So, as we all know, the baby boomers, the consumerism generation, have done a lousy job saving for retirement. And no, I don't indict all boomers - obviously there are many wonderful ones, and many frugal, smart, altruistic ones. But in general, yes, I'll say "baby boomers".
Some would suggest that the now retiring baby boom generation in power (Congress, Fed, Presidency) conspired to create a real estate bubble through law and policy so that this problem would be solved.
According to this report, there is $1.7 Trillion in Pension Plans, $2.8 Trillion in 401ks, and $3.7 Trillion in IRAs. Yet there is $11 Trillion (today) in home equity. Guess what folks are relying on?
So for the boomers who didn't save, or save enough, whoosh!, right at the end, when they needed the loot, housing values took off, which can now be used to finance their retirement. Oh thank you jesus, oh thank you congress!
It was a good plan, except for a few little things:
1) It screwed Gen X and Gen Y, who can't afford a house anymore, or who bought at the top and will now go bankrupt as values fall. But then again, when haven't the baby boomers screwed future generations to benefit their own well being?
2) It only works, the Grand Ponzi Scheme, if the boomers sold and walked away. Gotta cash out to get the cash. Every day that goes by now is a day with less cash out.
3) It only works if the dollars taken out of the Ponzi Scheme hold their value. If you get a $200,000 that seemingly would've funded a nice retirement to Florida, but it costs $10 for a tube of toothpaste or $500 for a round of golf, then it didn't work. Now if that boomer bought Euros or Gold with the cash, they'll be fine.
4) It only works if you don't buy another house, and rent until you die, unless the prices of homes collapses and you can re-enter in the future.
Yes, I do think the government conspired to do exactly this.
That explains why Congress in 1997 made gains on home sales tax free - in other words, a total windfall and wet kiss to the current homeowners - of course, the majority being baby boomers.
That explains whey Greenspan kept rates too low for too long - had to get that bubble big enough to fund those boomers retirements. Future generations will have to figure it out for themselves - and they have time to react and cope. The boomers didn't. Without the housing bubble, they (and the government) would have been screwed.
And yes, that explains why Bush was told to pump housing, encouraging new suckers to buy homes, from boomers, at inflated prices, as recently as last year. Ponzi Schemes only work if you can find a big supply of suckers at the bottom to pay off the folks at the top
So there you have it. It was a good plan. But it's all crashing down around them now.
May 18, 2006
The housing bubble, retirement and the baby boomer scam
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37 comments:
Greenspan and the government put a knife through the heart of American consumer economy. If you want to look ahead to what America will look like in the, not to distant future, you'll have to look back to the 1900s. I'm sure there are books out there about how people servived in the Russian economy after the fall. I really think our world will look a lot alike soon.
boomers are gonna be pissed - first at this post calling them out, and second that the grand plan might not work
Another Grand Conspiracy? So all those boomers sold houses at inflated prices? I thought most of the sales of the past five years were new junky houses and new crappy condos.
I only know one couple (both in mid 40s) who sold their house to take advantage of the bubble, and fund their kid's college education. They're both still working.
The housing bubble was created by the housing industry and investors, many in their 20s and 30s, all pretending to be hot-shots. It isn't boomers watching Donald Trump's television programs, hanging out at Starbucks, and trying to look like business moguls.
It isn't boomers gushing over granite countertops and stainless steel appliances.
Gererations X and Y did this to themselves in their mad dash to get rich quick. They can't blame Mom and Dad, but of course they will.
the housing bubble was created by congress (no cap gains tax law 1997) and the fed (interest rates too low).
the people responded accordingly. the baby boomers made out the best.
cause. effect.
it's not a conspiracy, he didn't call it that.
it's reality.
government working to solve a problem - that's not a conspiracy - it's just policy.
Lets remember Greenfrog's infamous statement about how people should jump all over an adjustable rate mortgage. What this did was allow anyone to grab a house, fueling the supply demand issue and pushing up the value of homes. An absolutely ridiculous statement by a fed chairman.
Anonymous said . . .
"the people responded accordingly. the baby boomers made out the best."
Can you prove that? Where are your figures? I don't know of any baby boomers who've come out ahead on this one. Many are now unable to pay their inflated property taxes because of YOUNG developers and investors rushing into their neighborhoods and destroying them.
Anonymous said . . .
"it's not a conspiracy, he didn't call it that."
Yes he did. Read him again.
"Some would suggest that the now retiring baby boom generation in power (Congress, Fed, Presidency) conspired to create a real estate bubble through law and policy so that this problem would be solved.
"According to this report, there is $1.7 Trillion in Pension Plans, $2.8 Trillion in 401ks, and $3.7 Trillion in IRAs. Yet there is $11 Trillion (today) in home equity. Guess what folks are relying on?
"So for the boomers who didn't save, or save enough, whoosh!, right at the end, when they needed the loot, housing values took off, which can now be used to finance their retirement. Oh thank you jesus, oh thank you congress!
"It was a good plan, except for a few little things:
"1) It screwed Gen X and Gen Y, who can't afford a house anymore, or who bought at the top and will now go bankrupt as values fall. But then again, when haven't the baby boomers screwed future generations to benefit their own well being?
"2) It only works, the Grand Ponzi Scheme, if the boomers sold and walked away. Gotta cash out to get the cash. Every day that goes by now is a day with less cash out.
"3) It only works if the dollars taken out of the Ponzi Scheme hold their value. If you get a $200,000 that seemingly would've funded a nice retirement to Florida, but it costs $10 for a tube of toothpaste or $500 for a round of golf, then it didn't work. Now if that boomer bought Euros or Gold with the cash, they'll be fine.
"4) It only works if you don't buy another house, and rent until you die, unless the prices of homes collapses and you can re-enter in the future.
"Yes, I do think the government conspired to do exactly this."
See, I note the actual words used, not later denials or revisions.
The Baby Boomers have to be the worst generation of prople to come out of last century.
From Hippies to extreme capitalists.....they are the most selfish generation I have ever seen.
There is an old saying where I'm from - "Always be afraid of ex-prostitutes and ex-Communists "......in this case the 'communists' are the baby boomer generation.
" 'the people responded accordingly. the baby boomers made out the best.'
Can you prove that? Where are your figures?"
here ya go: home ownership by age bracket:
http://www.zonalatina.com/Zldata304.htm
ya gotta be pretty dense to not understand that the older you are, the higher your chance of owning a home
must be a boomer, eh? touchy touchy
as to "conspiracy" note my quote:
"Some would suggest that the now retiring baby boom generation in power (Congress, Fed, Presidency) conspired to ..."
I would suggest that government formulated policy to address a problem, overtly, out in the public domain. No conspiracy, just policy, well coordinated, planned policy.
I'll leave conspiracy to the 9/11 crew
keith - what a crock
each person needs to take responsibility for his or her own lot in life and stop blaming others
boomers, boo hoo.......waaah
I think Keith took the gist of one of my posts and ran with it. Great!
The boomers who have not saved enough and gotten into a position to retire comfortably are in real trouble. This has hit public TV but not the MSM. Pensions are getting robbed, social security and medicare are failed, and thanks to whatever the expected age of life is increasing. People are working longer because (very few) they have no life except work, or (most) they need to. The dot bomb crash hurt a lot of folks. This market will add salt to that wound. If boomers bought their retirement homes in FL at bubble prices (before they got priced out) expecting to sell their residence later also at bubble prices and retire - oops, isn't exactly working out. Those flippers that ran up FL condos because the boomers were coming hosed those poor boomers, who are now underwater (soon maybe literally if storms continue) on their condos will find the prices of their residences are declining. Hope they didn't buy that condo on a ARM.
The gen X / Y types are going to grow up in an American economy based on services, not manufacturing. They will be asked / forced to shoulder the national debt and entitlements like social security / medicare. They will have to deal with the dollar decline (what does America produce that the foriegners want to buy?), energy and warming, population growth. And what skills do they have which make them competitive in the global market? What about national unity? The Mexicans speak spanish. The blacks speak ebonics.
Then there is the drug issue Meth is a real scourage which will really jack up health care and prison costs. There are a lot of white gen X / Y'ers on that stuff judging by the missing teeth I see on a lot of people. Crack is also a big problem.
I do not think it was a conspiricy. I just think people didn't think through where this was going.
It may really be everyone out for themselves.
Keith,
Good theory to rile things up with. Nice.
Signed,
A Boomer, Renter that is screwed.
PS. Good thing I realized when I was 40 (ten years ago) that Social Security was vaporizing and good thing I have been assuming that I was on my own, financially, during the aging process, or I might take this stream personally. (:
How many Baby Boomerangs (Gen X and Y) are going to get rich the old fashioned way by inheriting wealth from thier Boomer parents?
I doubt there was a conspiracy to help anyone but themselves to winning the 2004 election. If the economy were still in a recession, we would have had another 1 term Bush presidency, and no one who had any stroke wanted that.
Cmon Keith... These guys can't plan their way out of a paper bag. You've already pointed out their foibles many times, and yet now you are saying they have the forebrain and neurons to *plan* a vast economic ponzi scheme?
You can't have it both ways. Either they are feckless idiots, or they are predatory and cunning. Pick a scenario and stick with it.
As for spendthrifts, my observation is that more 20-30 somethings are driving (leased?) luxury cars than boomers. Hummer drivers tend to be short, regardless of age, and our 20 something receptionist (who just traded her V-12 Mercedes for a Range Rover) paid over 15K for a german shepard - yes her 20 something spouse is a mortgage broker guy. I've *never* seen a boomer carry on like that with $.
FWIW - I don't have a dog in this race, cause I'm a tweener.
oh boy, sell now and get to high ground:
www.savelivesinmay.com
may 25, 2006
YOU HAVE BEEN WARNED!!
A former French military air traffic controller and senior airport manager named Eric Julien has completed a study of the comet “73P Schwassmann-Wachmann” and warns us that a fragment of this perambulating ice-ball is highly likely to impact the Earth on or around Thursday, May 25, 2006. Discovered by Arnold Schwassermann and Arno Arthur Wachmann in 1930, the comet has an orbital period of just less than 5.3 years and comes nearest to the Earth every 16 years.
I am 39yrs old, raised by a depression era grandmother, and a family of WWII vets. These people were vastly different than the current generation of old people. My experience with Boomers is that they are, mostly, fat (ergo the SUV), loud, wasteful, blinded that they are older, immature, demanding, preoccupied with sex (the pill, Viagra), believe in Wall Street Casino, unconcered with paying their taxes, but collecting benefits, unaware that the USA borrows money every day because it can't pay its bills, willing to send kids to the Middle East but Hell No We Won't go to Vietnam, not ashamed of taking out a second mortgage, and the list goes on further to explain spoiled children who are out of hand and old. I respected the greatest generation but this disco boomer generation makes me sick. The spendthrift ways, their Boomer Bubbles must stop now. America must put its financial house in order. My story, paid for house, car, guns, gold, and bonds.
Boomer conspiracy?
Think again. During the Reagan administration Greenspan encouraged Reagan to raise the Social Security tax when Regan's tax cuts were causing huge budget deficits. Then allowed the government to borrow from the Social security trust funds to run the government. Susposedly, it was done to force the boomers to pay for their social security in advance.
During the Clinton administration, Greenspan argued against huge budget deficits. Taxes went up and a surplus was created.
Here come the repubs again under Bush. Now Greenspan argues for tax cuts again. Then lowers interest rates to fuel a bubble.
Meanwhile, huge deficits are created under yet another repub administration.
Since Regan, more and more jobs and companies are now off shore. More and more illegals are allowed to come into the country to work. The result on the Middle class and yes the boomers is devasting.
NOw, factor in all of the companies that can discharge their pension plans in bankruptcy. Not exactly beneficial to the boomers.
NO, a return to a 2 class society seems to be the real intent. The rich and the poor. Not beneficial to the boomers or the middle class.
Think about who stands to lose when the average American is so poor he has to use his house as a ATM. The huge debt created by this desperate act is not beneficial to anyone.
The vast majority of boomers do not benefit from the destructive policies of this administration and neither will the country.
Keith-
Looks like you need somebody to blame. Why not try putting your energy into 'fixing' instead of 'whining'?
Yes there is a pile of wrong things in the world, but there are very few who have the capability of actually implementing fixes. Try to be one of them.
Lets remember Greenfrog's infamous statement about how people should jump all over an adjustable rate mortgage. What this did was allow anyone to grab a house, fueling the supply demand issue and pushing up the value of homes. An absolutely ridiculous statement by a fed chairman.
_________________________________
You better believe it. Unbelievable from banker no less a fed chairman. Common sense tells you, low rates will go up eventually, Purely a scam to help leverage even more from a credit bubble. Obviously they were trying to create a target for the bubble credit; housing.
Anonymous said . . .
"From Hippies to extreme capitalists.....they are the most selfish generation I have ever seen.
"There is an old saying where I'm from - "Always be afraid of ex-prostitutes and ex-Communists "......in this case the 'communists' are the baby boomer generation."
Hippies made up probably less that 1/100th of 1% of boomers, despite their self-inflating propaganda (many ex-hippies and ex-hippie-wannabes are now in media). The notion the country was once crawling with them is a Hollywood fantasy. There was a large cluster in San Francisco, and that's about it, except for a few others who joined them in Woodstock. The hippies were druggies for the most part, and yes, selfish beyond imagination. Still are. The radical feminists of the 70s are included in that unkempt, hateful bunch. They still haven't learned the benefits of grooming or telling the truth.
But, the real financial horrors were the 80s Yuppies who spawned children even greedier and more pretentious than they. Many of the latter have what I call negative wealth, the mirror opposite of the real stuff, because it's actually debt disgused as wealth. The wealthier they appear, the poorer they are, but with this group, appearances are everything.
The 80s Yuppies might generously be called boomers, but they date a decade or more later. Their children, the current wealth-fakers, are not boomers.
Home ownership does not mean wealth, or that boomers are responsible for the housing bubble. If you make it to 70 without ever owning a house, you're definitely in a tiny minority.
boom boom blam said . . .
"Then there is the drug issue Meth is a real scourage which will really jack up health care and prison costs. There are a lot of white gen X / Y'ers on that stuff judging by the missing teeth I see on a lot of people. Crack is also a big problem."
I wasn't aware of this, but I have noticed the huge number of potheads under 30, and it's scary. It also seems to me that the younger generation has divided itself into three primary classes: the wealthy, the poor who pretend to be wealthy, and the poor who look poor. What happened to the ordinary Middle Class?
Retirement? My parents nor my grandparents nor my great grandparents and I assume their forebears had no "retirement". The only generation that has been able to "retire" has been our parents'.
What makes anyone believe this retirment gig was anything but an anomoly created by the post war boom?
Retirement didn't exist 50 years ago and it won't exist again.
http://tinyurl.com/doggf
no one to blame but the goverment who else would cook the numbers...read and learn!
If this "baby boomer scam" is real, which I do think it is, then what can we do about it? When do we buy a house, were do we keep our money, do we refuse to pay taxes? It is quite obvious our government is full of greedy and lying people, but where do we go from there?
The housing bubble was created by the housing industry and investors, many in their 20s and 30s, all pretending to be hot-shots. It isn't boomers watching Donald Trump's television programs, hanging out at Starbucks, and trying to look like business moguls.
Very true. I'm a tweener too and most of my friends live a lifestyle very similar to my parents, who have worked 30 years for everything they have. Yet I have friends making less money, driving new SUV's every couple years, living in a McMansion in the suburbs, spending precious time in Starbucks, and acting like they are millionaires on borrowed money. The hoopla is so sickening.
Regarding Greenspans' comment; he was absolutely correct that ARM's make sense for many sopisticated investors. What he didn't expect was that idiots I speak of above would use an ARM to shoehorn into a house that is 3x what they could traditionally afford. Remember the Citi commercials that say "just because you have it doesn't mean you have to use it"? Same thing here; I have over a $100k in avaiable credit card credit but I guarantee if I maxxed everything out I would NEVER be able to pay it off. Thus I don't use it.
Greenspan and the Fed were the architects of the RE bubble. It was not done to save the Boomer's bacon. It was done to keep americans mindlessly consuming foreign goods. The Fed knows that if US asset values ever correct meaningfully there will not be anyway to pump them back up since the U.S. no longer produces much of anything.
That explains why Congress in 1997 made gains on home sales tax free - in other words, a total windfall and wet kiss to the current homeowners - of course, the majority being baby boomers.
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great point, if you look at the tax records in phoenix, most houses were being sold that were owned for 2yrs... and when i met this lady selling, she said that they lived there 2yrs and was ready to move on...! yeah right... my parents lived in their home for 23yrs.. my grandparents lived in their first home from 1947 to 1989. honestly... how about a goverment mandate that knocks a ZERO off the end of all housing prices and debt.... just dreaming
The Housing Bubble was made from 9-11, as the FED and governmental figures needed a quick prop me up for the economy, so liquidty and interest rates were made to go as low as possible.
Blaming the "Boomers" for the housing boom is like akin to blaming Lincoln for the Civil War. So many things were happening, that you can't fault 1 party.
Seriously - this sounds delusional and paranoid. The same government that can't even help during a hurricane managed to manipulate (almost) free financial markets over a 20 year period in order to bail out baby boomers who did not save enough while letting Social Security go down the drain.
Our bloated bureacracy can't engineer something like that - unintended cosequences are all they ever manage to acheive.
Remember folks that I'm calling out the POLICY CAUSE of the bubble, and the reason why the government was motivated, perhaps even rightly so, to do what they did
The POLICY EFFECT is the intergenerational conflict.
A Brookings Institute study says that the new immigration "reform" law will put an additional 190 million immigrants into this country over the next 25 years. If even half this number are admitted, the middle class will largely disappear, and Social Security and Medicare will go bust much sooner than the pols care to admit. Neither major party will view this as a problem. The Dems see 190 million potential new voters, and the GOP sees lower wages for businesses.
Ain't it grand watching the USA commit suicide?
"Hispanic's are leaning more and more to Republicans idiot."
LOL! Sure they are -- that's why Kolyfonia is a solid Republican stronghold, and the GOP sure can count on all those party faithful in NM.
When they vote at all, people with a 4th-grade education vote 90+% Democrat.
"When they vote at all, people with a 4th-grade education vote 90+% Democrat."
Nice.
I'd like to see your sources.
Racist Idiots are the my favorite kind.
"I'd like to see your sources. Racist Idiots are the my favorite kind."
Hey Mr. kum-ba-ya, even though you're obviously a progressive, open minded genius, the proof you need is easy to find. Just look at voting patterns of most inner-city (i.e. black) precincts. They vote overwhelmingly for Democrats.
The only problem I see with that earlier statement by anon is the 4th grade claim. I'd bet the collective education level in most of those neighborhoods is lower than 4th grade.
The post referenced indicated a belief that Hispanics were Not leaning Republican. There was no mention of inner city black's party preferences.
A source for Hispanic voting trends data might support these claims.
Do you claim Hispanics and Blacks vote alike? Care to back that up?
Have to agree with the Anon above about the bubble being created by post 9-11's rtae decreases. It wouldn't have become such a bad thing if the Fed had stepped on the brakes sooner.
AND PLEASE VOTE 3RD PARTY - NEITHER THE REP'S OR DEM'S GIVE A RAT'S ASS ABOUT THE MIDDLE CLASS.
Voting 3rd party accomplishes nothing. The two major parties have rigged the system so a future "Ross Perot" candidate has a snowball's chance in hell of winning the general election.
"The tree of liberty must be refreshed from time to time with the blood of patriots and tyrants."
Sorry, but considering how far we've devolved as a nation, TJ's presciption is the only one that will work. Time to water that tree.
If it was a scheme it will never work. If the Baby Boomers were a smaller generation than the following one, they would leave a smaller amount of housing stock in their wake. However, being that the BBs are the largest generation, they will leave more SFRs, more vacation homes, more condos, more everything when it comes time to sell.
I don't believe the conspiracy theory, but I believe many BBs are thinking that their home equity is their salvation.
I think it's quite possible that inflation will allow current homeowners not to end up "upside down" on their mortgages (those that can hold out for a couple years) and that if such inflation continues, housing will appreciate in absolute-dollar terms, but I think that due to oversupply it's inevitable that housing will make up a smaller share of the consumer cost basket in real-dollar terms in the future until population growth and economic growth catch up with the speculatively inflated real estate market.
Houses are not like internet stocks in a bubble sense; they're worse because the development process of buying land, getting permits, construction, marketing creates the lag we're seeing now where houses are being built all over the country with no buyers in sight. In real-dollar terms or in absolute-dollar terms, housing purchase prices will drop. Whether or not this will be accompanied by a big foreclosure rush depends on inflation.
Speaking of high inflation, everyone should know that it's always accompanied by sky-high interest rates.
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