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Source link: http://archive.mises.org/17334/%e2%80%9ci-don%e2%80%99t-think-people-can-stay-stupid-forever-%e2%80%9d/

“I don’t think people can stay stupid forever.”

June 17, 2011 by

Underwater homeowners in North Las Vegas are starting to wonder why they are sending good money to their mortgage holders after bad.  Helens Pouroff Avenue, with 69 new homes sold at the top of the market in 2006, illustrates the boom and now bust in the Las Vegas valley.  Dayna and Scott Merritt bought their  2,000 square foot home on that street for $385,000, but five years later it will only fetch $180,000 and the couple is wondering if they should keep paying for a house, that may never be a (net) asset.

“We’ve stuck it out. But there’s been no ‘attaboy,’” Dayna Merritt, 43, a substitute teacher told the USAToday.  ”We’re paying on something that seems like it won’t work out for us.”

The Merritts put $80,000 down, and still Scott’s father has determined that the couple will remain underwater until 2020.   ”Every month,” Dayna Merritt says, “I ask myself, ‘Why are we paying this?’”

USAToday’s Julie Schmitt writes,

Last year, Helens Pouroff saw just one new notice of default after 17 were filed in 2009, according to public records tracked by researcher ForeclosureRadar. This year, four homeowners who bought in 2006 have defaulted, public records show. “There’s two types of people,” says Dave Peterson, 38, a former Helens Pouroff homeowner. “People who see it coming and do something right away, and people who try to hold on until something forces them to let go.”

Peterson bailed on his Helens Pouroff home and the $3,000 monthly payment in 2008, declared bankruptcy, and moved on.  His father can him irresponsible, and he had trouble finding a landlord who would rent to him with his poor post-BK credit score in the 500s.

But now his credit score of 680 is close to A paper territory.  “I think we’re in a good place now,” Peterson says. To have stayed on Helens Pouroff, he says, “would’ve felt like prison.”

Tamara Lemmon also walked from her home in ’08 and filed Chapter 7 bankruptcy.  Defaulting still nags her, but leaving Helens Pouroff “was absolutely the best financial decision.”  Her only regret is that she didn’t do it sooner.

Those that just walk run the risk that creditors will pursue judgments against them years into the future.  However, Schmitt writes,

Nationwide, lenders have not been aggressive in pursuing foreclosure losses on a broad basis, real estate attorneys say. But they still have time, and many will likely sell such cases to debt collection agencies, says Florida foreclosure defense attorney Roy Oppenheim.

Belinda and William Haag put $82,000 down on their on their Helens Pouroff street home.  The couple pays over $2,000 a month on the mortgage. They could rent the same house for half that.  The Haags are hoping to short sell, but will walk if the lender won’t cooperate.

Some analysts believe that the number of strategic defaults has peeked, but these stories tell the real story.  Those who are paying are wearing down; financially, mentally and emotionally.

Real estate service Zillow says 85 percent of Las Vegas homeowners are underwater. CoreLogic believes 66 percent of Nevada homeowners owe more than their homes are worth.

“I do have concern because as the prices go down further, it might provide more incentive for people to strategically default,” Nasser Daneshvary, director of the Lied Institute for Real Estate Studies at UNLV told VegasInc. “They still owe the same amount of money to the banks, but I think it’s getting bad enough that the ethical issues become less important to people.”

And the market continues to worsen. Financial services firm Fiserv, which produces the Case-Shiller Indexes, has predicted a 20.9 decline in Las Vegas home prices combined in 2011 and 2012, leading broker Frank Nason to worry,

Friends and associates that would have never considered walking away a year ago to 18 months ago are. It’s about the dismal outlook going forward. They see it’s going to take a decade before there is any daylight in their house.

Richard Plaster, the president of Las Vegas homebuilding company Signature Homes, and a leading advocate for people to walk away from their homes, says when people see corporations walking away, the idea is more palatable.

“I don’t think people can stay stupid forever,” says Plaster. “It is definitely going to go up if prices are going down. People who keep paying on their mortgage are going to lose.”

{ 28 comments }

J. Murray June 17, 2011 at 11:23 am

Between the interest and taxes on that propery, the total amount sunk into a $385,000 house with $80k down is $733,805.14 assuming a 5% mortgage, which is likely what they got because 5% over 30 years is right at $2,000/month. And this isn’t factoring in the maintenance costs of keeping the place up. Basically, there is no way in the depths of hades that this house will ever NOT be underwater.

Housing isn’t an investment. It only looks that way if you conveniently ignore all the costs associated with buying.

Brent June 17, 2011 at 11:57 am

I hate that they talk about the “ethical” issues of walking-away. The contracts specifically use the house as collateral! It’s not like the mortgage-payers are stopping payment AND keeping the house… they are simply telling the bank that it can have the house.

Michael Sparks June 17, 2011 at 12:11 pm

Exactly, and heck they gave the bank $80K as a “rent” payment. I would have walked 2-3 years ago.

Repeat after me, A house is not an investment.

Hari Michaelson June 17, 2011 at 9:25 pm

I completely agree. It is amazing the brain washing people have undergone. Somehow abiding by the rules of the contract has turned into an “unethical” action.

On a different note: yes people can stay stupid forever.

HL June 17, 2011 at 1:51 pm

“I don’t think people can stay stupid forever.”

I do.

coturnix19 June 17, 2011 at 8:18 pm

hell yes, they can even go stupider!

The Anti-Gnostic June 17, 2011 at 1:59 pm

“Richard Plaster, the president of Las Vegas homebuilding company Signature Homes, and a leading advocate for people to walk away from their homes…”

I’ve been pleasantly surprised by the number of contractors and brokers who’ve told me that the government should just let the correction happen.

Darren June 17, 2011 at 2:14 pm

For the banks to pursue judgments, they would have to have clean hands, which could result in some ugly discovery regarding the banks’ role in inflating the home values to begin with.

a human being June 17, 2011 at 3:25 pm

they signed a contract. It is not my fault that these people are as stupid as the day is long. They figured that they would benefit from the raping of others and they still don’t understand why everything is the way it is.

screw them and their houses. rot in them and starve is what should happen to these charlatans. one should not be able to shirk the responsibilities of one’s ineptness.

i don’t feel sorry at all for these losers

Walt D. June 17, 2011 at 3:35 pm

“I don’t think people can stay stupid forever,”
Keynesian Economists? No. Why? -”In the long run, we are all dead.”
However, they can stay stupid for as long as they live, and pass their stupidity on to the next generation.

Windows Hater June 18, 2011 at 2:56 pm

That’s the tragedy, death does not exist. You cannot BE dead. You can only BE alive.

If you ever have any business at being, you will have to do so through life. You cannot be through death. You will only have experience and consciousness through life. Death cannot in itself be experienced. You can die and you can experience the process of dying. But you cannot experience the process of being dead because that doesn’t exist.

Now, those who say that after life there is nothing. Well how can you be so sure that this nothing will last forever ? How can nothing make the difference between before and after since nothing is nothing ?

If nothing cannot make the difference between before and after, we can conceivably say that before and after don’t apply when it comes to nothing.

Given the fact that you are alive today, this means that “nothing” is a condition that cannot remain satisfied and that it decays into life.

Therefore, stupid is forever.

Demonstration over.

Smallbusinessman June 17, 2011 at 7:44 pm

Before I ever missed a payment, the bank slashed my business equity line of credit to the balance owed, cut my business and personal credit rating from 780 to 535. And almost doubled my interest rates because of this. I used my credit and debt to income ratio according to a financial plan based on developing better credit ratings and limiting tax liability, if you didnt do this you will pay all of youre income out in tax on profit. And pay very high interest rates on a home mortgage if you even qualify at all. This system was engineered by banking and government through lobbyists. So faced with financial crises I layed off all my employees, filed bankrupcy, defaulted on all of my debt, moved into a rental house with an amount of equipment and clientele I could handle alone. In the ensuing months I saw business drop by 40 percent industry wide. Had I not done what I did, I would have lost everything and owed thousands in taxes and their associated penalties. banking has enjoyed a huge helping hand from taxpayer dollars, government has devalued the dollar and cut deductions to everyone but the industry they loan free money to, by losing deductions and credit ratings I cannot operate at the scale I can have employees at, thus contributing to to economic depression against my will(I loved my employees and miss them) while property taxes continue to rise. So, I don’t feel one bit guilty about going bankrupt and defaulting on my home mortgage. What incentive did I have to pay it? My credit ratings and my property values were destroyed before I ever missed a payment! Why would I pay for and maintain a home worth 1/3 of what I pay taxes on?

HL June 17, 2011 at 8:43 pm

Smart move. Bankruptcy is a legitimate business tool, especially if you are stiffing banks and certain large capital guys. I cry at the sight of small business men thinking it’s somehow not okay. I suspect the same guys mindlessly recite the pledge of allegiance at sports and other events.

Virginia Llorca June 18, 2011 at 11:51 am

A close relative had three contracts, all squashed by inspectors claims of possible mold. (A bottle of Clorox cleanup. . .) So the person is doing deed in lieu of foreclosure. The contract promises a cash bonus of $2000 for avoiding the foreclosure process and also states and restates and has you initial the statement, that it WILL NOT come after you for the difference in what you owe and what they get. Since they are probably getting all that money from the feds, they basically will own a home that they can sell for forty grand pure profit. Bank of America. No kidding.

Windows Hater June 18, 2011 at 2:51 pm

There is one thing that I find disingenuous about libertarianism and the free market.

Under free market capitalism, only the consumer masses reign supreme and decide who is a success and who is a failure. But it has been proven by history and genetic science that the masses are stupid. So really, what this means is that under normal free market capitalism, only stupid products that appeal to the masses stupid instincts have success.

Also, intellect is a coin with two faces, one face is stupid, the other is brilliance but both are the same coin. Nobody is always efficient and bright and right and nobody is stupid all the time, otherwise the world would be halted to a still.

Also, to say the word stupid is itself very stupid. If you will not quantify nor contextualize what you are talking about, you could replace the word stupid with intelligent or yellow, or dark and it will be the same.

If you cannot measure and quantify the stupidity and you cannot contextualize in which conditions it ought to be called stupid, then your message is useless.

Also, libertarianism teaches that humans are subjective. Therefore much of what passes for stupidity is in fact subjectivity and this cannot be measured by quantified and standardized methods and therefore cannot be qualified as stupid.

Vanmind June 18, 2011 at 3:59 pm

“…much of what passes for stupidity is in fact subjectivity and this cannot be measured by quantified and standardized methods and therefore cannot be qualified as stupid.”

If you’re posting your opinion on a blog, it is both subjective and valid. I think the messy pseudo-intellect that you’re almost pointing out is the “all things must be quantifiable through scientific methods” canard known as positivism. Hell, those “standardized methods” you seem to admire are themselves based on someone’s previous subjective valuation of various alternative methods for quantifying things. Things most certainly can be qualified by each individual without ever having been quantified — it’s called “everyone’s entitled to their opinion.” In other words, each person’s taste is at all times perfect.

Everything that each of us owns and values exists because of whatever’s left of humanity’s market-based exchange activity (i.e. catallactics based on individual praxeology based on individual subjective valuation). Your attempts to categorize “the masses” as choosing mostly “stupid products” is itself a subjective valuation, an opinion. Tell you what: I will value your opinion about the “stupid masses” if you can quantify it (actually I could not do so even if you tried because I would consider the quantification as being based on invalid positivist methodology — invalid “in my own opinion” because of my subjective valuation regarding positivism).

To paraphrase a bottom line: socialist tyranny stems from someone saying “I don’t like tacky Hawaiian shirts and therefore if no person is allowed to have a tacky Hawaiian shirt there will be more capital out there to create the products that I like and that all people should like.” Totalitarianism is an amalgamation of coerced shoulds.

Then again, maybe I’m just blowing so much proverbial smoke. I would appreciate a lesson about how society can keep the so-called “proven by history and genetic science” stupid masses from using their income to acquire such “stupid” things. In fact, I would appreciate a lesson about how the phrase “proven by history and genetic science,” when used within the context of describing “the masses,” is rooted in something other than opinionated eugenic bigotry.

Windows Hater June 20, 2011 at 12:24 pm

You did not read me correctly, your subjective bias made you think that I complain about the fact that not everything is quantifiable.

I do not complain, I in fact understand that life is also irrational, emotional, subjective and that everything is not quantifiable. If everything was rational, “intelligent” and quantifiable, we would live in an extremely sinister world.

I’m just saying that “stupid” people make “stupid” decisions based on feelings and emotions and not on what will give them a financial or other kinds of advantage.

People will want to join the flock like sheep. Surely the Vancouver riots, you would not call that “intelligent”. It was quite “stupid” to act that way just to join the flock and let off steam. That’s what I am pointing at. The masses don’t make decisions based on returns, profits, utility. From my utilitarian and quantified subjective point of view, I find that stupid.

Yet, “stupid” people have made fortunes by catering to other “stupid” people’s wants. So go figure, I found out there is no logic in all of it.

But I get your point in that intelligence and stupidity itself, because it’s all based on subjective volition, is non quantifiable.

Virginia Llorca June 18, 2011 at 6:58 pm

But this is a purely semantic issue You are dealing with. Anyway, we are back to the ole yin+yang=Tao.

Conceptualize, contextualize= horseshit and gunsmoke. We’re talking doallrs and cents here aren’t we?

Virginia Llorca June 19, 2011 at 12:05 pm

Further–cuz this is practically to the point where it is getting so bad it keeps me awake for a few minutes–Stupidity is one side of the stupid coin. The other side of the stupidity coin is stupidity. Brilliance is one side of the Brilliance coin. The other side is Brilliance. It is a coin, not a freaking philosophy analogy. Or simile.

Windows Hater June 20, 2011 at 12:26 pm

I found out that there is this part in life that resists all analysis, all attempts to explain, all acts of study. There is a place for stupidity and sometimes stupidity is both useful and “smart” and contributes to the advancement of this world.

Michael June 18, 2011 at 11:32 pm

“But it has been proven by history and genetic science that the masses are stupid.”

So you’re tastes are informed and the masses are stupid? Regardless, even if I was to agree the masses are irrational how can you find allowing them to make economic decisions for themselves disingenuous?

If you’re referring to the ‘irrationality’ that lead to people buying at the peak of a housing bubble I think you’ll find the culprit isn’t irrationality, or stupidity, rather it’s a decade of 0% interest rates and monetary expansion.

Windows Hater June 20, 2011 at 12:32 pm

The masses are industrious grunts, they are being exploited by the system to perform the bulk of the work. The working and breeding masses are basically exploited into running on a treadmill to power this world and they get little in return and yet the do it nonetheless.

That’s what I call stupid, not realizing the world treats you like cattle and herds you all the way up to the slaughterhouse.

But I realized one thing, trying to be completely efficient and calculating is the most stupid thing you can do because this prevents you from seizing other opportunities and there are opportunities on the “stupid” side as well.

I am not more informed than any body else. Just my stupid opinion, LOL :-D

The logic of human dynamics and life just seems to resist all attempts at analysis and reductionism. What may seem like stupid individually is required as a whole.

I haven’t found the truth.

Windows Hater June 20, 2011 at 12:50 pm

“how can you find allowing them to make economic decisions for themselves disingenuous?”

Oh by all means, I do allow them to make economic decisions. It has been proven by history that the most stupid thing to do is to try to protect people from their own stupidity. Communism and socialism, by trying to prevent “stupid” people from making economic decisions, is producing much worse outcomes than letting stupid be and correct itself along the way.

Freedom is about being free to make stupid decisions, not just right decisions.

By irrationality, I was not thinking about investing in housing. I was thinking about Justin Bieber, Michael Jackson and how people are such tools and cock suckers when it comes to artists and performers and will abuse themselves and lack respect for themselves, making the performer rich by kissing his ass buying a ticket. That, in my own subjective stupid opinion is the epitome of stupid.

Yet, I’m not much brighter myself when I waste money at the movies or at the arcade. I make many stupid decisions myself, what’s worse I know it is stupid and I am aware that I am making a stupid decision, unlike the masses who don’t even think about if it’s stupid or not.

Yet there is a market for “stupid” because Justin Bieber is rich, famous and the most watched videos on youtube come from him.

The masses will not make decisions based on efficiency and utility. They will make decisions based on feelings. I find that stupid. Yet that’s what makes this world go round. There seems to be a huge important place for “stupid”.

Richie June 18, 2011 at 7:33 pm

“But it has been proven by history and genetic science that the masses are stupid.”

Sources? Where is this proof? Also, what makes you the authority on the definition of “stupid”?

Windows Hater June 20, 2011 at 12:43 pm

There are only 2% geniuses and the rest are of average intelligence. The Bell curve.

Nature seems to be organized in the form of strong armed industrious masses controlled by a minority of intellectuals all controlled by nature’s pulses and instincts.

“Also, what makes you the authority on the definition of “stupid”?”

I will have to focus on a narrow special occurrence of stupid and forget to try and define it as a whole.

Don’t you find it stupid that people go crazy over superstars instead of working on themselves ?
Don’t you find it stupid that people marry and have kids and then pay for it all instead of working for themselves and saving all the money on themselves ?

Don’t you find it stupid that people work their butts all their lives to pay their houses and then retire ?

To let yourself being treated like cattle, this is stupid. I might not be an authority on the definition of stupid, but I do know that even though people make decisions based on subjectivity, they do suffer the consequences of those decisions.

Somebody who takes up too much debt and then is having trouble paying up his debt, you won’t call that stupid ? You will call that efficient subjective choice perhaps ?

I understand that “stupid” is unquantifiable, subjective, depends on context etc. But still, you must agree that people make bad decisions and that it could be appropriate to qualify those decisions as stupid, even if people have the right and freedom to make those decisions.

Ron Paul himself says that people have the right to make mistakes, thereby he calls doing drugs a “mistake”, he was polite enough to not call it stupid.

Yet, a world where everybody made the “right” decisions would not be functionally possible. It would seem that our system fuels on stupidity, naivety and gullibility.

It’s stupid for me to buy a donut because it gives no nutrition, it costs money for nothing and gives me unnecessary calories and puts me at greater risk of diabetes. This decision that I make from time to time is stupid because it’s based on feelings and emotions, not on rational calculations.

Yet, a life based only on rational calculation is tasteless and pointless, so I don’t know what to think. When you are rational and cold and calculating all the time, you come up with the conclusion that life itself is not necessary.

Michael June 18, 2011 at 11:29 pm

If in 2006 they put that $80000 evenly between gold (approx 650, now 1550) and silver (then approx 9, now 37) they’d be sitting on a pile worth approximately $260000 and could buy their dream house outright.

Why doesn’t Nasser Daneshvary consider the ethical issue of money created from air by the bank to lend for buying the house? In fact as a comment above notes, why does he even think defaulting on a collateralised loan is an ethical issue?

DayOwl June 20, 2011 at 9:41 am

The sticking point is the assumption that the risk should be borne by just one party in the contract, and that the other party, in this case, the bank, should be shielded from any inherent risk. Thanks to years of bank lobbying, the banks are relieved of the majority of the risk anyway. Homeowners, on the other hand, are supposed to bear the brunt of the risk, even if it destroys them financially. The double standard doesn’t hold up well to scrutiny.

I read somewhere that the only capital truly at risk in a mortgage situation is about 11% of the loan. (Fractional reserve banking.) After three years or so of payments, the initial capital is paid back. Anything else is just gravy for the mortgage banker. If a substantial down payment was made, then fewer payments are needed for the bank to break even. Why do you suppose the banks weren’t worried about the massive number of foreclosures sure to result from the sub-prime markets?

So, the mortgagee walks away and the bank still has the house. They’ve already made back the initial investment. They also get the proceeds from the house. But wait! There’s more! If it was underwritten or guaranteed through Phoney or Fraudie, they get to collect even more money in the foreclosure process! Win, win, win.

Bookkeeping Brisbane August 24, 2011 at 4:05 am

There are just those people who would want to fool others just to gain money.

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