you!!!!!!!!!!!
Finally, someone who recognizes that Greenspan has not been in favor of the free market or capitalism for many years and is a complete and utter sell-out.
Ayn Rand must be turning over in her grave, indeed.
(I believe I’ve heard that she did not trust Greenspan….)
I just finished reading Atlas Shrugged (yikes 1100 pages) and it’s totally amazing how much our current system of culture is parallel to the culture described in Ayn Rand’s book. I only wonder if our “way out” is also the total falling apart of everything around us. I’m looking for a certain piece of land somewhere hidden in Colorado. Thanks for your thoughtful insights and writings, they are almost as enjoyable to read as Ms. Rands’. 1957-2007 50 years and nothing has changed! Or should I say, everything has changed to fit into place exactly as planned…. “Hope springs eternal”, but I’ve lost mine.
The Oropeza’s are truly a disgusting case, whether it was intentional or not.
Here is the WSJ blog on the article, with the WSJ title:
Fleeing Foreclosure in a Lexus
Here is their home in Texas. Fort Bend County allows you to access their Deed of Trust, as well.
1414 Baldridge Ln
Katy, TX 77494-4713
Interesting comment at WSJ…
Karp was naive about the so-called job transfer to Texas that just happened not to pan out. For people who file for bankruptcy, Texas has a homestead exemption and an exemption for one personal vehicle per adult. However, they have to own the home for 3 years before bankruptcy; otherwise the exemption limit is $125,000. Thus, the Oropezas bought their new Texas home, Lexus and Chevy Suburban and talked up the supposed transfer to establish Texas residency. At the appropriate moment, they’re probably planning to declare bankruptcy, walk away from their California debts and keep the Texas home and cars.
Comment by Homestead – December 18, 2007 at 12:30 pm
Not to worry folks, it’s all starting to crumble and drift away. Govt. intervention
is just going to strech the problem out for another 3-5 years. If I were a
professional gambler I would bet that in the 3-5 year time frame, homes not only in SOCAL will be 50% less than now, but NORCAL were I live they will be in the same boat.
Until the tried and true tested methods of lending return to the market, we will be living through this horrible ponzi scheme of going into massive debt. We all know what those standars are, but most people now just laugh those off as “old world”. I have a feeling that this may become a housing depression if with gubmint help.
Everyone, have the seatbelt on and hold on tight. A very bumby ride is coming and am I so glad I “owe” no one anything! I personally “hate” having debt. It’s just a stupid way to live your life. Never be fooled by Big Ben or these other scammers out there working on convincing people to bury themselves in debt.
“When the hell did debt become credit?”
Amen. This is an astute observation on your part, Dr. HB … it captures the sentiment of the moment …
The masses have confused debt with wealth. The lenders (and lending instruments) have confused debt with credit.
Excellent posting, especially the quote from Atlas Shrugged.
I always laughed at the commercials recommending you to “tap into your equity”. Gullible listeners apparently did not understand that “tapping your equity” is simply a way of saying: here’s an easy way to get deeper in debt.
It is increasingly frustrating for a financially prudent person to watch what is happening – what do I teach my kids about the government when they are older? I have more faith in the writers of these blogs than in the government officials in charge of these bailouts and other ridiculous ideas. Are the officialls completely oblivious to the ramifications of their proposals, or are they simply hiding their true intentions?
p.s. I also moved from California to Texas (after selling in 2005). I hated leaving California, but I refused to pay the ridiculous prices and ruin my finances. I sure hope the Oropeza’s never move near me, or I will give them an earful.
> (they) took out a $500,000 mortgage. (…)
> so they pulled out a whopping $278,000 in inflated equity out of their home over two short years
The 500k is probably be non-recourse, but they should be on the hook to pay back the 278k, shouldn’t they? They could try, of course, to discharge the 278k in a bankcruptcy, but the recent bankcruptcy reform with its strengthened demands on paying back debt might make life difficult for them.
All,
Just a thought. I think the problem now is deflation, hense, falling home prices. But some preach hyperinflation. I say if there will be hyperinflation, than we should all buy a home at todays prices, and when hyperinflation comes, we’ll owe peanuts anyway.
So what is it, hyperinflation of deflation.
> Folks that felt they couldn’t purchase a home
> because speculators kept bidding up prices
> and the only way they would be able to jump in
> is compromise their principles of financial prudence
> and swallow a loan that converted their home>
> into a speculative commodity are feeling that many
> are getting their comeuppance.”
Yep, this is me, you hit the nail on the head.
Atlas Shrugged is an amazing piece of literature. Well worth the 1,000+ page read.
Back in the world of hack jobs, we get the Feds statement on Mortgage reform:
The proposal includes four key protections for “higher-priced mortgage loans” secured by a consumer’s principal dwelling:
• Creditors would be prohibited from engaging in a pattern or practice of extending credit without considering borrowers’ ability to repay the loan.
• Creditors would be required to verify the income and assets they rely upon in making a loan.
• Prepayment penalties would only be permitted if certain conditions are met, including the condition that no penalty will apply for at least sixty days before any possible payment increase.
• Creditors would have to establish escrow accounts for taxes and insurance.
So what we get is…
1. You must be able to pay your debt. Oh really? What a novel idea. Thanks Boom Boom!
2. You need to verify income? Say what? So people working at Wal-Mart don’t really make $200,000 plus bonuses?
3. You got to love the prepayment penalty clause. Screw you on the way in and the way out.
4. Great idea setting up escrow accounts for taxes and insurance. If anything, it will force people to budget.
These are things that are great but 7 years too late. So in essence what they are saying is none of this stuff was enforced in the last few years. At least they’re coming to terms with the reality of the market.
I have always said that Greenspan returned to his Keynesian roots as he gradually severed his ties with Miss Rand.
However, that is giving him too much credit, for it is to imply that he actually lives and deals according to some sort of principle other than his own aggrandizement, which is to give him way too much credit.
Miss Rand had doubts about him herself, and once asked one of her acolytes if “Alan is just basically a social climber”, which seems to have proved correct. In fact, he probably pulled away from her because she was beginning, in the sixties, to seem more and more like a cult leader in her withdrawal into her circle of followers, and concommitant demands for absolute, unquestioning loyalty and obedience from them.
None of this is to critisize her philosophy, which I believe to be essentially correct. To me,the pity is that the corporate welfare state we have built over the past 50 years passes for “free enterprise”, and that her philosophy has been misstated and perverted so that people believe that free enterprise means unbridled greed and dishonesty in pursuit of profits, when the opposite is true.
What we are now discovering is the core truth of her statement that capitalism demands morality, and we can hope that at some point it dawns on our business leaders that a government-granted license to defraud and steal, along with government gifts such as TIF and tax abatements and other “gimmes” for large corporations, along with bailouts from the failures caused by rampant fraud and malfeasance as we are seeing in the housing market, are a violation of the very idea of a free market, and are not caused by it.
But it is, as usual, the idea of free markets that is taking the blame for 10 years of Fed-sponsored fraud and lunacy.
I read the Oropeza story in the WSJ and it made my head explode. Their accumulated debt is $1.2M ($835K + $283K) — not $500K. It’s very instructive to examine Mrs. Oropeza’s words to gain insight into their state of mind and decision-making processes:
“We’re sad because there goes our credit, and because people think we are
a bunch of flakes who walked away from the house and tried to make money,”
Mrs. Oropeza says.
They’re concened about what other people think about them. They don’t want people to think they are “flakes”. Just like they wanted people to think they were rich and successful when they were buying a bunch of things they coulnd’t afford. It’s all about what people think of them. That’s what upsets them. Not that they can’t pay a debt they agreed to pay, or that they broke a contract, or that they lost their house. Nope. It’s all about what the neighbors think.
Well for all you folks out there,Mr. Lyndon Larouche has put before the City Councils across this country and State Governments, his Homeowners and Bank Protection Act,clearly stating the first step to grasping this Ninehundred Pound Gorilla by the testicles,and start to put a firewall up to protect the citizens and banks, just like FDR did back in 1933. I put it before my City Council members just the other night,and will follow it up keeping them informed on current changes.So if you want to help save your own lives and those if your loved one’s,I suggest you join the fight now.Read about it at Larouchepac.com,or pay for your funeral now, before Hyperinflation makes it impossible
It does my heart good to read this blog and realize there are people that actually think like i do, or that i think like they do…..It’s been so contrary to my upbringing
and value system to buy what you can’t afford, or rather “take” what you want and throw caution to the wind…Bail these people out, bail these institutions out?
That will only, as everyone else has stated, cause the problem again….people will only learn when they pay the consequenses for their actions. This family has been caught up in the materialistic “got to have it” now mentality…and it seems like they are getting away with it….for now. It will catch up with them….but it’s at a very great cost….we are going to pay for it!!!
Great analysis Dr.HB, as usual. 🙂
The Oropeza’s did exactly what many people did before the bankruptcy rules changed:
Whip the money tree as hard as you can before it shrivels up and dies. Then, just declare BK and start over and get to keep the McMansion and the Lexus purchased right before the filing. People have been doing this for years, and with little remorse. The sense of entitlement along with the need to keep up with the Joneses brewed an evil mixture. Why not? Everyone else is doing it and getting away with it. Just like the Catholics who get to go to confession and start over every week, this whole scheme allows the same thing.
Our society, the media, television, our government, etc etc created this mess. The government now decides to do the same exact thing as the FB’s and BK’ers do and just push it until the bubble not only bursts, but explodes like the Hindenburg and then decides to “start anew”.
I agree with NB…” we have confused debt with wealth”
Alarmingly true.
And by Susan…
“to buy what you can’t afford, or rather “take†what you want and throw caution to the wind…Bail these people out, bail these institutions out?..”
Right, i can understand the disappointment of previous generations seeing the folly we have created. I was just talking to a friend of mine who experienced the after effects of the Great Depression and the war that ensued. Th rationed sugar,leather,shoes and many more..
I wonder what kind of chaos that would make if it happens in the present day
God help us in our coming generations…
We need more ‘Rebels with a Cause’:
-Ian
http://renohomeblog.com
Its very hard to read about this generation of subprime-subslime Americans. Of course, this is not everyone, but its way too many.
Before Greenspan became Fed Chairman, he was in consulting. He wrote a couple of position papers on behalf of Charles Keating of Lincoln Savings and Loan. He wrote glowingly of Keating’s acumen as an investor and his general good character. It wasn’t long thereafter that Keating was in jail for his part in the Savings and Loan debacle. Greenspan, then the Fed chair, also participated fin the LTCM debacle which had the potential to cause international financial chaos with the mega leveraged derivatives. Then came the dot com bust and the Fed had their hand in the middle of the cause of this mess. Greenspan even refused to raise margin rates at a time when margin buying was threatening the entire system. Then the collapse. Easy Al next lowers short term rates to 1% thereby not allowing any kind of normal correction. Hello! There is so much liquidity then next bubble is created; in housing. We haven’t even dealt with the first group of stock fraudsters and we now get the subprime mortgage mess. Greenspan is then knighted in Great Britain and becomes “King of the Realm” or some such nonsense. When he was the Fed Chariman no one could understand a thing when he spoke in “Greenstalk”. Now he is busy defending the indefensible, and the asshole speaks in plain English. And so it goes…..
Ian… I think it is confusing credit with wealth.
$800K Home in Corona? How much is CFC set to lose on this treasure?
Schadenfreude indeed.
Having read most of Rand’s works, meeting Greenspan a couple of times, and being a commercial Realtor in past (way past) moments, I’m genuinely disappointed that Alan could not fully recognize the dangers of the derivative debacle now unfolding.
However, like most everything else, things are usually more complex than one might imagine. NONE of us had (or have) ALL the information Alan had.
Still, we all must act on whatever information available to us. Hello, CHAOS Theory. 😉
As to ENVY (often called shadenfreude); it is much more diabolically evil and ubiquitous than most imagine.
Read for yourself at
Finally, in my view, this “Bubble” has only just begun. Pay very serious attention to what will surely become the Mother-of-all-LAWYER-retirement-plans in the coming Great Lawsuit Wars.
On the left we have the bookend called “Homeowner”, and waaaay on the right we have the bookend known as “Investor” (Both individuals and institutions).
In between are the juiciest banquet guests (lawsuit targets) one can imagine:
* Loan originators / mortgage companies
* Banks
* Appraisers
* Realtors
* Builders
* Wall Street Investment Banks (Lehman Brothers, et al.)
* Wall Street Brokers and Brokerage firms (Too many to name)
* Trust entities set up to sell the securitized loans. (Spooky things.)
* Rating firms like Moody’s, etc. (Keeping Ponzi alive)
* Insurance companies like A.I.G. (Have Mercy on us all.)
* All others I missed
Before this dance along the time-space continuum is over, most, or all, the above will be suing and fighting each other like two cats (tails tied together) slung over a clothesline. (Pitiful sight)
Folks, it’s rather simple; you must be able to “PROVE you own what you say you own.” On October 31, 2007, Judge Boyko in Cleveland made that abundantly clear to Deutches Bank, didn’t he? Think about that.
DB attorney’s aren’t stupid; WHY could they NOT prove they had foreclosure rights?
When you’ve sliced and diced derivatives/tranches using the science known as “particle physics of real estate” (brilliant quote I stole from a site that I can’t remember — sorry, author) DB may not be ABLE to trace down EVERY loan.
Especially, if some loans ended up in 2-3 different securities, as was reported. What FRAUD?
Think how many world-class envy mongers will be let loose on the Great Unwashed. Everywhere up and down the legal-battle food chain. Whoooeeeeee!
A new definition of “Lawyer Up” will be writ large.
Cheers, Anti-Envy
I’m just amazed and disturbed by the decline of US dollar and the current state of our economy. We put CEOs in jail for accounting fraud or insider trading but we are not willing to hold the same strict punishment to those who intentionally or unintentionally destroy our economy.
Greenspan has been in favor of free market capitalism. One could argue that he’s been too in favor with it. Look how corporations have made their ties to the government stronger. That is a consequence of free market capitalism.
Doctor,
After two years, the Oropeza’s have listed their McMansion in Katy, TX. It’ll be interesting to see what they do next.
Oropeza, Part 2
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