A matter of perspective

Here in Syracuse and in other gently decaying remnants of the Rust Belt, we bemoan the slow decline of our cities and neighborhoods. However, looking at what’s happening in the Sun Belt, where wild growth in the housing market has been fueled by easy credit, gives one a different perspective. Click on for the gory details. (Warning: Not Safe for Lunch.)

City code enforcers and county mosquito patrols across the Valley say they’re seeing a spate of weeds and green pools in places they never used to: newer neighborhoods with higher-priced homes. Increasing numbers of these properties are being abandoned by cash-strapped owners, leaving messes and headaches for neighbors and municipal officials…

Chandler real-estate agent Liz Morganroth said she dons a disposable face mask before she inspects new foreclosure listings but can’t always escape the stench. “Many of them are disgusting: trash and animal feces everywhere, rotting food in a refrigerator crawling with maggots. We even find pets left in the house,” said Morganroth, who sells foreclosed homes in Chandler and Gilbert for Realty Executives. Her inventory, she said, is skyrocketing…

One abandoned home in Chandler’s Brooks Ranch subdivision has a $499,000 assessed value for tax purposes, tall weeds and a green pool. Carr said he hasn’t been able to contact the owners and has asked Maricopa County to treat the pool so mosquitoes won’t breed in it. In that same neighborhood a home that sold for $701,000 in March is on the market for $689,000.

Here’s a similar story from California. If we’re the Rust Belt, maybe they’re turning into the Slime Bowl?

Updated: Central New York, according to this morning’s PS real estate column, has dodged prevailing trends in housing prices. New York City remains oblivious (although I suspect, for different reasons).

Passing along this quote (from an article on the state of homeowners’ associations):

When the home, which is the central pillar of any society, becomes a pawn in the greedy grasp of lawyers and other vendors… a society is teetering on the brink of collapse. When this is allied with other developments in a society, the future becomes positively frightening… For too long, those who have possessed the power in our society have looked at homes as commodities – as devices to amass fabulous wealth. Until a society sees a home for what it most importantly is, the place where human beings are uniquely themselves and where they raise their families in love and understanding, we will stagger from crisis to crisis.

9 Replies to “A matter of perspective”

  1. I’m thinking the real slime are the predatory lenders who talked those foreclosees into thinking they could afford those mortgages.

    The slime bowl could use a few more sober bankers willing to tell somebody their dream house is out of reach when the stretch to pay for it would require a statistically-unlikely long string of good luck and no illness. You know, a grim guy or gal who will give you the bad news, for your own and the bank’s benefit, rather than try to figure how s/he can offload the risk onto somebody else quick.

  2. While I agree with Robinia on the slime of sub-prime lenders, take it up a couple levels for the real slime merchants:

    The mainstream banks that will not make real loans in redlined neighborhoods, but own sub-prime subsidiaries more than willing to extend loans with high interest, hidden fees and exotic terms.

    The Wall Street folks and hedge fund managers who bundle these loans into securities and sell them off into the financial markets, reaping untold profits.

  3. Phil is, of course, entirely correct. And, it is looking like the Fed is moving to protect the mainstream banks, whose sleazy subsidiaries are suddenly looking “a leetle bit nekid” or something.

    Have heard more about real evil-doing of the predatory-lending variety in Rochester than in Syracuse…. and Detroit is devastated, I read…

  4. From the perspective of both the loan provider and user there’s absolutely no downside to a sub-prime mortgage- as long as the market is on the upswing. Rapid capital appreciation insures both parties benefit as long, and here’s the important part, they have equal information.

    If the provider openly discloses all the terms of a loan, and the user agrees to them, who’s the bad guy when things go south? A lack of full disclosure, tilting the information balance to the provider without recourse to the user, is the only possible basis I can see for what constitutes a “predatory” loan, but that, in itself, would make the loan agreement an invalid contract.

    I’m more than a little uncomfortable with the idea we need to “protect” people from being tricked into taking money. Access to capital is one of the cornerstones of accumulating wealth, and cutting people off from that capital is one of the surest ways of dooming them to a marginal economic existence. Yeah, it sucks when someone’s dreams get crushed, but it’s even more abhorrent when their dreams never get off the ground because the state wants to “protect” them.

  5. Yes, but when it comes to bailouts — which is what the Fed seems poised to do — I would really rather see the little people get bailed out this time, instead of the unscrupulous, bad-faith lenders.

    There’s really no way you can justify a lending system that essentially sets up segments of this new homeowning class, to fail. These loans were irresponsible for American society at large. You can’t treat the markets and the game of home ownership (participation in the economy) like you’re running a Vegas casino. The government can’t just sit back and let citizens be treated like unlucky “marks.” You can’t maintain a democratic society that way. It is very unwise. There will be future consequences. (It is, however, great for the establishment of a banana republic with a huge underclass, a small middle class and an even smaller upper class that controls everything, which is what Westerners “enjoyed” in medieval times.)

    Gear, you make a point about cutting people off from capital dooming them to a marginal economic existence. But what happens when you cut them off from good faith and fairness? What do you think the children of these foreclosed families will think about “playing the capital game” now, having watched their parents get tossed out on the street for taking a chance?

    They’re not just going say “Try, try again” if they perceive the deck was stacked against their parents. They aren’t going to want to play the game, period – and not only that, eventually they will seek to stop the game for everyone. I mean, the story doesn’t just stop with foreclosures – you’re looking at that many more Americans who will become radicalized. Somehow, I don’t think that’s what we really want. I can understand your discomfort with a nanny state, but the scope of this problem is huge and nationwide and involves too many people now.

    The government deserves the blame here, not the lenders who are amoral (not immoral) creatures of the market and will never be anything but.

  6. I don’t think anyone should get bailed out, since that transfers risk for the capital involved from the loan participants to society as a whole without an equal transfer of benefit. It’s bad enough when the parties to the loans are stuck with liabilities for non-productive capital, but propping up those liabilities with funds from the public till is the worst solution possible.

    I’m still not seeing how sub-prime loans themselves are a bad thing as long as both parties have a clear understanding of the terms involved. Again, I think it’s important to make a distinction between loans with an elevated interest rate, something that’s a natural and desirable outgrowth of sound financial practices, and outright fraud. Financial crooks need to be stomped hard, but tacking 3% above market on a high-risk loan isn’t a crime- it’s a benefit to everyone involved.

    The alternative is to decree that asset poor people simply can’t get access to commercially available capital, which traps them at the bottom of the economic ladder unless they have a fallback mechanism to obtain funds. There are a few ethnic and social groups where that option is available, with loan arrangements based as much on social bonding and shaming as economic viability, but the vast majority of people don’t have the social capital those systems require.

    Which means they won’t have the funds to take advantage of the opportunities all those foreclosed properties now represent, as the ying and yang of the free market once again seeks balance.

  7. “The alternative is to decree that asset poor people simply can’t get access to commercially available capital, which traps them at the bottom of the economic ladder unless they have a fallback mechanism to obtain funds.”

    I suspect we’re not really all that far apart on this subject, even as it relates to subprime loans as a potentially useful tool (for both profit and social benefit).

    On the subject of home ownership and society, I came across this article which makes for interesting reading, including this quote:

    “When the home, which is the central pillar of any society, becomes a pawn in the greedy grasp of lawyers and other vendors… a society is teetering on the brink of collapse. When this is allied with other developments in a society, the future becomes positively frightening… For too long, those who have possessed the power in our society have looked at homes as commodities – as devices to amass fabulous wealth. Until a society sees a home for what it most importantly is, the place where human beings are uniquely themselves and where they raise their families in love and understanding, we will stagger from crisis to crisis.”

    http://www.ahrc.com/new/index.php/src/news/sub/article/action/ShowMedia/id/3784

  8. Great quote, NYCO. In fact, I, too, think that the comments here have more agreement than disagreement. Regarding fraud– and there has been quite a bit of it, particularly in certain housing markets, like Detroit– it should be severely punished, but has not been. Loan contracts are signed which people would not have signed if they understood what was being promised. Because these crimes pit the financially clueless poor against the savvy and well-connected powerful, there has been very little incentive to prosecute criminal behavior. A 70-year-old being foreclosed out of their home is generally in no position to hire a good contract attorney. That balance in information about the financial transaction that Gear of Zanzibar postualtes as a base is consistently not in place when the parties to the loan contract are, for instance, an elderly poor person with no financial market knowledge and a predatory lending institution with a financial-trap-deal that no fully-informed party would take. They don’t just offer their bad deals to the general public, they target and sell to unsuspecting marks. And, there are neighborhoods full of them– a different kind of red-lining….

    The idea that we have no alternative is, in my opinion, the basis of the core problem. We do, in fact, have alternatives– I belong to one, check it out at http://www.alternatives.org The unbanked can be guided along what my community development finance institution calls “the credit path” by institutions with a triple-bottom-line (positive financially, positive socially, positive environmentally) mission. People who would qualify for subprime rates can be educated before they become first-time homeowners, so they can make an informed decision about whether to take a higher rate now, or work on their credit score for a while and get a lower rate later. Older folks with substantial equity in their homes, but low incomes, can be educated to understand that their equity is an attractant to unscrupulous lenders, and trained to recognize that a deal that appears to be too good to be true probably is.

    Our technology continues to acvance while our economic system remains, in some basic ways, remarkably primitive, unreasonably susceptible to “animal spirits” and mob mentality. We desperately need to change the game, not keep pitching in to the kitty to keep the wheel spinning on the same old track (yeah, the Fed probably had to do something…. but, where is the leadership from policymakers on this? Barney Frank gets it, I think, but who listens to him?)

    Never, ever, ever will we as a society be able to cleverly cheat our way into prosperity, no matter how successful individual firms may have been at it. If we are at a single-digit level of productivity growth, a double-digit level of return to capital as a base market expectation means, basically, that somebody somewhere has to get screwed. A country that was founded on, you know, “these truthes to be self-evident” can’t let that stand. We need an alternative to the present mess, and should seek it actively. This system is, at a macro level, a recipe for a return to feudalism or slavery, as NYCO points out.

    Economic system innovation for human progress! Why the hell not?

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