October 10, 2006

I Am Facing Foreclosure: Response to Casey

Below you will find a response to Casey, a 24 year old that has 2.2 million in debt and is having trouble unloading his real estate. How did he get 2.2 million in his name? Well he fibbed here and there and I am sure his lender knew that Casey would be unable to pay. Take a look at the below response:

"Have you ever wondered why debt was against the law only a few hundred years ago? Not only that, but punishment for not paying your debt was death by either public hanging or other colorful ways. The public had a moral disregard for debt. Usury laws were in place for this particular reason. Now, we have done a 180 degree turn on things and this actually speaks more to our overall cultural obsession with debt and credit. Even look at one of the above posters who had $20,000 in credit card debt, created a website, and actually had people pay her debt off. Other people’s money paying off her inability to control her spending. Now she is selling a book and possibly, according to her website, is going to have a movie. Can you believe this? If this were only a few centuries ago she would be branded and sent off to debtors prison. But alas, many of us would be branded since our culture is one in which debt is synonymous with credit.

How can we point the finger at you if you are only functioning within the rules of the game? I believe most posters do not detest you that you are greedy since we all have a tinge of that in our red blood, but the fact that you lied and tried to accelerate the rules of the game in your favor. One thing our society has a hard time accepting is liars. We love the Horatio Alger stories since these are embedded in the seed of American culture. Start with nothing except the rags on your back and make it all the way to the top. That is if you follow the rules and you have not.

All of us have an inherent sense of greed or at least wanting more. For example, we all go to work expecting a check for our long hard hours. This is the core of a capitalist society. The only reason you are here on the web is because the real estate market crashed ahead of your time. And this too is part of the Capitalist system. As in any Ponzi scheme, the last one out usually has to turn off the lights and mop up the floors. Just imagine if you had started two years earlier, then none of this would have happened…right? Actually, I have a feeling that you would have your name penned on 30 different contracts and would be in debt for $10,000,000. Heck, if you’re going to lie why not lie all the way?

And those seminars are exercises in old school behavioral psychology. They run on the assumption of a variable rate of reinforcement, the strongest force known in this Jedi’s world. Below is an example of variable rate reinforcement:

The Lottery
Deal or No Deal

You get the picture. And seminars have such a large draw because they work. The caveat being that it will work for those five percent of the population who have some knowledge of the market, have learned via experience, and actually realize that success does equal hard work and time. If anything Casey, you learned all these skills and they will serve you well in the future. My lesson in hard knocks came at the hand of the technology bubble. Yes, that time when 20 percent year over year returns seemed like my God given right! When California housing went up 20 percent year over year for five years all I could think of was how eerily similar this was. I am not comparing housing to stocks but the mindset you demonstrate was very similar to my logic and thinking at the time. Except I did not lie and my funding source was cash advances on credit cards. Either way, my gut told me I can make 20 percent returns month to month, forget year to year, and I will be wealthy in only a few years. I had a few successes that clouded my judgment (think of this as winning $200 with the first quarter at a slot machine) and I mistook luck and timing with market intelligence. I did well for one year and needless to say lost everything come 2000; well, I should say I lost all the profits I had since I at least had the fortune to pay off the credit card advances. The party ends quickly my friend. You’ve learned a valuable lesson. I have a feeling the next few years are going to bring out a lot of your brethren and you will not feel alone. Unfortunately, I do not see the market turning anytime soon and wish you the best."



New York Crank said...

Part of the problem is that banks encourage debt -- in some cases literally hounding people with direct mail and other advertising to apply for high-interest credit cards.

Then the banks whine to Congress about defaults. Consequently, debt laws were recently changed -- in favor of the banks. Debtors can't just wipe the slate clean any more. The banks have a right to hound them for payment to the grave.

And alas, the main reason for credit card debt in this country isn't a "culture" of spending. It's family illness. People lose their jobs and face high medical bills. They go into debt to save a life. Then their own lives are ruined.

Interest rates are usurious. The feds used to send mafiosi to jail for asking six for five. These days, banks are charging 25% in some outrageously egregious cases -- and that doesn't include tack-on fees.

What we need is a Congress of Democrats and a president who is a Democrat so the laws can be reversed and the banks can be stomped back to size.

Dr Housing Bubble said...

Banks love debt. If anything, they would love to keep you paying interest for the rest of your life. And you are right that many people go into massive debt due to necessity. Take a look at these sobering facts:

• More than a third -- 36% -- of those who owe more than $10,000 on their cards have household incomes under $50,000, according to the VIP Forum analysis.
• 13% who owe that much have household incomes under $30,000.
• The percentage of disposable income used to pay debts is still near record highs.
• The median value of total outstanding debt owed by households rose 9.6% between 1998 and 2001.
• Bankruptcies set another record in 2003, with 1.6 million personal filings, the American Bankruptcy Institute reports.
Meaning that lower income folks are getting hit hard. But the stats aren’t as bad as you may think:
• Only 29% of households owe $1,000 or more on their cards.
• 21% owe $2,000 or more.
• 6% owe $8,000 or more.
• 4% owe $10,500 or more.
• 1% owe $21,400 or more.
So there is a wide gap here. Those that do not know how to manage debt REALLY do not know how to manage debt. And those that do generally do rather well with credit card debt. The more sobering stat is the one that Americans have a negative savings rate. If one has very little debt and no savings where does the money go? Housing in large metropolitan areas. Healthcare. Energy and food. Unfortunately inflation (according to the BLS and CPI at least) hasn’t kept up and neither have wages.

Anonymous said...

Debt wasn't illegal. Debtor's prisons were for unpaid debts. Of course, a lot of hardworking people ended up in debtor's prison, just as many people today end up in bankruptcy (say, due to illness or divorce or a death in the family).

Usury was illegal and the highest moral authority of the times (The Good Book) had specific prohibitions against it.

So what side are you on? Do you think debt is a crime? I don't really believe you're advocating public hangings here... are you?

Dr Housing Bubble said...

According to Wikipedia:

“In 1745, the Catholic teaching on usury was expressed by Pope Benedict XIV in his VIX Pervenit, which strictly forbids the practice as such, although he adds that "entirely just and legitimate reasons arise to demand something over and above the amount due on the contract" - such reasons could include the risk of loss, the time value of money in the modern economy, etc.”


Besides that, you can also read regarding debtors prison:

“A debtor's prison is a prison for people unable to pay a debt to another. Prior to the mid 19th century debtor's prisons were a common way to deal with unpaid debt. In the United Kingdom, the Debtors Act of 1869 abolished imprisonment for debt (although debtors who had the means to pay their debt, but did not do so, could still be jailed for up to six weeks).”

The point I was trying to make in a historical context is that lending standards are now at the opposite end of the spectrum. Once they were morally wrong now they are seen as no big deal to a large part of the population. Even bankruptcy carries no social stigma. Banks even only a few years ago had to ensure that the mortgages they gave out had some chance to be repaid. 20 percent down was a good way to ensure this. Now with Mortgage Back Securities (MBS) they needn’t hold loans longer than a month.

Caroline said...

I wonder what percentage of households have LESS than $1000 credit card debt, and what their average income is? And what percentage of households have no credit card debt at all?

Dr Housing Bubble said...


23.8% of American households have no credit cards at all -- no bank cards, no retail cards, nothing.

Another 31.2% of the households the Fed surveyed paid off their most recent credit card bills in full.

So together, the households that owed nothing on credit cards equaled 55% of the total.

I would be interested to see stats regarding income relative to debt.