Thursday, April 06, 2006

The Ownership Society or Debtship Society ?

The promise of an 'Ownership Society' has turned into the nightmare of our 'Debtship Society.'


  1. RE agents and lenders should beware: Their commission is a pittance compared to the cost of litigation. They need to disclose up front and in writing the extremely high risk of buying residential housing today.

  2. Americans are the world heavy weight champions of debt. As our wages are sliding down to developing world levels, people are living like they are in rich communities. I don't have sympathy for those who run up credit card statements by shopping for clothes, gadgets, and meals at restaurants.

    However, I have concern for some debt victims.

    What concerns me greatly is the cost of:

    1. Housing
    2. Health Care
    3. Education

    More people are getting into massive debt from those three root causes than anything else. More Americans are going into bankruptcy because medical bills can be overwhelming. Housing costs are pushing people to get exotic loans because who can afford to put $100,000 down on property in order to get a generous fixed-rate mortgage from the bank. Our incomes are only increase 3-5 percent on average while housing prices in some regions have jumped 30-60 percent in the past two years.

    Then you add the skyrocketing tuition costs for public and private universities. We have a Debtor Generation of students who have racked up five-figure student loan debt. Funding for Pell Grants has declined. Academic scholarships are being rewarded to students who already have the financial means (via Mom & Dad) to pay the college bills. Hello...does anyone talk about the College Tuition Bubble?!!!!!

  3. ...but I thought this was GOOD debt..


  4. ihateyuppies,

    Very well said. :-) Thanks for the intelligent comments.

  5. Today, with HELOCs, ARMS, and 40 year mortgages, people are MORTGAGE OWNERS rather than home owners.

  6. Not all debt is bad debt; but, people in this country have a problem with moderation - so you might as well take a 40 year mortgage, you'll probobly get heart disease or have a heart attack before then anyway.

    The credit union in the lobby of our building just put up the springtime "VACATION LOAN" sign, so you can finance the entire think at 11%... it's an annual ritual!

  7. ihateyuppies

    I personally don't care for yuppies myself.

    Your message struck a nerve! My ID is "80s_grad" because I graduated college in 1984 and I am appalled when I see how much things have gotten worse 22 years later. I wish I was still back in the 80s. If this sounds crazy...check this out.
    In 1984 an average income family enjoyed the following:
    1. Owning decent detached house
    2. Good and affordable health care coverage (usually payed by the employer)
    3. Ability to send their kids to college with no or small amount of debt.
    4. No worries about losing a job because some mega-rich CEO wants to boost productivity figures or other non-sense reason
    5. Reasonable gas prices

    Two years after college I bought a townhouse in Woodbridge, VA for 75K. I had no college debt because my father was able to pay for my college expenses fully(he was also middle class). The company I worked for provided me full medical benefits. And the majority of people I knew stayed with the same company since graduating college.

    My main concern is .... it going to continue to get worse?

  8. 80s_grad,

    We live in a globalized, free market environment where the saying goes "You're On Your Own". Corporations and educational institutions are shifting more costs to the consumer and worker.

    There will be a breaking point.

  9. 80s_grad --
    Your 80's sound a lot different than mine. I grew up in the Detroit area, and let me assure you, there were lots of people losing their jobs. One more thing: Sure, gas prices might have been "reasonable" then, but if we'd imposed a sober, forward-thinking petroleum tax then, we might not be looking over the edge of a cliff now.

    Sorry to quibble, but I can never leave a hair unsplit. ;)
    -- sglover

  10. Sorry to quibble, but I can never leave a hair unsplit. ;)
    -- sglover

    Wouldn't you agree that health care, housing and college education was accessible to more people in the 80s. Also do you agree the jobs were much more stable in general in the 80s.

    I remember the 82 recession and Detroit was in a world of hurt (mainly because of superior quality Japanese autos). The 80s was not Utopia, but I'm sad to say it was much better then now!

  11. 80s_Grad,

    The American economy began to decline well before the 1980s. You have to return to the early 1970s. The US had spent a significant portion of expenditures on the Vietnam War. The gold standard was dropped; the dollar is floated on the world market. Inflation was growing with ferocity. Free-market trade and financial liberalization hit the world stage with full speed around 1970-71. The Yom Kippur War and oil price shocks further damaged the economy in 1973.

    By the 1970s, the United States was losing its manufacturing dominance. For the first time since The Great Depression era, the country experienced widespread layoffs of workers. Personal incomes begin to stagnate and the wealth gap between the rich and middle-class widened starting in the mid-1970s. Despite the late 1990s Dot-com Bubble, the economic situation has declined in this country for the past 35 years.

  12. Ah, I love the sound of nay-saying. Listen, this is America - land of dynamism and creative destruction. Whining about having to pay for more of your own healthcare? Wish you could have lifetime employment? Easy. That's not the way we operate.

    I love to hear folks pining for the glory days of the 1980s (and beyond)...wonder how many of you voted for Reagan? An interesting question. But I digress.

    While circumstances may occur in DC that will cause housing prices to plateau or even briefly drop, the surest sign of potential impending doom is that rental prices are not keeping up with the prices of ownership. In a place like DC, you can live in suburbia pretty cheaply, but it's still going to cost you $1250+ to live downtown in DC where all those new condos are being built. With people still streaming into the area, demand is strong for renters. I think the market is due for a period of slow to no-growth, but I am unwilling to go down the path of economic destruction as a result of some high home prices. Debt is still less than 3% of GDP and as long as America is a place of innovation, you'll be able to find work, listen to Pearl Jam on your Ipod and even take a loan out to go on vacation.

  13. I'll put in my two cents. I'm a soon to graduate senior at a large state school in NoVA that just made it to the Final 4. Random thoughts:I can't recall taking a class in the last several years where the textbook cost less than $100. My calc textbook was $145, I recall. The average kid taking 4-5 classes per semester can drop a grand on books each semester. Students in the hard sciences can even spend much more than that. The average recent grad that I know has between $10-20k in student loans. I'll be in the same boat. It costs about $150/yr to buy a parking permit to use lots that put you a 20 minute walk from your class. Tuition is $2800/semester. A screamin' deal compared to any private school but I know that the overall cost has gone up much faster than inflation and wages.

    If prices continue at their current trends-and I have no reason to believe that they won't-I think that eventually(read:soon) we're going to see a reduction in enrollment levels in secondary education. With jobs going overseas and corporations increasingly unable to find highly skilled workers, I'm not sure this would be a good thing. I don't think a lesser educated workforce bodes well for the United States position in an information based, global economy.

    And I still can't wait for the NVAR March numbers! :)

  14. ihateyuppies

    Despite all the turmoil in the early 70s, healthcare, education, housing and stable jobs were accessible to more people than they are now. Although I was young I remember my middle class father being able to afford a modest ranch house (3 bedrooms) with a basememt in Richmond, VA.
    My father was an insurance underwriter and my mother was a elementary school teacher. What would a similiar middle class family be able to afford now in terms of health, housing and education? No decade was perfect.
    All I'm saying is this decade, unlike recent decades, health, housing and education are falling from the grasp of most families and this is appalling!

  15. "Debt is still less than 3% of GDP and as long as America is a place of innovation, you'll be able to find work, listen to Pearl Jam on your Ipod and even take a loan out to go on vacation"

    3%? Untrue. Show me the facts.

  16. You know... I actually have NO problem with the costs of college. compared to the $70k I had to pay to send my child to a private school because the public schools in CA suck such major donkey butt... the price of college is a steal and MUCH more gratifying.

    I pay flipping taxes and THEN have to pay for private school TOO because the schools can't be run properly makes me nuts.

  17. Total debt is as follows:

    federal - $8.5T (internal and external)
    state and local - $1.9T
    financial sector - $12.5T
    business sector - $8.5T
    household - $11.5T

    GDP - $12.5T

    It's easy to be a pollyanna when you're numerically illiterate.

  18. Is it me, or does that look like more tham 3%?

  19. Yep, I did the math - it is over 3%...

  20. Maybe chris meant, GDP is less than 3% of debt, which would still be wrong, but at least he'd have the numerator and denominator in their proper positions...
    -- sglover

  21. Technology is going to make education better and cheaper. It's not a matter of if, but when. Just check out and search for a topic of interest. This is just the beginning.

    The big established schools are going to feel pain. The innovators have a world of opportunity.

  22. Re: the 3% figure, it might be that the person was thinking that the annual federal budget deficit is about 3%? I don't know if that's actually true, but it seems like I remember it being cited that the fiscal account deficit is 3% and the current account/trade deficit is another 3%.

    athena:If you can personally afford the cost of college for yourself/your children and you're ok with it that's great. You sound like an involved parent and I'm sure that your kids will get the most out of their education. However, when one of life's necessities increases at a much faster pace than inflation it can cause problems for all of society. That's kind of where we're at with housing, right? Same principles largely apply to education, imo.

    That's a good point. I think that technology probably is the best hope to make education both more accessible and cheaper. However, as long as employers are wanting/demanding credentials from a bricks and mortar, accredited, 4 yr institution(whose tuition rates are, to beat a dead horse, going up much faster than inflation)in order to hire young folks for an entry level job, it's a moot point. Something's got to give at some point, but the power is really in employers hands. Right now they're still all about the 4 yr bricks and mortar degree.

  23. Hey Athena, I pay taxes for bad schools, too. BUT, I don't even have kids that use the resource I am paying for. It drives *me* crazy when parents who choose to send their kids to private school demand "vouchers". Where's MY voucher, dammit?!

  24. Things like Wikipedia are wonderful supplements to school libraries, but the notion that cheap computing is going to revolutionize education itself has been disappointing people for about 25 years, now. Mostly what it's done is spawn legions of second-rate companies pushing less than mediocre software: Their concept of teaching seems to be rote memorization with a 'Save' feature.

    In fact, I believe that the endless demand for increased computing power is a significant part of the reason that university tuition keeps rising -- at least at the large public research institutions.

    I'm not a Luddite; just trying to keep things in perspective.
    -- sglover

  25. Thanks for clarifying for me, mjrmajor. That is indeed what I meant.

    My apologies for the confusion that ensued.

    At the end of 2003, overall federal debt stood at 36% of GDP. I am sure someone will be able to show that has grown in the last 3 years.

  26. christy,

    If I were running things you wouldn't have to pay taxes for schools. I think if they had to only count on revenue from people who were paying for the schools they would probably have more incentive to spend the money wisely in the first place.

    mjrmajor- I agree. Can I afford costs for college? Yes... BUT I have made that a priority. I paid for my own education and if there was one thing that was going to be done above all other things- I was going to pay for my daughter's education. even if it means NOT buying a house... especially in this climate of Uberconsumption... I want to make sure I send a message about what is most valuable in my book.

    I also want to see though that economic fundamentals have some meaning somewhere... otherwise what is the incentive for us to BE educated if all we need for happiness and financial security is our own MCHouse ATM machine? This kind of manic debtor behavior has to have an end... I hope.

  27. "This kind of manic debtor behavior has to have an end... I hope."

    It will. It is not sustainable. Nuff said'

  28. To all of those who think of America, as a dynamic economy in today's world (as oppose to 1950 to 1990), ask yourself one question...what are we making or designing today that can't be designed or made in eastern Europe or Asia?

    Practically nothing, even core industrial R&D is moving abroad. In addition, most nations have nanotech and biopharma initiatives and nowadays, if you want venture capital money, you need to have an offsourcing component or you won't get financing. So, what's going to keep real estate prices afloat, long term, when we're evolving towards a third world economy?

    On the public sector side, NASA doesn't even have a replacement for the shuttle line. The former Soviet Union is already taking over much of the commercial satellite launching from us. And this was suppose to be the defeated party of the Cold War. And nevermind Intel's acquisition of the Soviet chip designing groups in Moscow.