Friday, August 10, 2007

Don't Blame Tech!

If you're a geek and you lived through the boom and bust of the dot-coms in the late 1990s and early 2000s, it must be nice to know...this time no one is blaming you.

The culprit this time is the most bricks-and-mortar of industries, real estate. Real estate spent most of the last decade in a delusional state that was quite reminiscent of the dot-com boom: things were going to keep going up and up forever. Real estate prices would rise and never fall. Remember when people though that about the Nasdaq?

You could "flip" houses. You could borrow at interest only and count on rising property value to pay off your loan. It was almost impossible to lose money in real estate.

It turns out it was possible, and also highly possible to get in over your head. Especially in an environment where all it takes, pretty much, is a pulse to qualify for a home loan. Where lenders practically follow you down the street.

Countrywide, the nation's largest lender, announced the subprime meltdown would threaten its financial position, and, according to CNN, that 20 percent of its borrowers are late on their payments. This is the kind of thing that tends to make markets go nuts, and they have been, yesterday and today, probably saved from imminent disaster when the Fed, and its counterpart the European Central Bank, poured over $200 billion combined into the markets to try and build investor confidence.

OK, it seems that real estate has come home to roost as other bubbles have before it. But keep a couple of things in mind. It's easy to forget this, but just three weeks ago on July 19, the Dow actually hit its highest point ever. And, despite a bad couple of days, it actually finished this week in the black.

By the way, just in case anyone thinks the oversupply of credit is a myth, or isn't still with us, here is the text of three of the five ads accompanying the Forbes article about the meltdown:

"Refinance at 5.35 Fixed
Get $300,000 loan for $875/month. Calculate Your New Payment. Act Now!"

"Refinance Rates at 3.0%
$150,000 loan for $391/month - refinance, home equity and purchase."

"Discover Card Application
0% Intro APR & Up to 5% Cashback. Apply Online: 100% Fraud Protection."

1 Comments:

Anonymous Robert Emmett said...

Perfect parrallel to the Geek Gap by taking a basic human need, shelter, and tying it to gambling and speculation.
It's one thing when an investor takes a chance in real estate. When financial institutions convince people just looking for shelter, that they too can play this game, that's where the trouble arises.
Part of the investor's success comes from not being personally invested in the property.
But these homeowners are personally invested and aren't flipping.
They were sold on "magical thinking" that like switching credit cards or changing your cell phone provider you could always find an incrementially better deal. But in a perfect parrallel to Geeks and Suits,the skills and desires of one group does not apply to the other. Most of these homeowners aren't interested to be continually looking and swapping for the next financial deal. So though the real estate agent or financial institution knows what to do to get them in, the homeowner doesn't keep wheeling and dealing - they just want a nice home in live in- and ends up on the wrong side of that gap.

11:41 AM  

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