Monday, March 30, 2009

The drunk curses the distiller

The Sacramento Bee recently carried a seemingly sympathetic story about a 68-year old woman who is on the verge of losing her home to foreclosure. According to the paper, she refinanced in 2004 for $137,500, in 2005 for $172,000 and 2006 for $192,000 "to pay down credit cards and stay ahead of bills". That is $501,500 borrowed over three years to pay down bills.

Now hear this. Her house is in the Tahoe Park area of Sacramento, where median house prices were around $340,000 during the highest point of the housing bubble, according to this estimate.

Over-leveraged and irresponsible people, as much as over-leveraged and irresponsible firms, are at the heart of this Giant Correction, but the stories of their infamy barely make it to the newspapers or resonate in the US Capitol. While acknowledgment and anger at the "retail over-leveraging" seems to be more easily found at the level of the subaltern (see, for instance, the comments to the Sac Bee story), the prominent political narrative being presently constructed seems to miss (or avoid?) it by a wide margin.

Post 9/11, a wise and learned relative of mine sighed at how America was missing the opportunity to introspect by going on the offensive instead. Feels like deja vu. The AIG bonuses or the Detroit executive private jets seem as potent, if not as big, distractions as Afghanistan.

Update: Paradox is....everyone panicking over this morning's report about record drop in nationwide home prices in January 2009. Even if there is no agreement about who exactly was guilty of bad financial practices during the boom years - lenders, consumers, or politicians - there is certainly agreement that whatever was going on was not right. It also follows that high home prices seen during the boom were based on an unsound basis. So why all the breast-beating about home prices going back down?

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