Like Hamsters In A Wheel

In Tom Vanderbilt's new book "Traffic", a man questions those people who complain about being stuck in traffic jams. Don't they understand, the man asks, that "they are the traffic jam." It's true. We complain, and yet we are all collectively a part of the very thing that we complain about.

With that in mind, I'd like to address a similar question to those who complain about the financial crisis, as though it were some kind of "Wall Street" phenomena. Really? Take a look around you, friend, and ask yourself just who is this thing we're calling a crisis. After all, wasn't it the credit bubble that bought you that new house, and that new kitchen, and that luxury SUV sitting in your driveway, and all those designer fashions hanging in your closet? Wasn't it the credit bubble that bought you those Caribbean cruises and paid for that college education? Isn't it you that spent beyond your means and is now looking to the government to stop the carnage and, in the process, secure that financial house of cards you've built for yourself?

Of course not. It's those flim-flammers on Wall Street who were the greedy ones. You'll hear no mea culpa's here. Too bad, though, if in our rush to punish others we end up punishing ourselves. Too bad, if the cure turns out to be worse than the disease.

Take the housing market, for instance. It always amazes me when people ask "when is the housing market coming back?", as if the real estate market were just experiencing some momentary indigestion and would soon resume its double-digit climb into the eternity. Well it might, but then again, not so fast. Consider, for example, that thanks to the rapidly deflating credit bubble, the days of no money down, stated income loans are probably not coming back anytime soon. Since those types of loans were a major fuel for the housing boom, their disappearance is going to make it tough to reignite the housing market. Think about it - first-time home buyers are going to need actual money to buy a house (20% in most cases). Good heavens!

Here in the Silicon Valley, 20% means a down payment of at least $80,000 to buy even the tiniest of Condominium units. Now I don't profess to know what's in your wallet, but I think there are a lot of people around here who barely have enough cash in the bank to keep their checking accounts afloat, let alone an extra $80k or so to put down on a house. If their stock options pan out or if they've managed to salt enough away in their 401k's then maybe they can swing it. Otherwise the first-time buyer is going to be in trouble.

That's not good for real estate. The high end of the market will still be ok, of course, because the person who can afford to pay millions can probably afford to pay cash. The entry level of the market, though, is going to need credit, and it looks like that is going to be hard to find. So how exactly is the housing market going to rebound without qualified buyers? I'll let the experts on TV figure that one out.

Oh, and I haven't even mentioned the politics. As you may have heard we're in an election year, and Washington is fairly tripping over itself with new ideas on how to save the economy. In this climate even bad ideas are better than no ideas, and don't be surprised if Congress and the new administration manage to over regulate themselves from this mess to an even graver one. Maybe I'm just being a cynic, but as you listen to the proposals that are sure to come out of Washington, ask yourself not "how do I feel about that", but rather "if I was a lender how would I feel about that?"

The problem, after all, is to get the lenders back to lending money, and the more onerous and unprofitable our political leadership can make it for them to lend, the less likely it is that you'll be getting that new mortgage you want. I don't have a crystal ball, but just keep your eyes and ear open over the next 6 months or so and see what happens.

In the meantime, my solution is to just relax and not lose any sleep over this. If you're lucky enough to have no debts and be out of the stock market, then this whole financial crisis doesn't really affect you anyway. Instead, just do what I do - fire up your bike and go for a ride. Winter's coming so enjoy a little sunshine. If your bike isn't running, then watch this little video and take a ride with me instead. Believe me, I know it's a boring video, and I freely admit that the worst aspect of being an amateur photographer is the constant need to force others to feign even the slightest interest. I won't be offended if you decide to skip it, but it's got to be better than sitting around waiting for the world to end.

Or maybe not...




Sunday Ride - California Highway 84