No Sympathy, No Idea

I’m about ready to eviscerate the next idiot I run across in the blogosphere who says, “I don’t have any sympathy for the borrowers. It’s not my fault if they’re idiots. They should have known better than to think they could really afford a house.” Actually, I already took a fair swipe at the last one. He was dense enough it probably didn’t leave much of a mark, though. I’ll do a more thorough job on the next one.

Leaving aside for now the classist implications that these people didn’t deserve an arrangement that allowed them an opportunity to accumulate a sliver of wealth–only because if I don’t, this post will consist solely of hateful gibberish–these statements tell me two things about the person making them. First, they tell me that they didn’t start with much sympathy. Second, they tell me they can’t do math.

The reason people can’t make these mortgage payments is not that they couldn’t afford their original payments. It’s that their payment amounts changed in ways they hadn’t been prepared for.

There are two types of risks to the lender in making loans. The first is the risk that the borrower will not make the payments. This risk may or may not be covered by the collateral, especially if the collateral is overvalued at the time of the loan.

The second is that you won’t earn interest from the loan quickly enough to cover the decrease in the value of the money you put into it. With an average 3% rate of inflation, the principal of a $100,000 loan is worth about $40,000 at the end of a 30-year repayment term. Any interest rate has to be higher than the rate of inflation in order for a lender to make money off a loan.

In a housing bubble, with interest rates indices held below inflation rates by the Fed’s determination to keep the War on Terror from having a visible impact on the economy, lending to borrowers who represented some unknown additional risk beyond that of regular borrowers, lenders didn’t like their odds. In order to push some of that risk off their plates, they made the borrowers liable for changes in interest rates, which for at least the last 30 years have varied with inflation as a matter of policy.

Adjustable rate mortgages (ARMs) protect lenders by passing changing rates on to the borrower. Good Math, Bad Math did a great job of explaining why that didn’t get rid of as much risk to the lender as claimed. What it did do, however, is greatly increase the risk to the borrower.

“Of course it did!” the sympathy-challenged holler. “How could they not have known that an adjustable rate mortgage could be adjusted upward?”

They did know. What they didn’t know, because nobody told them, is how far they could go up and how quickly. Following this requires a little sympathy, but stick with me if you can.

Say you’re a borrower, excited at the prospect of buying your first home (or being able to buy a home again after you filed bankruptcy years ago to deal with the lingering costs of the cancer). You’re talking to a mortgage broker about what you can afford. The broker says, “Well, with this ARM, you’ll have a starting rate of about 6%. Your take-home income is about $1,800 a month. Figuring that a third of your take-home goes into your mortgage, which is less than you’re paying in rent, you can afford a $100,000 mortgage.”

Now, a $100,000 mortgage buys you a one-bedroom bungalow in an interesting neighborhood, but you can give the kids the bedroom and sleep on the couch if it means you’re going to get them into a house. And a decrease in your housing costs…oh, wait. With taxes and such, it’s not really that big a decrease. Huh. “So what happens if interest rates go up?”

The broker says, “If they go up a full percent, your monthly payment will go from $600 to $665. That’s 37% of your take-home instead of 33%.”

Well, there goes the rest of the money you save by not renting. A few bucks more a month, too. But if you have to, one of you will get a second job to get the kids into that house. “Okay. We’ll do it.”

Sounds simple, right? Remember what I said about interest rates being held below inflation? What the broker didn’t tell you was that interest rates were two to four percentage points lower than they had been through the late nineties. Flash forward two years, from 2004 to 2006, through the inflation caused by rising gas prices, and your interest rate is now 10%.

There are people whose credit cards don’t charge them 10% interest. And those cards give them frequent flyer miles.

Your broker told you what would happen if rates went up 1%. What happened when they went up 4%? Your mortgage payment is now about $880 a month. Even with small raises over the last two years, that’s nearly 50% of your take-home. If you’re lucky, one of you can work that second job and just hold it together. If not, well, there aren’t as many second jobs as there were before gas prices went up and the price of everything else is so much higher now too. You love your little bungalow, down to the drafty back door, but you’re now in default on your mortgage.

It isn’t because you didn’t ask what could happen to your mortgage. It’s because the person who should have given you better information either didn’t know enough or didn’t care enough to give you a full answer. If it helps, your broker is watching the value of his/her IRA plummet and thinking it might be a couple extra years before retirement.

Yeah, I know. It doesn’t help.

For what it’s worth, you have my sympathy.

Acting Unafraid

In the current election, we have one candidate who sees other world leaders as essentially rational beings with whom we may find common ground if we negotiate cautiously. We have one candidate who views the rest of the world as potential enemies to be punished until they become allies. Completely aside from the question of whose approach is likely to gain us more allies, these worldviews have practical consequences in high-pressure decision-making.

Just past midnight, Petrov received a computer report he’d dreaded all his military career to see, the computer captured a nuclear military missile being launched from the US, destination Moscow.

In the event of such an attack, the Soviet Union’s strategy protocol was to launch an immediate all-out nuclear weapons counterattack against the United States with nuclear power, and immediately afterwards inform top political and military figures. From there, it would be taken a decision to further the military offensive on America.

Twenty-five years ago, one Russian officer named Stanislav Yevgrafovich Petrov faced a choice between giving in to the paranoia of the Cold War or believing that Americans were rational people who didn’t want to destroy the world any more than he did. Because he chose to stand against irrational fear, we’re still here.

It’s a new unwinnable war these days, but the stakes are still high and the battle is the same: paranoia versus audacity. None of us faces Petrov’s choice alone, but it’s still the same choice. Can we do less than our “enemy” did?

Via Charlie Stross.

Recipe for Dealing with Disaster

Ingredients
For Disaster
1 mother in hospital with acute heart problems
1 father who is coping with less than his usual annoying cheer
1 year already studded with too many family problems

For Dealing
1 date finally scheduled for surgery
1 sibling who can share responsibility
1 friend who has a problem father can help solve
1 evening out with friends
1 Cuban roast pork shoulder with fixings
Choice of rum and coke or gin and tonic
1 viewing of The Adventures of Buckaroo Banzai Across the Eighth Dimension
Liberal dose of snark

Directions
Shake with laughter and release pressure valve.

Feel better soon, Nancy.

Drinker’s Diary

I’ve been drinking a lot lately.

Don’t worry; this is definitely not going to turn into one of those blog posts. It’s more a question of scheduling than anything else. Last Sunday, The Happy Gnome had a whiskey tasting event as part of their Octoberfest. While my husband and I were there, we discovered that they were starting up their brewmaster dinners again on Wednesday with Brewery Ommegang, just in time for my birthday. And today was the Minnesota Craft Brewers Guild‘s Autumn Brew Review, for which we’d forgotten we had tickets.

Oof. While I like my drinks, I average two or three a week. Here’s what I’ve had to drink this week, with tasting notes where appropriate. We passed drinks for everyone to try, so some of these, I had only a sip or two, but that’s still a lot of drinking.

Scotch & Whiskey Fest
Connemara Cask Strength: Like a little campfire in the mouth. That’s a compliment.

Isle of Arran Sassacaia finish: What port would taste like if port were scotch. Yum.

Isle of Arran 10-year: Exactly like the Sassacaia but without the port flavor. A sweet, winey scotch.

Mcallan 30-year: Smells great but tastes strongly woody. Not worth what one will be charged for it.

Peat Monster: Very strong smoke balanced throughout by sweet vanilla. The flavors ran out together.

Sazerac 6-year Rye: Nice, with a nearly chewy grain finish.

Speyburn: Nothing special. A perfectly servicable Speyside.

Wisers 18-year: An aged version of the fastest-growing Canadian brand. A smooth sipping whiskey.

Yamakazi 18-year: What vanilla extract should taste like. Very smooth, round flavor, almost too smooth for my tastes.

I tried a few more, including Oak Cross and Aberfeldy 21-year, but I was burned out by then. It all just tasted like whiskey, which isn’t bad but wasn’t the point.

Ommegang Beer Dinner
I just scanned the menus for this one.


There’s not much else to say, except that everything worked exactly the way it was supposed to, except maybe the nuts in the panna cotta. The food made the beer taste amazing, and the beer complemented the food perfectly. This was made even more amazing by the fact that the chef hasn’t had a drink in two years. He was working from smell and from knowledge of how the beer was put together.

Speaking of knowledge, hearing from the Ommegang brewmaster was a treat. He seemed a little shy, but he warmed up to questions well.

Autumn Brew Review
The weird thing about craft brew festivals is that you’d think it would be easier to get drunk than it is. Not to say that no one was drunk, but I don’t understand how they do it. If it’s good beer, and it generally is, I get full before I’m more than a wee bit tipsy.

The standouts at this festival, which has more than just Minnesotan beers, were the Big Eddy Russian Imperial Stout from Leinenkugel (yes, Leinenkugel), the Three Feet Deep and Fallen Apple from Furthermore Beer, and the Frostop rootbeer. Abita’s Purple Haze and Strawberry Lager were just weird, as was the Coney Island Freaktoberfest Oktoberfest from Shmaltz Brewing. The others are listed below, but I’m almost certainly forgetting a few of the “just a sip” beers, as not everything is listed in the program.

Avery Brewing, New World Porter
Boulder Beer Company, Hazed and Infused
Capital Brewery, Baltic Porter
Great Waters Brewing Company, Pflugenpflagen
Left Hand Brewing, Milk Stout
McCann’s Food & Brew, Flame
Minneapolis Town Hall Brewery, Anniversary Tripel
Minneapolis Town Hall Brewery, Fresh Hop 2008
New Belgium Brewing, 1554
New Holland Brewing, Golden Cap
New Holland Brewing, Ichabod Pumpkin Ale
Peak Organic, Maple Oat Ale
South Shore Brewery, Applefest Ale
South Shore Brewery, Herbal Cream Ale
South Shore Brewery, Coffee Mint Stout
Southern Tier Brewery, Cherry Saison Imperial Oak Aged Cherry Ale
Surly Brewing, Coffee Bender
Vine Park Brewing, Rock Hopper Red Ale

Monetarism and the Housing Bubble

For Becca, who asked why some of us fogeys were talking about the housing bubble crash as though it had implications beyond a bailout.

Monetarism is the basic economic principle the U.S. currently operates under. To simplify greatly, monetarism says that the health of our economy is directly dependent on the amount of money in it. It’s a top-down ideology that treats the economy as a monolith, with no regard for differences among industries or for non-monetary events, but it has some appeal in its simplicity.

Since the Carter administration, the heads of the Federal Reserve, all three of them, have been monetarists. The setting of the Fed Rate on a periodic basis is a monetarist policy decision, determining how much money is available in the economy in the form of loans. Lower interest rates make more money available. The broad acceptance of monetarism is seen in the way that investors eagerly await the Fed’s decisions on rates and the way the stock market can swing after a decision.

Alan Greenspan was the second monetarist Fed chairman. His reputation was made by his handling of the 1987 stock market crash. He was reappointed by Democrats and Republicans and was one of the most trusted people in government. Despite overseeing the economy during the dot com bubble, his reputation remained intact until the collapse of the housing bubble.

The housing bubble itself and the problems stemming from it may be Greenspan’s fault. The dot com bubble burst in early 2001. In September, America’s confidence was shattered. Markets fell further. The Fed responded by drastically dropping interest rates and flooding banks with cheap cash. Those rates stayed ridiculously low until rising gas prices triggered general inflation a couple of years ago.

The banks, with their “responsibility to shareholders” (see also this), had to do something with that money. Because the average consumer was already overextended with debt, because much of the production for our economy has shifted overseas, because there was no political will to invest in infrastructure, because confidence at the top doesn’t mean everyone is confident, the banks had to create a place to invest that money. There was nowhere real to put it, so we got a bubble instead.

This bubble is largely a failure of monetarism. It shows monetarism to be a myopic, overly simplistic theory. In addition, it’s a failure of laissez-faire capitalism, which has generally been sold to us right alongside monetarism, since monetarism was created and adopted first by libertarians. Anarchic markets and industry are not the answer. They’re the problem.

We all know (at least all of us who can think) that strict monetarism, if it wasn’t the answer last time, is not the answer this time. We’re just not sure what comes next.

Yeah, Yeah

It’s that time of year again. Since people have hinted that I’m to watch their blogs, I’ll add links later.

In the meantime, enjoy the traditional Renaissance Festival birthday song. The “happy birthday”s are sung in a group, with a loud grunt at the end of each. The changing lyrics are started by whomever sings the loudest and continued by everyone who knows them. The “but” is very cheerful. The rest is a dirge. If I’ve missed a verse, traditional or not, please add it in the comments.

Happy birthday, huh.
Happy birthday, huh.
All the world’s in dark despair
People dying everywhere, but

Happy birthday, huh.
Happy birthday, huh.
I like puppies, yes I do
Boiled or baked or in a stew, but

Happy birthday, huh.
Happy birthday, huh.
Now that you’re the age you are
Your demise cannot be far, but

Happy birthday, huh.
Happy birthday, huh.
I’m a leper can’t you see
Get your birthday hug from me, but

Happy birthday, huh.
Happy birthday, huh.
May the cities in your wake
Burn like candles on your cake, but

Happy birthday, huh.
Happy birthday, huh.
You have lived a year too long
You’ve had to hear this stupid song, but

Happy birthday, huh.
Happy birthday, huh.

Updates
Janie knows the perfect birthday gift for me. A story. Just don’t pay attention to the part where she casts aspersions on my ass. She’s never seen my ass, though not for lack of asking.

Greg gave me another Stephanie to share my birthday with. How cool is that?

Dr. Isis has a lovely, immodest proposal that isn’t really for the occasion, but I’m going to pretend it is anyway.

Mike is exaggerating my writing prowess. He’s right about almost everything else, though.

Betul has posted pictures from her trip to Turkey. These are from the Black Sea region and so beautiful I’ll even lay off asking her for the Istanbul pictures–for a while.

Monica has updated her blog after far too long a hiatus. Now this is starting to feel like an occasion.

Birthday Presents, The Hard Way

It was a craft fair, I think. I’m not sure why I was there. My mother was there with me because I was thirteen. The earrings–purple and gold and dangly–were there because I had to have them.

“No.”

I looked at my mother. “I can buy them myself.” I’d certainly earned the money. Babysitting was not my favorite activity.

“No.”

“What? Why not?” There was nothing wrong with the earrings, even given a mother’s weird perspective.

“You’re not getting earrings right now.”

“What!?!”

What followed may have been my first knock-down, drag-out with my mother. It was almost certainly the first public one. I’d always been a fairly compliant child–well-trained, shall we say. But babysitting money was supposed to be my money, and she was being completely arbitrary. We didn’t leave the fair on the best of terms.

I almost forgave her a month or two later when the earrings turned up as part of my birthday present. Almost. I gave in to the point of not asking whether she’d already bought them when she decided I couldn’t. If she hadn’t, I didn’t want to know. I still don’t. Like the elopement that precedes your regular wedding ceremony, there are some things you just don’t discuss with your parents.

The sad thing is that I should have known. She’d done the same thing months earlier when she told me I was too young to see Prince’s Purple Rain concert (which I was, at least at the start of the concert), then put a ticket in my Christmas stocking. I couldn’t pay for that one with babysitting, so there was less argument, but it was definitely a precedent.

I learned after that, though. No more purple presents.

Thoughts on a Wedding

Some random thoughts and moments from yesterday’s wedding:

  • A kilt is always appropriate at a wedding. It gives people with nothing in common but the couple something to talk about.
  • The thing that annoys me the most about a religious wedding ceremony is the way it shortchanges the role of the couple’s community.
  • I’d never realized before that when the bride and groom face each other for their vows, each is also facing the other’s representatives, making the vows to them as well.
  • If a minister wants to speak of marital disagreements as an opportunity for each party to be “perfected,” he might want to avoid referring to it as the “friction” of marriage.
  • The people who behave the best while the minister is making unwitting sexual innuendos are those most likely to make them themselves outside the ceremony.
  • If one has a recently divorced friend in the crowd, one might want to make sure one’s friend is not going to the wedding alone, especially if the ex will also be there.
  • The hour between the ceremony and the reception is the perfect time to nip off to a local bar with friends and have a better beer than will be served at the reception.
  • If the crowd is large enough, you will see someone you’d given up on seeing again.
  • If the crowd is large enough and there is a place for it, someone will be inspired to duck into a closet or some such and have sex at the reception.
  • The staff will know about this.
  • They will gossip.
  • Sit with the photographers at dinner.
  • My husband’s photography has fans among professional photographers. (“It’s like meeting Jesus!”)
  • The hot young thing about whom everyone is talking is off limits, guys. (Married and not looking to be flirted with.)
  • Wedding cake is always better with fruit in it.
  • Someone will choke up while giving a toast.
  • Someone will make reference to the bride’s ex, or the groom’s, or both.
  • Someone will have been toasting already and not be quite as intelligible as usual.
  • Four hours into the reception is too long to wait for the dancing.
  • Even fabulous shoes need to be broken in again after sitting in the closet for months.
  • I still cry at weddings, at least the good ones that have been a long time coming.
  • This was one of the good ones.

Busy Day

We’re off to see a friend properly married. (From her description of the shower gifts, her parents took care of the improper bits.) This is the third busy day in a string of busy days, so blogging falls by the wayside today. Instead, go read some of the folks I’ve been reading lately in my occasional spare moments.

Samia is being insightful about students setting their paths in stone too early.

PhysioProf is venting his spleen about the current financial crisis. It may not be terribly deep, but it’s deeply satisfying.

Dr. Isis is laying it down on why and when someone else’s behavior is not blog fodder.

Greg is looking into whether McCain not using email means more than just that he’s out of touch with technology.

Jessica is exploring a particularly epic fail at the intersection of art and work for hire.

Kelly is counting the ways in which people fail to comprehend that he and his wife don’t watch television.

Enjoy.