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Tuesday, March 20, 2007

Subprime Homesick Alien

I live in a town where you can't smell a thing.
You watch your feet for cracks in the pavement.

Up above aliens hover, making home movies for the folks back home,
of all these weird creatures who lock up their spirits,
drill holes in themselves, and live for their secrets. -- Radiohead


There's a crisis looming, and we spent part of our afternoon Saturday looking at new houses. Bad, bad liberals. We are in an odd spot, economically, geographically, demographically. Being in a small town that has decided that it is happy with being a bedroom community has some advantages. I would rather not have to commute roughly 90 minutes per day to work a job where I can make a living wage, but there are worse things.

Anyway, one thing that has worked out advantageously is that, as a bedroom community, developers swooped in during the boom of a couple years ago. Prices have not collapsed around here the way they have in many areas, but they have stalled. And now that developers have suddenly realized that they overbuilt and saturated the market, many partially-developed lots lie incomplete, many houses half-finished, and the developers are looking to unload.

Living in casino country, I know all too well that there are some industries out there that count on, that thrive on people being ignorant with money. Subprime lending is one such industry; credit cards are another. Even car companies, to a certain extent, fall into this category -- people don't need a new car, they want one. And the vehicles themselves are something of a loss-leader at this point; the real money is in financing.

Many of these companies, even though they rely on people to be suckers and operate on the margin of scruple at times, do actually prefer that their customers remain on board. It's a pain in the ass to foreclose on a house and turn it around, generally at a loss. But these companies -- and again, their customers -- have played into market forces that are beyond their control. It is not the customers' fault that their wages don't keep pace with price increases, particularly energy and food. Nor is it their fault that the companies turned around and bundled their securitized subprime loans, and sold them to investment firms, who promptly bought sacks of magic-bean derivatives that didn't quite pan out. Obviously, the investment weasels are not going to bear the brunt of their speculative decisions; they never do. Ask the LTCM boys.

It's a tricky bet, no matter how you slice it. Companies are simply not going to enter into higher-risk loan markets if they can't fob off the risk to taxpayers when shit doesn't roll their way. And there are tragic stories of people who did their level best and still lost everything, but I also personally know people whose household income is double my own, and they're on the verge because they keep fucking around with their finances, refi-ing their houses to buy new cars, using high-interest credit cards to go shopping, stupid shit like that. They're murdering their equity by leveraging non-fungible assets, and wondering why they're weeks away from a cardboard box on the sidewalk. You feel for them, and yet you recognize that they need an intervention.

Instead, we'll bail them out, modify a few things here and there that will take another few years for predatory lending companies to work around, and go right back to where we were -- glutting the market with McMansions and SUVs and unecessary toys, enabling Wall Street wizards to make imaginary billions by diddling percentage points and screwing people on the margin. Except this time, since it's becoming more and more clear that the economic "boom" or "recovery" has been mostly air and squinting, and that the housing slump very likely gives momentum to an impending recession, one with gas already over $3.00/gallon here in California.

Me, I just want a decent 1800-sq. ft. house closer to where I work, in a neighborhood, where my kid can ride a bike without some inbred cocksucker screaming by at 70 mph on a country road. Twenty years ago, I had greater aspirations and dreams, but I can live with fulfilling this one now, and doing it without letting some pencil-pushing thug hose me with Tony Soprano interest rates.

There is a kind of devil-take-the-hindmost resignation to all that, but as long as we keep our priorities clear, as long as we figure that if we can give Paris Hilton multiple tax breaks while fighting two wars, then we can make the effort to help the people at the bottom of the ladder. The trick is to give them another chance without putting yet more money in the pockets of point-stroking weasels and grifters, glorified bookies.

We might even have to get the big bad gubmint involved in this, as we typically do when the vaunted privateers screw the pooch, and everyone pretends it was accidental.

1 comment:

Eric said...

Mr. Heywood,

My name is Mike Spector and I'm a reporter for the Wall Street Journal. I'm looking to talk to folks who are on the margins with their auto loans. Would love to chat with you or any of the friends you mentioned. On a bit of a tight deadline so if you could e-mail back as soon as you get a chance, that'd be great.
I'm at mike.spector@wsj.com
Thanks!
Best,
Mike