Tuesday, August 23, 2011


"Funny thing: who is more likely to be in a position to make his payments five years from now, the 1099 flexible-career dude, or the guy with a W-2 from GM or some green-jobs boondoggle?"

At Instapundit, a reader named Kevin Ryan tells a tale about getting loans in the low-interest market:
I think one underappreciated factor is the difficulty buyers are having in taking advantage of those rates. Anecdotally, at least, it remains extremely difficult to get a loan, even for well-qualified borrowers. Banks are no doubt gun-shy given their weaknesses and recent experience, but an increased regulatory burden also seems to be an issue.

I’m a case in point. I haven’t had any W-2 income (except from a part-time National Guard gig which ended with my retirement at 30 years’ service) for years, and last year when I was buying the current Hog Manor, mortgage underwriters were alarmed by this. For two decades my principal income has been on 1099s (consulting returns), K-1s (partnership returns), and from investments (also reported, mostly, on 1099s). My income has been high but variable — I was living by my wits, but living well, before it was cool. I had $2million plus in cash and zero debts — I paid for college and grad school as I went, and didn’t borrow a dime. I run a credit card (one) for travel, but pay it off every month.

I’m an ideal borrower, right? The guy who doesn’t need the loan?

Apparently not. I had no credit score (not a low credit score, NO credit score, like a newborn baby. I’m 53!). After months of messing around with underwriters, I simply cut a check for the house.Didn’t do my nonexistent credit score any good but put a roof over my head. The divorced couple I bought from were delighted to get the check, as were all the realtors involved. (listing broker, my buyers’ agent). The bankers didn’t care about the lost mortgage opportunity — they get paid the same whether they lend or not...
The collapse of the financial market and the present economic doom has banks very nervous. They want to loan money, badly, but businesses are skittish about going into debt (and there are signs that consumers are as well), and banks are very cautious about loaning any money out. Sure, there's a gargantuan sum of money being held back by the federal government backing up loans, and sure interest rates are low as a snake's tummy, but banks are weak and twice burned by the collapse. They don't want to be caught with loans that can't be paid back again.

So they are being careful about loaning money out, particularly to people who are financially responsible but less comfortably regular in their income, such as Mr Ryan above. So he had to turn to just buying the place outright with cash - must be nice, although I bet his taxes are... interesting.

Yet in a way, this is a good trend.

Fewer loans, less debt, and more direct fiscal solvency is good for America. If it takes being destroyed for people to learn to live better within their means, maybe that's not as bad as it could be. For decades its been a problem where people are saving almost nothing and spending more than they earn. America is in debt, more than just at the government level. We've all been living on credit like a coke-addled hotel heiress and that could not continue forever.

Yet part of the problem is the uber government. Why save if you have money automatically taken out for a retirement plan and social security? Why worry about emergencies if you have medicare and medicaid waiting for you? Why worry about poverty and collapse if there's a safety net always there with welfare agents actively trying to recruit more people on their rolls?

So the old pressures to be more cautious, wise, and frugal have all but been destroyed by the welfare state. It used to be a genuine concern if you lost your job for a year and a half. You'd be out on the street trying to eat your shoe like Charlie Chaplin.

That's the thing people don't seem to realize. We don't see conditions like the depression now because of the safety net. People aren't forced so much to change their lifestyles and behavior because we're protected by big government. In the depression people sold fruit on the corner, worked menial jobs, and traveled the nation looking for work. Now, people are turning away jobs despite the ghastly unemployment and economic numbers because the jobs are too demeaning. After all you've got your check coming every month, far beyond anything you actually put into the system.

Its not that everyone is a wasted, lazy bum, some people look hard and can't find work. Not everyone turns away job openings. Its that our culture has changed so much that it isn't shameful to walk away from hard work, and people think so highly of themselves that they won't do lousy jobs so they can feed a family. We're better than that, too many say; showing that they aren't.

Yet the worse things get, the less likely people are to be able to keep that pretense up. So far we've been able to keep buying over priced coffee and pay our cell phone bills, but how much longer? Each month, people without steady work have to cut back a little more, and as that happens, businesses make less money and have to look at cutbacks a little more. Eventually if things don't change, I fear the floodgates will open, with a cascading effect that builds on its self rapidly.

I don't have crystal ball and all I can do is say what I fear and am concerned about, but I do know one thing for certain: the selfish, hedonistic, relativist western lifestyle can only be sustained in periods of great growth and riches, and those periods cannot continue indefinitely. Especially when they have to be sustained by selfish, hedonistic relativists. Without a real, broad change in worldview, our civilization cannot persist.

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