My Personal Credit Crisis
nytimes.com
nytimes.com
The better way to think about the injustice of this story is to realize that his Realtor & Co. earned at least $27,600 (Six percent of the $460,000) for less than a day's worth of work.
Bob called back the next morning. “Your credit scores are almost perfect,” he said happily. “Based on your income, you can qualify for a mortgage of about $500,000.”
Translation as to what Bob was really thinking: "Based on your credit score, I can earn about $30,000 today, without blinking."
Realtors are the evil behind the mortgage meltdown. If this article doesn't make it obvious, I don't know what does.
House-hunting is certainly NOT less than a day's worth of work. If they end up not buying from him, all this time spent on working their profile earns him exactly $0. The goods that he sells are his time: time that he can't spend with another customer simultaneously.
Bob was an evil realtor; evil [profession] are evil. That's all.
Look, if Google earns x cents on a click from you, does it earn it on "less than a second's work"? It does not, because someone had to take the risk to acquire the necessary skills and contacts/reputation over a long period of time, had to set up an office and legal forms, had to acquire a rolodex, etc etc. There is a lot of risk involved. THe fact that the transaction itself, if sufficiently isolated, takes place in a blink so much as doesn't matter!
In fact, our system works such that people are not paid based on their (highly subjective) work effort but on result. Result in terms of what other people are willing to pay for your services. If you go down the slippery slope of "fairness" in pay based on effort, you will end up in pure, almost literal communism -- everything owned by the community, nothing for yourself, because there is no basis for judging effort from outside. Effort doesn't count, results do.
The mortgage problem is resultant, largely, because of lack of information between buyers and sellers. Note that I didn't say lack of information between a homebuyer's Realtor and the seller's broker. In economics, we learn about the concepts of buyer's surplus and seller's surplus. In real estate, there is this third entity (usually colluding brokers, agents, etc.) eating away, often entirely consuming all potential surplus. Why else would this mortgage meltdown have happened?
People make decisions based on information presented to them. Mortgage brokers and their Realtor friends go out of their way to throw up as many brick walls and make the process as overwhelming and confusing as possible. If you're a Realtor, you surely are aware of the antitrust case against the National Association of Realtors:
http://www.usdoj.gov/atr/cases/nar.htm/
Home buyers are usually required to sign STACKS of papers during closing. During this process, they rarely notice that one most important to the Realtor & Co which is the one they slip in there that states the "percent" that the Realtors are making and the "percent" that the brokers are making in the deal; this number is NOT mandated by any laws, but Realtors and Co. always give homebuyers the impression that it is; after all, all the other papers they're signing are supposed to be for their "protection". After all who would hire a Realtor who didn't claim to "be working for you"?
They talk dollars when it comes to house prices and percents when it comes to what they're making in the deal. This is evil, deceptive practice and it should be illegal.
I think most rational people would think twice about taking out a loan to pay five or six figures to somebody who calls shuttling around in an SUV and counting their riches "work".
I'm not even remotely "communist" as you seem to be implying; I simply think that this "rolodex" argument you're making is beyond outdated in the 21st Century.
After all, your risk-reward argument only makes sense if there's competition. And if you'll look over the DOJ case I linked to above, you will see that the National Association of Realtors does everything in its power to restrain competition.
Need more evidence? Watch the video:
http://themermaidtavern.blogspot.com/2009/02/realtors-are-ev...
As for the rest of your comment, please read my comment again. It says nothing about realtors about whom I know too little to say much. It is concerned with the meme that people seem to earn money "on a day's worth of work". I think it is in the same category as that investors earn money only by "skimming off" other people's "productive work". The transaction is only one moment in a long chain of preparation and risk. Whether it takes place over a second or a month does not matter. To make another outdated reference to the last century, Michael Jordan didn't earn his millions by winning this or that particular game for his team. It was years and years of preparation and taking the risk of ending up like the other 99.99 percent of ballplayers, i.e. with little money to show for his efforts.
The only job I can immediately think of which could fit the description of lots of money for very little work is that of Jamal's contestant in Slumdog Millionaire ;) And even there you can argue it is a long chain and that the money is earned through attracting the attention of many people.
One of the first things my wife and I did, after getting married (possibly even before), was to set up a budget, including line items for how much money each of us could spend without being questioned by the other.
I often see people who have gotten divorced sign a pre-nup, but people I've spoken with around my age group (20-25) seem to be adamantly opposed to a pre-nup.
20-somethings believe in "life long marriage".
[My will says that my burial/funeral is not to cost more than what i paid for my wedding, which, with rings, is less than a thousand dollars. With inflation, good luck to whoever is stuck with my dead corpse. Most likely by then the only thing $1000 will get you is a straw mat.]
lets start a poll: would you want a pre-nup?
http://online.wsj.com/public/article/SB120700651883978623-wV...
People change by health, hormones, situations, and children. That is a fact.
You don't seem to understand. The legal system in the USA is currently configured to crush fathers. A pre-nup is not a way to say, "hey, I want to be able to leave you and the kids and not pay a dime!", it's a way to limit the soul-crushing damage the legal system will do to Dad when Mom decides he's not making enough money and wants a divorce, and the kids, and the house, and child support, and alimony.
I think, basically, people make dumb decisions when they should make smart ones. Buying a house, getting married, writing a book, etc. are not things that you can rush because you really want to get them done. They take time. The people that get screwed when doing these things didn't invest enough time.
>> When I decide to marry someone, I am not going to treat her like a security or an asset or some other financial instrument -- she's a human being
Historically, what has failed most often? Securities or human beings?
I'd bet on humans.
A friend's friend got problems a decade ago -- wife left him, his company crashed etc. A while later, he was diagnosed with whiplash (I think, could have been mild brain damage) from a traffic accident. He probably can't work hard again, but has managed to build quite a good life.
I can tell you that I had (amongst other effects) something like personality changes when I had a painless tooth infection for quite a while.
Things like that are probably more common than we think.
Even if you could guarantee your emotional state for years to come, I doubt you can plan for changes like that. Usually, we tend to think of people as too static.
Fan of Catalyst, by the way.
Sure. But is it a good idea to protect yourself from an unlikely event in the future at the expense of hurting your partner right now?
Well, what exactly is the "rationale" behind getting upset by a pre-nup?
A pre-nup means two things:
-- You acknowledge the very real possibility that your marriage might come to and end.
-- In case it ends, the guy doesn't want to part with half of everything he owns (and possibly alimony etc).
So, do you get offended because your guy "doesn't think it will last"?
When someone in a job interview asks you "where do you see yourself in 5 years", you probably think it's a silly question.
Do you honestly think you can predict how things will feel 5 years from now, let alone for the rest of your life? As Prince said, electric word, life - it means forever, and that's a mighty long time.
Or, do you get offended because your guy doesn't feel like he'd happily give you half of everything in case you do get divorced, because that obviously means he doesn't really truly love you, right?
As a man, you could turn the whole thing around and declare that any woman who declines a pre-nup is not worth marrying because she only thinks of you as a bag of money - a financial instrument, if you will.
To me, both of these reasons for getting offended by a pre-nup are just nonsense.
EVERYONE is in love when they get married. EVERYONE says "for richer or poorer, in sickness and in health, 'til death do us part".
When I got divorced 5 years later I found out some legal details that made me rethink that position. Specifically, I found that even though my wife was a reasonable person and our split fairly amicable (as much as these things can be) that I wasn't necessarily off the hook for alimony. According to my understanding of California law, the judge can look at my divorce case and if he thinks my ex's income is too low compared to the mine then he can award her alimony even though it was not requested by her.
That opened my eyes and I saw pre-nups in a new light: They are just writing your own personal divorce laws so that you can be sure they are "fair" in your own eyes--They are not a sign of distrust.
It's like signing a confidentiality agreement in business. One party isn't assuming you're going to break the agreement, they're just spelling out the terms so everything is on the table.
Also, to the people who've responded to you and elsewhere that prenuptial's should be forced by the government; well they're already invalid. Forcing someone to sign a legal contract to do something considered a basic human right (it's considered a social right to get married) automatically invalidates a prenuptial that has to legally be entered voluntarily by both parties.
Such ignorance of prenuptial law is probably why a huge amount of prenuptial's are invalidated by judges.
He also names names on companies that "helped" him.
Seems like he needed a better divorce attorney.
You mean "child support".
Alimony is a payment directly to the ex-spouse, for the ex-spouse's enjoyment / benefit.
Sometimes in a relationship both parties agree that it is best if one party (usually the mother) puts aside her career in pursuit of raising the children. This party is at a disadvantage after a divorce, and in some cases it may be reasonable to compensate for it.
Ideally this should be a tiered system when payments wind down over time (but usually isn't).
That is, if the $4K/month is actually $3K child support and $1K alimony, the father's taxable income will be reduced by the $1K, but he's paying taxes on the rest. The ex-wife will pay taxes on the alimony received but not on the child support received.
This is one of the several reasons why women seek child support rather than alimony in divorce proceedings.
What the heck are you buying if $2,400 per month can't cover your expenses after the mortgage payment is taken care of?
I'm glad my wife has promised that I'll only leave this marriage feet-first.
ETA: whoops, I missed the part saying those were automatically deducted. Downmod me.
I'm sorry to have to be the one to tell you this, but those promises fly out the window as soon as times get tough.
No matter what you think she thinks of you, when the kids come and times get tough, she will look at you and weigh having you around vs. having automatic custody of the kids + child support + alimony.
They also had two kids. Kids are expensive; they genuinely require new clothing every year, lots of doctor visits, etc. Of course, if you're not too proud for it, you can get a lot of this stuff from friends and family with older children, but it's still expensive.
My reaction when I had some financial trouble recently was to quickly to cut back on food purchases and evaluate moving to a smaller house. However, fortunately I still have a positive cash flow.
I was surprised when he mentioned paying over $100 for cable/internet with all these money problems. If it were me, that would be the first thing to go and I'd move back to $5/mo dial-up.
Sounds to me like they were able to avoid any big costs (like house repairs), but their brains couldn't really understand the cost of recurring payments on so many small things.
I've been in that situation many times over the past twenty years (though never nearly to that degree!), and I don't regret spending $x when I was going to be short $(x*10) or more.
you have to think of the 10% cut as a 10% discount on your debt PLUS recurring interests. Heck even 1% matters when it comes to paying down mortgages and debt.
Anyway, I know a bunch of people that think the same way. I knew one girl who basically couldn't afford to eat - she'd go hungry for several days at the end of each pay period because there was no money to buy food. (Not too surprisingly, she ended up with an eating disorder.) But she had more "stuff" - big screen TV, DVD-player, IPod, home entertainment system - than I've ever had. Her logic was that a few hundred bucks might by food for a couple weeks, then she'd just be hungry again. Or it could buy a big-screen TV, and she'd be hungry longer, but at least she'd be entertained in the meantime.
When she put it like that, it almost seemed rational. Being able to save and invest for the future is a luxury I have because I've never really had to want for the basic necessities.
I can analytically get my head around why people end up in a mental state where they think that buying a television for entertainment is a higher priority than buying food - it has a lot to do with (IMO) the way the brain develops, and how that relates to culture. In other words, pattern recognition in the mind doing what it does best, over the course of someone's entire life.
The problem is that everything around you is fascinating. I guess it's not to most people, and I should just consider myself lucky that I never feel the need to buy a bunch of entertainment luxuries to keep myself entertained.
When she put it like that, it almost seemed rational.
Yeah, it does seem almost rational. Really, I guess it is rational, assuming one puts a really high value on being entertained constantly via external media.
Ahh, people's mindsets get me in a bad mood sometimes.
When you live in a suburb of Pittsburgh with a median household income of $23,000, where 20% of the population lives below the poverty line, and your day job consists of saying "Would you like fries with that?", and most of your friends are shooting at each other or getting pregnant, then maybe not everything around you is fascinating.
In my case, I was part of that socioeconomic class from birth to 16, but from 16-20 I was homeless, and from 20-right now I was very poor, far beneath the poverty line in the states.
I kept that sense of fascination, and I've met tons of people who are dirt poor, and have been dirt poor their entire lives, who have that sense of fascination. I've met fewer people with it in the middle and upper classes.
That's not to say that there aren't a whole bunch of very poor people who lack it. If I had to honestly guess, I'd say that it's somewhat related to intelligence, and how many different ideas someone gets exposed to while they're young, and that the percentage of folks who are fascinated by the world is approximately the same throughout classes, and that I just haven't met enough middle to upper class people in my adult life to know yet.
I really, don't think that it's a luxury of class. It may get affected by class, but I don't think that the effect is as big as you suppose.
That's the standard line, I know. But your comment about saving misses the point: I was talking about times and situations when you have no option to build savings; you can only choose to go into debt by amount x or amount x+x/10 (for example). In such a case, you cannot save your way out of debt. What needs to happen is a radical change to either your income or outgo stream; if you don't get that change, you're screwed, and it hardly matters how much, but if you do get it, then it won't matter so much if you went into debt a bit more before that.
A dollar saved is certainly not the same, conceptually, as a dollar earned. In particular, the act of choosing not to buy things can only save me up to my current income (in a given period), no matter how much I choose not to buy. So if I decide not to buy that HDTV, I can save $1500, and if I choose not to buy a new Mac either, I can save another $1500, but if my income was only $2000, it's hard to claim that I saved $3000 this period. Money saved is merely potential money, while money earned is real money.
More accurately, I wasn't going to argue with my fiancee over it, and she didn't want me to pay for it before we were married. She was worried about the reliability of her current car (I'd guess mostly needlessly), but since she is a social worker occasionally moving kids around and visiting rough areas, I don't blame her for that part.
I paid cash for a 1 year old vehicle 6 years ago.
No wonder we are in this mess.
"At any other time in history, the idea of someone like me borrowing more than $400,000 would have seemed insane."
Apparently at this time in history too, we just found a way to hide it for a while.
btw: I'm from Argentina.
...who, to be fair, made a very public "mea culpa" about his failures in personal judgment when faced with the possibility of buying a house he couldn't really afford.
I don't necessarily think this article was all that appropriate for HN, but I did think it was a compelling piece, because of the insight it offered into how even otherwise-rational people could make bad decisions about credit.
And how stupid can his wife be if she is still buying all this stuff?
These are the people who should be foreclosed on and never get a loan again. Open that house up for someone responsible
Looks like $220 is not per month, but rather for two months. Still, I agree they should cut down on their monthly expenses.
Also, what happens if the bank you borrowed the money from goes bankrupt? Is there a chance they will just get to keep the house, because nobody will ever come round to claim the money? If so, it wouldn't be so bad after all...
I had never seen that before, and honestly thought it was a warning about predatory lending...the person on the phone "you can do this" sounds like a drug dealer "just one hit".
...wow.
I also don't understand how he could have "near perfect" credit score when he had thousands and thousands of dollars of debt with massive interest rates.
Just goes to show that your income doesn't make a whole lot of difference if you can't control your spending. I pay all my bills and save about 10% of my income making $40k a year. And I really do have a near perfect credit score.
However, after looking on Zillow, I find things have either changed considerably in the last year or I misremember, since I can see a bunch of places for well under $400K around here, now. So, never mind.
Didn't the "going rate" turn out to be dumb and unsustainable for the nation as a whole?
Credit scores will stay perfect as long as they are paid off. Greater debt with no faults creates better FICO numbers.
It was a long personal emotional article for a general audience.
It wasn't about technology, entrepreneurship, science, or anything besides the personal and emotional journey into financial foolery.
I think HN used to be more narrowly focused, but perhaps I'm just imagining things.
I think this article belongs to HN because it's about a smart expert in his field who failed hard because of irrational decisions he made :
It questions expertise we acquire thanks to our education and experience. Can you be smart enough to avoid stupid decisions other people do despite being an expert and not them ? The answer seems to be that it's not an absolute truth. That's one lesson he underlines.
I can relate to this (and a lot of people here too) because I'm becoming an expert (as in "focused") in web development.
I find it deeper than you describe it, having several approaches possible.
Finally it's very well written and entertaining too ;-)
http://findarticles.com/p/articles/mi_m1355/is_n5_v89/ai_178...
Happiness is an occasional side-effect of living a good life, but it'll come and go.
Based on success statistics, startups probably don't make a majority of entrepreneurs happy either. But they still do it.
Assets earned during the marriage are earned by the couple and should be equitably split, but child support should be no more than 1/2 the minimum cost of raising a child (of course, if the father's not a prick, he'll contribute much more; but the govt. should not require him to) and alimony should not exist.
Am I a horrible sexist if I disagree with this?
Child support should represent the minimum acceptable contribution of the non-custodial parent (father, in the vast majority of cases) to the child's welfare. Should he contribute a lot more, in cash, gifts, and college support? Absolutely. I would. However, the government shouldn't require him to do so, and the spending should be at his discretion. Right now, that freedom is completely taken away. The custodial parent should not be getting a huge check and the freedom to spend the money however she wants. If I end up having a kid with a wife who divorces me to live it up with an illiterate biker, those CS payments damn better be going to the kid's college, not her beau's lottery-ticket budget.
It's a bizarre inconsistency. Parents can stay married and financially neglect their children. They can make $300k combined per year and still refuse to pay for their kids' college. Yet, if they divorce, the one parent who rarely sees the kids (usually father) is forced not to pay up merely to the minimum level of decency, but far beyond that if he's "rich" like the article's author.
Note that if you have a child out of wedlock the same things do not apply. Moral hazard anyone?
Of course you pay child support if you fathered the kid, regardless if you married the mother or not. It's the whole point of Maury Povich "You Are Not The Father" episodes.
But not alimony?
That's way too sexist for me (if that's what marriage is, then we should change it,) but I'm still not convinced that a man should be allowed to leave and only provide half the minimum support for his children. It seems like the woman is seriously getting screwed in that situation: she has to raise the kids on her own AND find > 1/2 the money to support them. Nobody gets married with that understanding, and nobody wants to.
If she thinks he might be a shitty father who only contributes the minimum, then she shouldn't marry him or have kids with him.
The law frequently provides protection for people who enter certain contracts, even when they ought to know better. For instance, if I loan money to someone who then goes bankrupt, I am entitled to some of their property. Even if it was a really stupid loan.
In this particular case, women aren't particularly good at determining whether a potential husband will turn out to be a scumbag, so it makes some sense for society to protect them against that possibility. (Actually, men aren't very good at determining whether a potential wife will be a scumbag either, so society should probably protect them, too...)
I did not know that. Admittedly, I don't have any examples that work quite as well. Maybe medical malpractice... or is that just a breach of contract?
Health coverage should really be provided by the government, but that's a separate issue. Also, individual health insurance on teenage boys is going to be cheap: closer to $150 per month than $1000/month.
School is provided by the government, for 12 years. College, on the other hand, is ridiculously expensive, but if the government isn't forcing married couples to pay for it (I know some $100-300k couples who paid nothing) it doesn't have a leg to stand on in forcing divorced parents to pay for it.
He has almost 3 times the disposable income as his wife in reality.
... and whatever she earns.
Taking care of teenagers after school is not a full time job.
But I don't understand why cjbos is getting downmodded for making a valid argument that $4k isn't that much money to raise a 4-person family.
IF the author points out that his ex-wife is now re-married, or is working and bringing home more than $4k blah blah blah, then yes, evil witch, bad system. But let's not jump to judgment here, guys, especially when the author himself hasn't vilify this woman.
I have no idea why it still exists, however.
I think most states stop alimony when she remarries, though, which is why women who want to play that game will have live-in boyfriends but not remarry.
> I was handing over $4,000 a month in alimony and child-support payments
So no, he did mean alimony and child-support.
I know an alarming number of counterexamples.
Also, everyone would be better off if these contingencies were all written into contract before marriage/child birth. It would save everyone a lot pain. Unfortunately, the judicial system has gradually replaced our great tradition of contract law with arbitrary rule by judges, much to the loss of everyone.
I think a lot of the problems with prenups is a chicken and egg sort of thing. If they were a standard part of the process they'd be less offensive.
Then there has to be full and/or fair disclosure (your spouse needs to know about that $50,000 you have put away). The other (possibly the easiest reason why prenups can fall apart) is that the agreement has to be entered upon voluntarily by both parties, so if your spouse only agreed to the pre-nup because you threatened a break up then the pre-nup is automatically void.
The sad thing is that if pre-nups were made into law then they would never be enforceable, because everyone would have been forced into them under duress. How can you voluntarily sign an agreement when it could prevent you from being legally married.
This is the heart of the matter. The courts have redefined the word "voluntary" in an unbelievably Orwellian way.
Younger, and let people just figure it out.
Marriage is very much a business relationship. I don't know when it turned awkward to acknowledge this fact.
Many, almost all?, people go to work for a company thinking that they'll spend a specified amound of time with it. Very few people that I know think that they'll spend their entire life there.
In fact in the financial industry it's a very accepted practice to jump around from company to company.
Even in the tech industry there are many people who graduate with a plan to work for a Google or Microsoft for a few years to get experience and then plan to go out on their own or to join another startup.
Contrast this with marriage were very few people go in thinking that their marrige is only a 4 year commitment and that they'll get divorced and trade up every 5 years.
What I don't understand is how we almost never hear of such people packing up and moving to some country which is hostile to US interests, or simply has weak record-keeping and is thus friendly to those who want to leave their past behind. Are all such countries mournful hellholes to live in? Surely not.
Seriously, if I were ever sentenced to the perpetual confiscation of over half of my income, I would run off - doesn't matter much where to. Perhaps the Somalian pirates - or North Korea - are hiring? I also recall once reading that France will not extradite a French citizen - perhaps you can become one? (They might still allow American debt collectors to find you, however. Does anyone know?) Seriously, just about any life is better than being a part-time slave, which is what such extortion amounts to.
B) When you get married you're making a very serious promise to share everything and build a life together. The state provided default contract for a marriage is very clear about the separation terms up front. If you don't like them, then negotiate a pre-nup with your spouse.
Good luck.
B) US courts routinely and capriciously invalidate pre-nups.
Also, the beginning and end.
There is very little functional difference between this guy and a bonded laborer from pre-independence India.
That sounds like it's slavery too.
Spend tax dollars educating and discouraging the borrower. This is valid because such conditions hurt the nation in the long run.
One solution would be to put an end to usury. Houses, cars, etc. will have to become far more modest, but in the end they will be affordable without debt slavery.
People should have the choice to borrow money from other people, and the people lending it should be able to make enough money to make up for the risk of the people they lend it to not paying it back. I don't think society needs to change, though.
So quit with this slavery nonsense. Slavery is not slavery when opted for, in full knowledge. Likewise, honest mortgages are no more slavery than education loans.
Honest mortgages and education loans are not slavery. Intentionally ignoring checks to economically subjugate someone... I am not gonna call that slavery but it's really not that far from it or at least thats how I see it.
No, he's suggesting that consent makes a situation that looks like slavery not slavery at all.
Anyway, what has
> If they'd been left behind, stranded far away from the "land of opportunity," would they have been better off?
got to do with consent?
That apart, informed consent cannot nullify a crime. That is a well accepted principle. You cannot give informed consent for murder and such stuff. There is a libertarian school of thought that wants to change that but I don't subscribe to that school of thought. Slavery under consent is just as much a violation of human dignity and just as much a crime as far as my views are concerned.
That apart, informed consent cannot nullify a crime. That is a well accepted principle. You cannot give informed consent for murder and such stuff.
If there's consent, there's no crime, though. You can't give informed consent for murder because if you gave informed consent, it's not murder, but "assisted suicide" or some such. Current law has lots of victimless and presumed-victim crimes, it's true, but I don't subscribe to that school of thought. :)
Screw Libertarian "consent." Screw their "non-coercion." They are Orwellian concepts: their in-practice meanings in that ideology allow for the exact opposites of what those words mean in everyday language to slide through and flourish.
This is only partially true. Food (and, due to the existence of land ownership, shelter) is more scarce today (in the sense of requiring more effort to obtain) than in the age of hunter-gatherers.
Not to mention, the need for "shelter" in a heavily populated world implies as much the need for protection from other people as for protection from the elements. Thus, in a very real sense, it is a need imposed on me by other people. Even the need for protection from the elements falls into this category. If there were few enough people, everyone could (theoretically) live comfortably in those parts of the world which have a temperate climate year-round.
Quite often false, in the ancient world. Debt slavery is probably as old as mankind.
Yeah, let's bring back Victorian work-houses. I sincerely hope that you and your family end up in one.
Agree. I was really impressed that he managed not to express any bitterness towards his ex-wife in the article. That says a lot about his character.