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Old January 9th, 2010 #23
Leonard Rouse
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I was working in a warehouse 3 years ago and had a debate on housing with a college student home on summer break. Nice guy--not that much younger than me--but eaten up with Keynesianism. Or more to the point, whatever his mommy professors had fed him.

Sunbelt. Southeast Georgia. Statesboro. Student was from rural farm family. Housing boom. College town. Refugees from the Black cesspool of Savannah. Also largest farm county in state. Fields converted from cotton/peanuts to subdivisions almost by the week. Largest number of banks per capita of anywhere I've ever lived. Crazy.

It was common for me and another guy to observe how we didn't know how people in Statesboro could afford to live in those houses. The wage level doesn't support it, and the newest subdivisions were pushing into the 600k-700k range for only slightly above average homes. No "ammenities," mind you. House House House.

I made the comment that I was better off renting, even though my rent was too high for a wage earner--being driven-up by a dearth of rental properties in a rural community and the artificial demand of college students and their parents' money.

I could hardly have gotten a worse "scolding" from the college student if I'd goose-stepped across the room. I was informed that housing is the best investment there is and always goes up, accompanied by the liberal/student "you're an idiot" surprised scowl. I was also informed that it is well documented that buying is better than renting. I responded that real estate does not always go up, as anyone owning his family's farm 140 years ago would have known, since Sherman came through that very area. Memories are short!

He wouldn't admit he was wrong, though. It was like the issue of race. I've never forgotten the incident because it seemed to be such a point of faith with him. I wonder if he's learned anything given the "Housing Crisis" that ensued. Probably not!

If an asset starts at a dollar and fifty years later is 2 dollars, it "rose over the long term," even though it rose to 10 and fell to a quarter in the intervening years. It was a "good long term investment," and only a fool would deny it. "Don't you see the chart?!"

That doesn't even factor the value of the dollar.

Alex, you may have seen this paper from Brent T. White at the University of Arizona Law School.

http://api.ning.com/files/CdXtKqMgxH...away_paper.pdf

It's called "Underwater and Not Walking Away: Shame, Fear, and the Social Management of the Housing Crisis" Arizona Legal Studies Discussion Paper No. 09-35 Oct. 2009

The gist is that individuals are always expected to honor their financial contracts, while banks and corporations break contracts all the time, be they purchase orders, development/hiring tax breaks, etc, etc. The massive bailout of the banks is the best (or worst) example of this duplicity.

When it comes to mortgages--or more specifically to individual mortgagors--banks pull out the "shame card," as if there were a moral issue and not a business contract. The bank, of course, would have no compunction about breaking the contract were the roles reversed. And the bank never mentions that it is complicit in the debacle, having made the loan.

White was on CNBC in November (I think) and he was set-up for one of the "money honeys" to denigrate him in a "debate." I was impressed with his poise in handling their idiocy. The following is the video of his appearance.

http://www.cnbc.com/id/34207654