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Maritan Headsets (from Joel on Software) is a long but worthwhile article on software standards -- both not having them early enough, and having them and trying to enforce them. Parts of it made me laugh out loud, like the paragraph containing this passage: "[...] but of course when you plug the headphones into FireQx 3.0 lo and behold they explode in your hands because of a slight misunderstanding about some obscure thing in the spec which nobody really understands called hasLayout, and everybody understands that when it's raining the hasLayout property is true and the voltage is supposed to increase to support the windshield-wiper feature, but there seems to be some debate over whether hail and snow are rain for the purposes of hasLayout..."

Rescue me: a fed bailout crosses a line seems (to this non-expert) like a good analysis of what just happened to the market and the dollar. (Need a login ID? Try BugMeNot.) I am more scared, and more angry, about our government's economic policies than I've been in a while. As someone on my subscription list said (I forget who), the people who actually took personal responsibility and saved rather than spending recklessly are the ones who are going to get hammered by this, while the idiots who bought houses (or corporate holdings) they couldn't afford and racked up tons of debt will be bailed out because we can't stand to say "too bad you were an idiot".

As long as I'm saying "too bad"... too bad, Michigan and Florida. Agreed.

On a lighter note: Garfield Minus Garfield is surreal. And since seeing it a week or so ago, I haven't been able to read Garfield "straight".

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I agree with you. We originally did an ARM when we bought this place because we were buying the new before selling the old. We always paid the full amortized payment (no neg am here). A year in, we refinanced into a 5/25 because the rates were rising, and we were hoping things would be better after the election. We're now 2 years in, and hoping to refinance before we have insufficient equity (we originally had over 20% down in). But the credit scare is keeping loan rates up, despite the fed cutting rates and the conforming loan cap being raised. So we're keeping our fingers crossed that we can refinance into a 30 year fixed.

This is all because we're in a housing market that is an expensive one. So I agree: we need to do something to restore confidence in the market. Now, that could be insurance -- but that could also be things that make sure amounts get paid back over longer periods making things affordable.

I agree with you 100%

And I agree with Monica. I was pressured for years by people who told me it was horrible I was renting and that I had to BUY NOW or never be able to own a home. I'm inherently financially conservative and it was obvious to me that if you can't afford a fixed rate mortgage with 20% down, you can't afford the house. Too many people believed that the market can never go down.

I bought in October and I paid about 20% less than the guy who sold the condo had payed 4 years earlier (when it was new). Plus he had a pre-payment penalty. He didn't have a lot of choice since he was relocating. I had to make a lot of compromises because I was unwilling to borrow anywhere near what the banks were willing to lend or wipe out all of my savings and have nothing for emergencies. So I have a 2 bedroom condo and not a townhouse, because townhouses with covered parking in the area I wanted to live in (and do live in) cost half again as much as I was willing to spend. And Washington, D.C. is hardly a low cost area.

The banks weren't throwing money around to people who weren't grabbing it thinking they'd sell in 2 years for huge amounts more.

We really need some sort of financial education in our high schools.

We really need some sort of financial education in our high schools.

Yeah, that's what I love about libertarians. I'm a genius; anyone who acts differently than me, and that's most people, is a moron who deserves whatever they get.

Hey, guess what: you can put the 20% down and get the 30 year mortgage and still be on the shaft in this whole situation. On the other hand, choosing when I would have a family that needed a house is about the same as choosing when I would be born. So, as an obvious moron for not being able to do that, or a possessing a crystal ball telling me house prices would decline at the highest rate since the Depression, it's obvious that I have to sell out to geniuses like you or be trapped in my house. That rewards your genius and punishes my stupidity. Which is only fair, right.

Uh, having a family doesn't mean you need to buy a house. Plenty of people with families live in apartments or rent houses. My family (Mom, Dad and 2 kids) lived in a 1 bedroom apartment until I was almost 4 years old. And it probably did me some good by teaching me about not living beyond our means.

It might be worth your looking up what the average square footage of American homes and the average size of American families have been historically. People have entirely unrealistic expectations of what they need.

And, by the way, I'm not a libertarian.

Well, since you're omniscient, you already know I'm an American historian and quite aware of historical standards of housing in this bloated country, let alone compared to worldwide standards, though I'm puzzled as to why you then don't live with six of your family members and neighbors in a room, which would be both financially prudent and close to the historical, global norm.

Oh, that's right, it's because your family is my family is everyone's family, ergo you know exactly why everyone does what they do, or rather what they should do based on what your family was able to do.

Unfortunately your omniscience didn't extend to understanding that the comment about when I had my family didn't imply that I ran right out and bought a house when said family arrived. But I'm sure you do already know that we didn't buy a goddam McMansion somewhere but a fairly small house that was reasonably within budget by any conventional standard. Actually we did something pretty similar to your family, it sounds like. Even your genius family found it difficult to have four people in a one bedroom apartment. Of course the difference is that yours lived within your means until they could do better, whereas we lived within our means until we could do better... and then the value of our house dropped 20%.

So, clearly, your family did better than teaching you mere financial wizardry: they also gave you the universal omniscience to know a down market was coming and to actually time your birth to foresee when you could execute the coup of buying in said market. I shudder to think of the implications for dullardry in my own benighted offspring. Their genetic propensity for foolishness is compounded by having a father who thinks that someone who spouts libertarian buncombe might actually be a libertarian, whether they admit it or not.

Really, it's amazing that you know everything about everyone already, but I suppose that because you know everything already, you already factored in my amazement. Which is even more amazing. I mean, it's either that, or you're seventeen years old, so...

I'm neither omniscient nor particularly clueful about home ownership, so I'm going to ask a stupid question.

whereas we lived within our means until we could do better... and then the value of our house dropped 20%.

Why is this a problem? Is it primarily that you can't easily move anywhere until you pay down the mortgage to what the house is currently worth? I mean--unless your income goes down as well you're not suddenly going to be unable to afford the payments you had been making before and thereby get kicked out on the street, and if anything you'll get a break on property tax, no?

Essentially, yes -- I have a job in another city, and would very much like to move there, but the drop in the value of the house means that in order to move, I'll probably have to bring money to the bank that we don't have since the value of the house has dropped enough to cancel out our equity. Nothing is certain until we find a buyer, of course, so we don't know just how unlucky we are. While the payments are the same, the growth in other costs (the heating bill more than tripling since we've moved in) makes it very hard, thus the desire to move somewhere where the housing cost is cheaper to begin with.

As far as property tax... the city's costs will stay the same, it seems to me, so while they might value the house less, I'd imagine they'd up the millage so the tax would be the same. Hey, if we're stuck here, we need the schools to be decent... so there are no real breaks in all this, I think.

The banks weren't throwing money around to people who weren't grabbing it thinking they'd sell in 2 years for huge amounts more.

Not necessarily. Some of those people were deluded by mortgage brokers into taking on more debt than they could afford, for a house that they intended to live in. Remember that the brokers made money by writing loans, not by making sure that those loans were viable. They had every incentive to defraud the borrowers.

I would whole-heartedly support some kind of licensing system, where you had to demonstrate you knew some basic things about compound interest and financial planning before you were allowed to take on certain kinds of debt. However, considering how much banks have been profiting from high-interest loans to the ignorant, I suspect they would fight this tooth and nail.

(A few years ago, when there was a big reform in the laws for personal bankruptcy, someone proposed a law requiring credit-card issuers to tell borrowers, on every statement, how long it would take to pay off the balance if they only made the minimum payment every month. The proposal went down in flames. That should tell you how much of a vested interest the industry has in ignorant customers.)

And you can sneer at other people's financial stupidity all you want, but that doesn't change the fact that if you are surrounded by neighbors who overextended themselves to buy their houses, and they get foreclosed on or they resell at fire-sale prices, then your home's market value plummets.

Some of those people were deluded by mortgage brokers into taking on more debt than they could afford, for a house that they intended to live in.

To be clear (because I failed to say this originally), I think lenders that were reckless should pay for it and I think ones who committed fraud should face criminal charges (as well as paying for it). That's what I meant when I referred to corporate holdings, but it was way too murky.

I agree with the comment about needing better financial education. And it's more fundamental, even. I astonished my realtor by insisting on reading the contract before signing. What, I'm supposed to take on the biggest debt of my life without reading it first? Apparently most people do (or did), at least around here. When buying the first time I asked for certain forms in advance and paid a lawyer to review them for me. The few hundred dollars for the lawyer was trivial compared to the mortgage; I treated it like another inspection. (Actually, I think the lawyer was cheaper than the home inspector.)

I'm not being smug here. It never occurred to me not to do these things. What did I get in my education and upbringing that (according to the realtor) many others didn't get? We need to fix that.

A few years ago, when there was a big reform in the laws for personal bankruptcy, someone proposed a law requiring credit-card issuers to tell borrowers, on every statement, how long it would take to pay off the balance if they only made the minimum payment every month.

While my end goal is extremely-minimal government, we can't jump there. As a step toward encouraging the meme of personal responsibility I would totally support that law. (Alas, I'm not surprised it didn't make it.)

I'm all for personal responsibility as long as it applies to the industry as much as the individual consumer. On someone else's blog on the same topic, I idly wondered how much of the current "crisis" could have been avoided if there were a requirement that the institution that approves the mortgage has to continue to hold it (and bear the consequences of bad loans). My mortgage was sold twice during the first three months of its existence -- how can that promote responsible behavior on the part of the lending institutions? Unfortunately, any government bailout is going to primarily save the industry from the consequences of it's bad decisions and greed, rather than saving individual home-buyers from the consequences of their bad decisions and naive optimism.

Of course, I'm not in any of the current classic home-buying categories: neither an over-extender, nor an under-buyer, nor a wait-and-seer, nor an intended-to-flipper. So I can be annoyed at the possibility that other people might get rescued from the consequences of their own short-sightedness, but my own decisions would have been exactly the same even if I'd been omniscient.

I astonished my realtor by insisting on
reading the contract before signing.

People sign mortgage contracts without reading them? Seriously?

So I'm told. I can't verify this personally. (Ok, when I sold my first house I saw no evidence at the closing that the buyer did, but I also didn't ask, so he might well have asked for the forms in advance like I did.)

We really need some sort of financial education in our high schools.

As

osewalrus points out in his most excellent rant, the people who loaned out all this money had plenty of financial education.

I have no sympathy for them either. They knew the risks they were taking in most cases. Which is why subprime interest rates were and always will be higher than rates for people with good credit. (It's also why interest rates on long term bonds are longer than on short term bonds - you are running more risk of default, as well as the risk of inflation.)

The most culpable people are probably the middlemen - mortgage brokers advertising absurd teaser rates and encouraging people to lie on loan applications to borrow more than they could otherwise. Consumer education is not a foolproof solution, but I believe it would help at least some people understand that somebody trying to sell you something is looking out for their interests, not yours.

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