The Collected Works of Author and Blogger Larry Roberts

Archive for 2009

I drive a convertible; I rarely put the top up. When my family makes weekend plans, we don't worry about the weather. The climate in Coastal California is nearly perfect, and I enjoy it every day. The narrow coastal band of properties in California have a unique and very high quality climate. Cold I grew up in Central Wisconsin. Like much of the country, there are four distinct seasons there, but in Wisconsin, the winters are particularly brutal. I remember one full week in February of 1985, the high temperature never got above zero degrees. Each day, the high would be -8 to -2, and the lows would drop down well below -20. One morning, it was -38 when I…[READ MORE]

Major cultural events like The Great Housing Bubble change people's lives. The populace built mountains of paper through burning consumerism; paper that is now smoldering in the ashes of our economic fire. Statistics measure the economic fallout, but more interesting is the impact on the people. One trend in our consumer society has been an increase in our collective sense of entitlement. People came to believe in the permanence of the supply of consumer goods they enjoyed, the exaggerated sense of self-importance they created, and the unsustainable level of lifestyle spending they deserved. Since this sense of entitlement was only enabled by a massive Ponzi Scheme, many people in the aftermath must adjust to a new lifestyle that is considerably…[READ MORE]

In 2004, Alan Greenspan, then the head of the Federal Reserve, had this to say, "Indeed, recent research within the Federal Reserve suggests that many homeowners might have saved tens of thousands of dollars had they held adjustable-rate mortgages rather than fixed-rate mortgages during the past decade." Many people took this as a tacit endorsement of these loans by the head of the Federal Reserve. The ignorance of Greenspan's statement reveals a pathological mindset among policy makers in Washington; the people in charge genuinely believed the general population capable of managing their own financial risks -- risks they often are not aware of and obviously do not understand. For evidence of this ignorance one has to look no further than…[READ MORE]

What were the market conditions in 1997 at the last market bottom? The market peaked in the spring of 1990 at $245,000. In early 1997, the median was $223,750. It dropped for 7 consecutive years (The data series is a bit noisy, but the lowest low was recorded at $192,750 in May of 1994). There where bear rallies almost every year similar to what we are seeing now. The median household income was $62,022. The median home price was $223,750. Mortgage interest rates were at 7.6%. Rates had been steadily falling since 1982. If a borrower puts 20% down on a $223,750 home, they are putting $44,750 down and borrowing $179,000. The payment on $179,000 at 7.6% interest is $1,263.87.…[READ MORE]

One of the most important "big picture" lessons of The Great Housing Bubble is that when people believe they have no risk, they behave in very foolish ways. One of the most destabilizing impacts on our financial system was the development and widespread use of credit default swaps that convinced lenders and investors that they had no risk in large financial transactions. The people originating and pricing these instruments did not property analyse and price the risks they were taking on, and the resulting collapse destabilized our entire financial system and created the financial debacle we are enduring today. This foolish belief that there is such a thing as a no-risk financial transaction filtered down to individual buyers of residential…[READ MORE]

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