“Today a 26 yr old woman explained to me that she lives “beyond debt”: “Once your debt reaches such a high level, you just cannot keep worrying all the time. For survival, you just start to ignore it. It feels really good.” That concept was totally new to me!”
- ‘mad vancouver’ at greaterfool.ca 20 Sep 2011 11:48am
“There is no way I can continue to pay off my car. Morally, I cannot put $10,000 towards something that was taken from me.”
- Jazmin Perez [bmwblog.ca, 11 Sep 2011], whose underinsured leased BMW was torched in the 2011 Vancouver Stanley Cup Riot. [hat-tip Aldus Huxtable]
Hmmm. So, if an unexpected housing crash (hoocoodanode?) had to “take” your paper profits from you, and completely destroy your entire net-worth, and you were underwater on that 5%-down $600K condo, or that 15%-down $1.5M SFH, you’d be “morally” justified to abandon all responsibility for your predicament?
“For survival, you’d just start to ignore it”, possibly?
You’d demand that “something be done”, right?
Adults of BC (those of you left), brace yourselves: The kids are going to come looking for your wallet.
- vreaa
—
Talking about the ‘morals’ of debt, here’s an obliquely related ‘afterword’: a US story from ‘The Ethicist’ column in the New York Times, 16 Sep 2011 -
“I bought a house that a previous owner had nearly destroyed. He knocked holes in walls and doors, trucked away the deck and trashed the aboveground pool, etc. I assumed he was angry at his wife, but it turned out that he was angry at the bank, which had foreclosed, taking everything the couple had put into the property. When a mutual friend invited the former owners to visit, the wife wept and said she could never bear to see our improvements on a house that had been “stolen.” I know we didn’t steal her home, but I resolved never to buy a foreclosed house again. It seems to be an evil thing to do, to profit from another family’s misfortune. Is it?”
- Elizabeth Murphy, Norfolk, Virginia
I now have a new pen name.
(formerly Mike)
Normally, bloggers find handle changes tedious… in this case, not so much at all.
Yep, that was clear from the get-go. As much as I want to get this over with I am not relishing the idea that the Government will pay out all those a$$holes who overreached.
I am not a vindictive person, but I really think we should start setting up poor houses, they can then pay back society by building roads, schools etc.
I don’t share that sentiment. When the time is right and the market is at the bottom I will have zero problems picking the carcass clean. Profiting from someone else’s stupidity after they have ignored ample warnings does not give me a moral dilemma to solve.
The saddest day is not when we lose morality when shirking a financial obligation, the faces of our victims abstracted blank through the corporate machine, it is when society suddenly expects us to have morality living in such a lifeless structure in the first place.
Wise.
I’m not sure I agree with your simplification that “the kids are coming after the adults’ wallets”. In my neighborhood there is property developer, probably in his 50s or 60s, who is overreaching. He owns 3 properties under development on the same street. The third is almost certainly in dire straights. He tried to sell the knockdown at $2m — no biters. Before knocking it down, he tried to sell it in a contract-to-build for $3.2m — no biters. Now it is partially constructed and he is trying to sell it again for $3.5m. (Trying for a $300k profit in 3 months.) We’ll see what happens.
I think it’s more accurate to say “the foolish speculators are coming after the prudent savers’ wallets”.
Scary, people “forgetting about” debt.
This will have to be my last post to the VREAA, but I just wanted to make a clarification. My own calls for action don’t mean I think other people should clean up after messes they didn’t make. (FWIW, I myself have no debt.) As a Canadian citizen, I feel it’s my duty to speak out to politicians, financial institutions, etc. if I see something I think is wrong that *might* have aspects that could be addressed — even if the addressing of such issues starts by national and local politicians and financial institutions simply warning Canadians about indebtedness. I do also think local and national government officials should be prodded to continue to consider the affordability crisis in Vancouver a political issue they need to prioritize. This blog is definitely one I would recommend they study and I’m sure has already played a very useful activist role itself.
I did feel that all my writing to politicians and financial institutions in the U.S., about banking scandals and economic inequalities there, was something I needed to do to feel I was doing *something.* Anger at how things are can be a stimulating force for eventually changing the status quo in whatever way makes sense. I see all that reflected in a very positive way on this blog, which presents good advice and gives people a forum to share experiences and ideas.
Vesta -> “This will have to be my last post to the VREAA”
–
Say it ain’t so!
Sincerely hope that you and yours are well.
Thanks for your contributions here, and all the best with future endeavours.
Hope to hear more posts from you, Vesta.
Jeff -> When we say ‘kids’ and ‘adults’, we’re not talking about age, we’re talking about levels of responsibility and financial maturity. [thus the 'any adults left?' point].
The property developer in his 50s or 60s that you describe, is, in this regard, a ‘kid’.
Aha, that makes more sense! I had missed that you were speaking metaphorically.
jeff -> yeah, sorry… internet makes it difficult to load language/chat with emotion/implication… you’d have understood immediately face to face.
Hmmm. So, if an unexpected housing crash (hoocoodanode?) had to “take” your paper profits from you, and completely destroy your entire net-worth, and you were underwater on that 5%-down $600K condo, or that 15%-down $1.5M SFH, you’d be “morally” justified to abandon all responsibility for your predicament? – vreaa
I’d say so. The banks are as complicit as the buyers in enabling the bubble; why shouldn’t they share the suffering when it pops? They’d do the same thing in heartbeat (cancel the lease on an office tower, etc). It’s not like the speculator would be well off: they’d lose all their paper wealth by walking away.
Walking away from an underwater mortgage is different from refusing to pay the remainder of the loan on a torched BMW. Both the mortgage and the BMW loan contract provide for the choice of either paying off the loan or have the collateral repossessed. Mr. Lopez lost the ability to make a choice due to his own fault of under-insuring, so he is contractually and morally obligated to make the payments. Not so for the buyer of an underwater mortgage.
If the banks would have to hold the bucket I would be in agreement, but it’s the Government, via CHMC and thus the taxpayer who gets to pay for the insane speculation.
The buck stops literally in my wallet for no other reason but that I haven’t partaken in the same stupidity.
In other words: The prudent will get punished and the “risk takers” will be rewarded by essentially having been allowed to play for free at the casino.
If this would end “fair” then nobody could walk away from their debt (actually, they can’t really in Canada, at least not right now but I expect Harper to change that soon) and would be forced to pay back the amount of money they took out. Regardless if it was backstopped by the Government or not.
In my experience it is rarely the case that bad debts are not borne by society at large one way or another. Explicit bailouts just throw this reality into our faces in a dramatic way.
Never to such a degree though and that is what pisses me off. Not only because the money won’t go towards any person but it will be dumped into banks and other faceless institutions that will distribute the bounty to their shareholders while the majority of the tax payers gets to see their own earnings drop.
Quite frankly the Government should divest itself of the mortgage insurance arm of CHMC post haste and sell it to AIG or someone like that.
” it will be dumped into banks and other faceless institutions that will distribute the bounty to their shareholders”
Shareholders also include pension funds and RRSPs. We’re all in this, to some degree; it’s more a matter of who pays. I agree with you 100% the only way to win is not to play with FIRE.
I’m less sanguine about divesting a CMHC-like insurance entity to the private sector. We do not have a case of a full market cycle where private mortgage insurance on high ratio loans has been used without significant secondary effects. Australia has this but, as I said, no full market cycle… yet.
I really don’t care if RRSPs and pension funds take a hit. They should have known better than investing into institutions that play with fire. Most people’s retirement isn’t worth anything anyway, much less when the value of their home drops. So no, sorry, no sympathies.
Do you really think that the Government will let CHMC fail? They will inject so much cash into as they need to make it keep paying. CHMC is big fat aneurism that’s waiting to burst.
By the Government backstopping all these shitty loans they encouraged this run-up, there is zero risk for the banks, CHMC took on whatever the banks handed them (as long as certain, useless, parameters where adhered to.
Privatizing CHMC NOW and removing the Governments liabilities is the only way to prevent this from really blowing up into the taxpayers face.
I>”Do you really think that the Government will let CHMC fail? “
No I don’t but even with privatization I contend there would still be impetus for government bailouts a la AIG in the US. As mentioned we do not have any good model for a private or public insurer adequately provisioning for correlated risks like housing busts. The answer, in my mind, is to eliminate MI altogether, or severely limit its extent by requiring more onerous terms using increased capital reserves or reducing deductibles on insurer defaults. Right now loans with MI are getting prime rates when they should really be getting below-prime (so called alt-A) rates.
I’ve written on this before, the malfeasance goes deeper than you have written about here. There are bigger clouds on the horizon, namely the low-ratio loans that banks have leant at prime terms, sometimes at more risky terms than required by CMHC, based on market prices. If the market deteriorates, these loans become the purview of CMHC and tougher underwriting standards. Households are going to have trouble making up the gap and will likely get a taxpayer bailout. I wrote about it on Ben’s blog:
http://www.theeconomicanalyst.com/content/cmhc-vs-fannie-maeround-2-more-nagging-questions-about-canadas-mortgage-monster
I think we can also agree it is not looking good…
It’ll be harder to justify though, especially under Harper. At the very least it would break the parties neck and they’d be marginalized at the next election.
Yes. The problem is that CHMC et. al. went from the idea to make it easier to buy a house for low income people to fuel the speculation bubble. The entire setup is screwed. Instead of having these 35/5 or similar crap they should have capped the insurance limit to 3x the annual family income as declared to the CRA. This would have allowed the lower income people to buy into the market but not have lead itself to speculation based on self-reported income / earnings.
I am aware of the underlying problem, I just restrain myself to real-estate related talk on here. My outlook is decisively dark and quite frankly I think the only way this can and in any way “happy” is by doing a complete re-set. It won’t happen, instead I predict a long, painful decline with two classes. The have’s and have nots. and that is only the economic side of things, ask me about my other concerns for the next 50 years.
Ref Abov: Meant to say the speculators would have lost most of their paper wealth from the crash. Walking away doesn’t increase their loss, obviously.
“I’ve got debts no honest man can pay.”
I understand and am also frustrated with the insane over-leveraging and don’t get me started on idiots buying expensive cars wtih HELOCs. That said, I put must more blame on the banks, mortgage brokers, and the lack of governmental controls which allowed people to take out huge $$$$s of unwise debt.
Most people are financially illiterate. They judge their ability to pay according to the monthly payments. This is not news to the money-lenders/banks. In fact, the role of interest payments is to off-set that risk. They need to do their jobs and analyze that risk.
I resolved never to buy a foreclosed house again. It seems to be an evil thing to do, to profit from another family’s misfortune. Is it?
WTF??? Really? Are people really this brainwashed?
Yes.
What business did the “mutual friend” have causing the uncomfortable situation? Did they do it for kicks?
okay way off topic but well-known astrologer tim stephens is forecasting on van real estate: http://www.astralreflections.com/html/next.html
Hahaha. He should get a job as an Economist with one of the banks, he’d fit right in.
Blindly basing ones decisions in astrology isn’t that far off from basing ones decisions in mass media. Now where were those lottery numbers again?
hahaha.
“Gold, Jerry, gold.”
Will headline, naturally.
The perfusion of RE into all realms of pop culture.
Thanks, tcg
Funny thing is, the general sentiment that economic woes in the countries of origin of some buyers may well be the catalyst that will lead to lower prices. Not bad, timing seems about right.
Got the magnitude wrong though. You can never have both.
Debt is an addictive drug and should be regulated as such.
ah… TheMorals ‘o Debt…. ya know… I seem to recall TheBard dealing with this thematic… compeling advice for ‘weird’ times. (Note to Ed: When the going gets ‘weird’, the ‘weird’ turn…)
OPHELIA
I shall the effect of this good lesson keep,
As watchman to my heart. But, good my brother,
Do not, as some ungracious pastors do,
Show me the steep and thorny way to heaven;
Whiles, like a puff’d and reckless libertine,
Himself the primrose path of dalliance treads,
And recks not his own rede.
LAERTES
O, fear me not.
I stay too long: but here my father comes.
Enter POLONIUS
A double blessing is a double grace,
Occasion smiles upon a second leave.
LORD POLONIUS
Yet here, Laertes! aboard, aboard, for shame!
The wind sits in the shoulder of your sail,
And you are stay’d for. There; my blessing with thee!
And these few precepts in thy memory
See thou character. Give thy thoughts no tongue,
Nor any unproportioned thought his act.
Be thou familiar, but by no means vulgar.
Those friends thou hast, and their adoption tried,
Grapple them to thy soul with hoops of steel;
But do not dull thy palm with entertainment
Of each new-hatch’d, unfledged comrade. Beware
Of entrance to a quarrel, but being in,
Bear’t that the opposed may beware of thee.
Give every man thy ear, but few thy voice;
Take each man’s censure, but reserve thy judgment.
Costly thy habit as thy purse can buy,
But not express’d in fancy; rich, not gaudy;
For the apparel oft proclaims the man,
And they in France of the best rank and station
Are of a most select and generous chief in that.
Neither a borrower nor a lender be;
For loan oft loses both itself and friend,
And borrowing dulls the edge of husbandry.
This above all: to thine ownself be true,
And it must follow, as the night the day,
Thou canst not then be false to any man.
Farewell: my blessing season this in thee!
LAERTES
Most humbly do I take my leave, my lord.
LORD POLONIUS
The time invites you; go; your servants tend.
LAERTES
Farewell, Ophelia; and remember well
What I have said to you.
I suppose i did ask for this, using the old “sound and fury” chestnut a couple of weeks back.
And for the savers:
“…put money in your purse..”
- from Othello (didn’t end well).
Love it! Ah, wit, thank you. Nemesis, thanks for the Shakespeare.
And thanks, host and Kermodei, for the kind Ave Atque Vale after I stormed onto the site just a week ago demanding everyone “take arms against a sea of troubles and by opposing end them” (Hamlet). Believe me, I’ll keep reading, and nominate you for the City of Vancouver/Cassandra Award once the whole house of cards (as it were) starts collapsing. (What is the line about the prophet not being honored in his own land — ?)
Onward & upward (even in the coming downward market).
Vesta -> I saw a guy downtown wearing this on his t-shirt last week… had a good laugh, and, believe it or not, thought of your posts:
4+minutes of Global RE pumping.
Yeah, stomach-pumping stuff, actually.
Tomorrow we’ll headline the bit where Rennie says ‘Vancouver is the asset’.