Was the Great Housing Swindle caused in part by America's failure to offer basic financial and economic education to its students?
Can a nation of financial illiterates be expected to navigate the pros and cons of the negative-am, no-down, interest-only toxic loan deals sold by con men and pushed by evil commission-hungry real estate clerks?
And without knowing the history of financial manias and panics, how could people be expected to recognize that they were living through the biggest bubble in the history of humanity?
February 05, 2007
HousingPANIC Stupid Question of the Day
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No, the problem was GREED.
Greed on the part of those who created the risky mortgage products. Greed on behalf of those who made their commissions selling them. And ultimately greed on the part of the lowest rung, those who signed up for the new mortgage products.
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Economics is a subject that is grossly under-emphasized in our school system. It is THE most important element in the running of our nation.
An economy must be organized to most efficiently produce all our private and public needs (roads, schools, life-saving pharmaceuticals as well as laundry detergent, furniture, tvs and, yes, homes)
It is our ignorance of economics that allows us to think that an increase in housing costs is a good thing.
Compare the value of teaching all kids chemistry and biology (subjects which most will never use) compared to teaching them economics, which all will use throughout their lives.
I'm posting Anon to tell this story from an associate of my husbands who just told us this news the other day.
My husbands ex-boss in the bayarea was escorted out of the building and out of her job of 11 years on Friday. It appears she has been embezzeling for years from her trusted small business employer.
The owner-her boss, found out about her activities recently and had been observing her for the past two weeks. Dont know yet if he will press charges, or ask for restitution.
I'm sure her financial problems started way before this, but problems only get worse when you talk your husband into buying a 1.2 mil dollar home with a 10 year I/O loan. A first, she would say -"we're house poor", like its bragging rights or a badge of honor for buying an unaffordable home, but they still managed to afford nice furniture, parties and vacations.
It's all crashing down on her now.
I think the problem goes deeper than this. It's a general, "I can do anything and if I screw up, someone will bail me out" mentality.
Why do people continue to live on a flood plain? Why do people buy real estate that is below sea level right next to the ocean and expect to be rescued?
Two of the friends I have bought bubble houses in Southern California only because their in-laws and parents gave them the down payment. The parents and in-laws are quite money savvy (rich) themselves. I can't explain why they'd saddle their kids with a ball and chain asset but they do.
I even have to sit around while my parents discuss whether to give my sister a down payment in the middle of bubble central, Los Angeles. They tell me, "prices will never go down here". Their memories are very short (getting old I guess) as their own house went from 745k to 435k during the early 90's crash.
No, I think it's a general sense of prosperity that people have that makes them not worry about financial discipline.
Jealousy on the part of renters who missed out is fueling a nice little boom in the blogosphere. The real crash will be in QWEEFIE's income stream from this blog by mid to late '07 as the thought of a housing crash becomes laughable even to his minions.
" Paul E. Math said...
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Economics is a subject that is grossly under-emphasized in our school system. It is THE most important element in the running of our nation."
Kids now days are dumb in all things, not just economics. I read an article in the doctor's office recently about America's standing in the world with respect to education.
Of the thirty some major industrialized nations in the study, we are second only to Japan in dollars spent per kid
for education. We all know, or have read, how fanatical the Japanese are about their children’s education.
When it came to the final product, the results were sobering.
According to this international education association study, the average U.S. kid's rank was ether third or fifth from the bottom, a pretty scathing condemnation of our educational system, no matter which!
In a way I wasn't surprised. A few years ago, the neighbors had a German foreign exchange student for her senior year. My great aunt, a retired teacher who spoke German, was staying with us at the time, so this little girl would stop in from time to time just to chat. My aunt confided later that the girl was dismayed as to how far she had to "dumb down" herself, just to fit in! And she was taking a heavy workload of all the hardest courses the local high school had to offer!
She also spoke fluent English with a barely perceptible accent.
Whether its courses that the average kid will or will not use in later life, most apparently aren't learning ANY OF THEM! Sad.
paul,
Economics is not needed. What for? The government knows best how I should spend my money. That is why it confiscates 45% of my income every year. That is why I am forced to contribute 12.4% of my income to "social security". The government knows how to save that money better than I ever could. MSM, Hillary and Ted Kennedy keep telling me so and they are to be believed no matter what.
Pretty soon the government will also dictate what kind of mortgage I can get, what kind of credit card I can use etc. That is a good thing since as a mere non-DC mortal, I can't possibly think for myself and evaluate the options out there. Nope, I need the nanny state to make those decisions for me.
And if I ever get in trouble with the little bit of choice I have in spending my money through non-gov't approved methods? No problemo!! The government will be right there with a nice big bailout for me. And all it has to do is raise taxes on "the rich" to do so. And afterwards the gove't will ban or regulate yet one more industry for my "protection".
So why bother learning boring old economics. I will just let the government run my life for me. It's a lot easier that way.
Sincerely,
- publik skool gradumalate and loyal Democrap voter
Good and true statement, Keith.
"Compare the value of teaching all kids chemistry and biology (subjects which most will never use)"
That's only because the so-called impending shortage of scientists was a myth to help in justifying the whining of the NSF funding boards or companies that want to outsource R&D.
In reality, if we were the type of society which these tech wonks think we are, then the sciences will be in effect, as important as economics or political science but instead, it's the reversal.
My Schoolz were good to me. I know a lot of things about stuff, like there are 9 planets ...opps...now eight.
I know how to do the chicken dance too, I learned that in Gym class, when I wasn't outside smoking a cig.
And something about where babies come from, but I was asleep for most of that class.
Financial and economic education would certainly help - but education in civics and how it impacts the financial and economic arena is also needed. And tax law! Don't forget tax law.
A good background in these topics with an illustration of the changes that have occured throughout history would probably do a lot to prevent this mess. (US history as a minimum)
Agreed. And not to be taken lightly, What about those television /radio /newspaper/magazine ads that have been bombarding us all of our lives? Buy now! Pay later! Live the good life!
Oh and let's not forget the television shows... Lifestyles of the Rich and Famous, American Idol, Etc Etc. Good God, We've been brainwashed. It's no wonder to me that WE'RE ALL SCREWED.
I sure could have used the basic financial eduation when I was in school. I had to learn it the hard way, by running up debt on my credit cards, and paying high interest for years. It would have helped me make the right choices if I had the education in school.
But I have learnt my lesson. Now I am very careful before I take on new debt, and I do my research beforehand.
My favorite is the "good" vs. "bad" debt bullsh*t that is constantly spewed.
I don't care if it is a college loan or a f'ing TV, it's debt that has to be paid back out of future earnings. In all actuality, the 1K TV debt is probably better than the 60K student loans as one can pay it back much easier.
In this country, math education is considered worthless.
You reap what you sow.
"Economics is a subject that is grossly under-emphasized in our school system. It is THE most important element in the running of our nation."
I would disagree with that statement because "economics" is a political question as much as anything else.
The Iraq war, for example, is being fought to control oil and therefore give value to the US dollar.
I truly doubt that many schools would be that honest.
Economic curriculums, for example, wouldn't admit that high density housing is more cost effective and environmentally sound than sprawl.
Economics will always be the "tower of babble" because nobody knows what "economics" means.
In my mind, it's about a nation with a strong underlying grasp of math and science. To others, the ideal may be different. To policy makers it might mean an "inflationary economy," aka bubbles, or to others protectionism or free trade.
I am living in an apartment because of Nietzsche who noted that "smart men only live in poverty while they are catching a bigger fish... (read, delayed gratification)"
Honestly, I'd push philsophy over economics any day....
I agree with the comments regarding "greed" as the blame for the US housing bubble. No amount of financial or economic education will innoculate people from the feeding frenzy of manias, where the blood boils with the potential of making money.
I have many highly intelligent colleagues much smarter than I (with PHds, etc) who have bought into the real-estate craze hook-line and sinker. In fact, it just astounds me when I hear of these otherwise rational engineers discuss the housing investments they have made, and the paper profits they already have.
Going further, I don't think any particular group can take the blame for the bubble: this is a communal experience that EVERYONE participates in. Sure, brokers, lenders, appraisers, and realtors all played a part, but so too did the everyman who wanted to get rich through owning a home.
"Compare the value of teaching all kids chemistry and biology (subjects which most will never use) compared to teaching them economics, which all will use throughout their lives."
Ummmm, tell that to doctors and chemists... I think beauty is in the eye of the beholder.
I was going to become a teacher but I didn't because I realized that my engineering skills paid the bills and gave me the opportunity to take a few years off and go back to school.
Becoming a specialist in basic finance isn't all that difficult if you are literate.
While I don't necessarily like "liberal education," because it takes time away from ones passions, it's probably wrong to argue that one specialty is more important than another one.
For example, if Americans ate good diets and exercised, then our nation's health care bills would go down and we'd probably need fewer doctors. I dropped 70 lbs and now have an unimagined vitality.
Anyway, I don't think that our economists will save us from "global warming..." and our scientists will have to do triage!
have heard that children come home stupid, from school,and enter with great innane abilities and understanding and in this society, the complete ability to learn with ease??!!
and teachers average double the wage of the skilled laborers average wage, if not triple.??!!
I don't care if it is a college loan or a f'ing TV, it's debt that has to be paid back out of future earnings. In all actuality, the 1K TV debt is probably better than the 60K student loans as one can pay it back much easier.
Moron, a $60K college degree will increase earnings by hundreds of thousands of dollars over a lifetime. How can you possibly equate that to buying a TV? It is quite obvious you have NO education to speak of.
You cannot expect a student to go 10 of thousands into debt,and then not expect them to charge more for their skills.
AS for the America education being less than other countries - Do you think learning by rote will be of any use when the future is created by those who can think creatively
if their was a shortage of scientists and engineers, their wages would be rising, to encourage more people to train. Since their wages are falling, why would anyone put themselves in debt/looose 4 years of their life?
A law degree pays twice as much, with much better protection against outsourcing.
German student - do you think germany would have sent its retard students on an exchange visit?
They cant print more gold or silver
if their was a shortage of scientists and engineers, their wages would be rising, to encourage more people to train. Since their wages are falling, why would anyone put themselves in debt/looose 4 years of their life?
I love it when illiterates lectures others on education. And no there are not typos.
You bald, overwight, middle aged divorced renters crack me up. First it's the NAR that is to blame for you pathetic lives. Then realtors. Then Greenspan. Then Bush. Then Hillary. Now it's the education system.
Take a look in the mirror you might get a clue where the problem lies.
Damn you all!!! It's LOSE, spelled L-O-S-E. Not loose (as in "My dog got loose"). I can't take it anymore. Illiterate bastards.
JAFO
"AMIGAUSER said...
.....German student - do you think germany would have sent its retard students on an exchange visit?"
No, they send their best and brightest A+ students, THE SAME AS WE DO! The "dumbing down" I refered to is when a german student is taking a high school SENIOR level course in the U.S. that is taught in high school FRESHMAN year in Germany.
Moron, a $60K college degree will increase earnings by hundreds of thousands of dollars over a lifetime. How can you possibly equate that to buying a TV? It is quite obvious you have NO education to speak of.
So, you just proved why $60,000 is a high price!
Based on the math: "if $60,000 was invested at the age of 18, after 42 years-- when you're 60 years old-- you'd have $465,000."
Math like this explains why Bush and others are pushing for medical savings accounts!
If you put just $2,000 a year into a "medical savings account," for 55 years, you'd have almost $575,000!
And I'm only assuming a 5% return.
As far as education goes, I'd love to see the day when parents can spend the tuition any way they see fit! Who knows, ones "liftime earnings" might be greater if "tuition" was put into a trust for 50 years!
Anon:
You must not be feeling very good about yourself if you're a non-bubble beleiver and you keep on wasting your preciouls time reading these bubble blogs!
@Anon 3:07:20:
"Jealousy on the part of renters who missed out..."
You seem to be in agreement with people here that the boom is over. Isn't subtext a bitch?
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