Schadenfreude: The Psychology of Housing Retribution and Justice. The Fantastic AG, BB, and HP.

Ayn Rand must be rolling in her grave after Alan Greenspan’s recent comments regarding the housing market. For those of you who don’t know, Alan Greenspan was heavily influenced by the novelist and philosopher Ayn Rand. Part of the “Class of 43” Greenspan supposedly followed the principles of lassiez-faire capitalism, individual rights, and keeping the government out of your stinking pockets as much as possible. In fact, in Rand ’s best-selling novel Atlas Shrugged she glorifies the individual capitalist as the ideal and socialist as blood sucking leeches. Here she describes Hank Rearden, a protagonist of the novel who is the inventor of Rearden Metal: “Rearden had never given much thought to men like Bertram Scudder. But with every hour of his life, with the strain and the pride of every moment when his muscles or his mind had ached from effort, with every step he had taken to rise out of the mines of Minnesota and to turn his effort into gold, with all of his profound respect for money and for its meaning, he despised the squanderer who did not know how to deserve the great gift of inherited wealth. There, he thought, was the most contemptible representative of the species.” Rand in the novel clearly makes a statement against any form of communism, socialism, or fascism. Her ideals are based around fierce individualism and are bound in her philosophy of Objectivism. With many examples of inept politicians jumping in and trying to regulate the market for “the greater good” Rand shows the inefficiency of government meddling with the intricacies of the market. Suffice it to say that Rand would not be in favor of any government assistance or support of a bailout. You would think that Alan Greenspan learned something from hanging out with Mrs. Rand but it doesn’t seem like it. This is what Greenspan said on ABC’s This Week: “Cash is available and we should use that in larger amounts, as is necessary, to solve the problems of the stress of this,” Greenspan said. “It’s far less damaging to the economy to create a short-term fiscal problem, which we would, than to try to fix the prices of homes or interest rates. If you do that, it’ll drag this process out indefinitely.” Greenspan went on to also say the following: “…cash bailouts, while creating a larger budget deficit, have the advantage of helping homeowners without distorting property prices or interest rates on mortgages.” Who cares about our budget anyways right? In fact, Greenspan recently stated the following in the Wall Street Journal : “I do not doubt that a low U.S. federal-funds rate in response to the dot-com crash, and especially the 1% rate set in mid-2003 to counter potential deflation, lowered interest rates on adjustable-rate mortgages and may have contributed to the rise in U.S. home prices. In my judgment, however, the impact on demand for homes financed with ARMs was not major.” This guy is seriously doing some legacy damage control. He is trying to distance himself as far away from the mortgage mess by stressing that if anything, lowering rates may have had a tiny bit of influence of the current housing situation. You think? His current view has a complete disregard of a balanced budget and will institutionalize the current housing bubble prices. Instead of coming out and admitting that housing is drastically over priced, these banana republic politicians want to inflate prices into the stratosphere. What the hell happened to this Greenspan?: “Anything that we can do to raise personal savings is very much in the interest of this country.” Or… “ History has not dealt kindly with the aftermath of protracted periods of low risk premiums.” What he is calling upon is antithetical to his past perspectives on the markets. By bringing in the government, we will ensure that low risk premiums will come up again in the future. His view of personal savings will go out the window since it will encourage further borrowing since that is the only way we can come out of this bubble without a substantial and protracted period of asset deflation. You think he is the only one cut from this cloth? Take a look at what the fantastic trio are saying on their world wide tour of preaching from the book of debt: “Dec. 17 (Bloomberg) — Treasury Secretary Henry Paulson said Fannie Mae and Freddie Mac, the largest sources of finance for American mortgages, may help “jump start” the market for the largest home loans. Paulson said in an interview today that he favors temporarily allowing the two companies to purchase so-called jumbo loans, which exceed $417,000. He said the proposal should be part of a package of legislative changes governing the two government chartered companies. ” “Bernanke indicated in a Nov. 8 hearing that he favored letting Fannie Mae and Freddie Mac buy mortgages of up to $1 million. He noted that it was up to Congress to determine the amount.” Yup, let us allow these two institutions to purchase bigger and uglier mortgages: Sure seems like a great time to give these two mortgage giants more power to purchase larger and larger mortgages. Why stop at $1 million? Let us allow them to purchase mortgages up to $1 billion! Then everyone in this country can own a home on a negative amortized option ARM exotic mortgage and we’ll simply tack it on to our ever ballooning nationwide budget debt. At that point, you can use dollar bills as an alternative source of fuel to heat your home. This in conjunction with fluorescent light bulbs will make you the eco-friendly poster child. What’s a few trillion between friends if it means we can push the homeownership rate from 68 percent all the way up to 100 percent!? Isn’t this the pinnacle of the “ownership society” that we’ve been all hearing about? Greenspan is a very smart man and he knows that historians will not deal with him lightly for engineering the largest credit bubble known to humankind. If he can hand this off to Ben Bernanke and insulate himself as far as possible from the detonation site, he feels that the collateral damage won’t be so great. Why else would he be advocating ideals that are so contrary to his original core beliefs? Schadenfreude and the Art of Misery All this is enough to drive fiscally conservative individuals to the brink of insanity. I’ve been reading from various permabull and delusional novice investor sites that many housing bubble bloggers are doom and gloom and now that housing is getting kicked in the twig and berries, many take joy in seeing people in pain. That in fact is not true. I can’t speak for everyone but I can say that I do have sympathy for someone that lost their job and has a hard time making their mortgage payment. I do not take joy in seeing someone with an illness and unexpected medical bills not being able to make monthly payments when they have to deal with something much more important than finances. I doubt many individuals will argue in these circumstances. However, do I feel a sense of vindication when a wannabe Trump investor purchases a $750,000 home on an interest only mortgage thinking they would flip it for $850,000 one month later and is now stuck with a depreciating asset that they simply cannot sell? Damn straight. What about a fly by night mortgage operation that is no longer in business because of corrupt business practices that inflated this bubble to the next level and put many people into financial Armageddon? They are no longer in business because their model was unsupportable. It was mad speculation and there is a tremendous amount of schadenfreude being unleashed now that the bubble is bursting. Folks that felt they couldn’t purchase a home because speculators kept bidding up prices and the only way they would be able to jump in is compromise their principles of financial prudence and swallow a loan that converted their home into a speculative commodity are feeling that many are getting their comeuppance. Many said no way and tried to live prudently all the while credit flowed like the Amazon River on the 405. I wrote another article discussing the oncoming schadenfreude in April of this year, before all the credit brouhaha and talked about the impending moral hazard issue we are currently living through. But a large number of people putting all faith in the god that is credit, signed away their financial freedom to an albatross that is a jumbo mortgage. When else in history has it been so easy to get credit? I’m amazed that when I took a look at cars at a dealership I was offered absurd amounts of credit with very little investigation as to whether the numbers would work out in the long run. It was all about the psychology of the moment and instant gratification. Now that the honeymoon phase is over people want to divorce their debt obligations with no fault. The government is trying to add an “irreconcilable differences” clause in many debt obligations. I’ve also notice a play on words. When the hell did debt become credit? We keep hearing this, “we’ll expand credit” or “let us increase credit” over and over. All they are saying is let us go further and further into the blue abyss of debt. Let us expand debt. We should have more debt. Just to show you a perfect example of this irresponsibility playing out in the football field of life, we have a couple that lives up to each irresponsible financial move one can make. The Wall Street Journal profiles a few others in California but this couple takes the cake in California and the story goes like this : “The Oropezas arrived at Calle Canon Road in 2004. Corona appealed to them because of its quality of life and regional cachet. “It was labeled as the new Orange County ,” Mrs. Oropeza says. Public records show they paid $557,000 for a four-bedroom house and took out a $500,000 mortgage. Her husband is an area manager for an auto-parts retailer and she is a purchasing manager for a firm that sells dietary supplements. As property values skyrocketed, they refinanced three times, most recently in late 2006, for $835,000, Mr. Oropeza says.” Okay, so they pulled out a whopping $278,000 in inflated equity out of their home over two short years. The article goes on to talk about how they used the money to add the ever-important backyard waterfall. What the hell is America coming to when you can’t even have a waterfall in your backyard? They also used a large portion of this money to pay off credit cards which I’m sure where used very prudently. Before you put your fist through the monitor, there may be some vindication brought on by the gods of financial prudence. The housing market as we all know took a trip down its own Niagara waterfall: “The couple listed the house several times, even before the final refinancing, which raised their monthly payments to about $6,300. Earlier this year, they were asking $839,000 for the house. But it just sat. Elsie Cambone, the Coldwell Banker agent who had the listing, says prospective buyers were put off by the vacant home next door. The couple due to a job transfer needed to move to Texas . So they somehow managed in this easy credit world to qualify for another home and purchased a place in Texas for $283,000. By my own tally, this puts their collective debt total to over half-a-million since they haven’t sold their old home off. In light of all this impending credit doom they did what any financially struggling person would do, they took the family to a trip to the Caribbean . “In the run-up to their move, she says, the couple lived off credit cards to “make sure we had cash for the house payments” in Corona . They packed up in June, and then took their 9-year-old son and 2-year-old daughter on a long-planned Caribbean vacation. They returned to Calle Canon Road , “got in our cars and drove to Texas ,” Mrs. Oropeza says.” Bwahaha! Can this get any more surreal? They are swimming in over $500,000 of debt and they go off to the Caribbean ? I’m sure that is all the credit shenanigans one could muster up for a lifetime. Oh, what is this? Just when you are getting ready to gouge your eyes out for the incredible amount of financial mismanagement, you stop right before you pluck them out to realize that they in fact where capable of going deeper into debt: “Neighbors Ms. Lefranc and Mr. Saffold are dismayed over the Oropezas’ departure and note that shortly before leaving, the couple bought a new Lexus. “I think they took money out of their house and split,” Ms. Lefranc says. Mrs. Oropeza says that she and her husband recently bought a Lexus and a Chevrolet Suburban with no money down. She denies that the family intended to abandon the house. The choice was straightforward, she says: “It was easier to keep the house in Texas than the one in California .” We have a winner here folks! Not only did they conscientiously decide to forego their obligation to the debt on their California home but also they decided to go further into debt with artifacts of wealth and walk away from their current home. Maybe these are the folks Ben Bernanke is talking about when he mentions that it will be a smart idea to increase caps to $1 million. After all, they only went for the Lexus and not a Mercedes and we can’t have that can we? They gutted all the value out of their current home and left it sitting at $835,000. Why rob banks when you can rob the American taxpayer and get away with it? Did You Enjoy The Post? Subscribe to Dr. Housing Bubble’s Blog to get updated housing commentary, analysis, and information Share This