Public Service Announcement

Let me take a moment to depart from the usually light-hearted tone of these discussions in order to call to your attention one of the fastest-growing social problems ever to strike at the United States. It's a scourge that is causing loss of life and limb, permanent impairment even among the survivors; destroying families and causing untold heartache, pain and nausea to innocent custodial staff members nationwide. I refer, of course, to juggling lit chainsaws...

Okay, not really. The simple fact is, no one who lacks the natural ability, the perfect timing, the years of practice, the skill and the specialized knowledge would dream of attempting anything as hyper-spastically dangerous as trying to juggle a bunch of roaring, snarling chainsaws, the smallest of which could kill you in the blink of an eye if you make a single bad catch. Yet, for some reason, this does not keep hundreds of thousands of people – many of them otherwise sane! – from attempting to speculate in a field far more complicated (and in some cases even more difficult) than juggling chainsaws. I refer here to real estate speculation, particularly in the sub-prime mortgage market, and this time I'm not kidding...

Obviously, there are a lot of people who manage to make quite a lot of money speculating in real estate investments on the side; it's one of the most common means of wealth creation in this country. But the people who succeed in this enterprise don't just plunk down money they don't have to purchase property they can't afford on the spur of the moment; they invest considerable amounts of time and energy in learning about various markets, study economic trends and future indicators, calculate risks and returns, and stay away from the sort of all-or-nothing, death-or-glory flings that are so beloved of movies and fiction writers. Long-term success in real estate investing is just like long-term success in any other business activity: it takes time, it requires investment of effort and energy, and it doesn't always work. It's anything but a classic get-rich-quick scheme...

Unfortunately, most people DO just want to get rich, quickly, without any of that tiresome working, learning, studying, or putting up any of their own money. People who want to believe that they are too smart to play the lottery (but want the same huge payout for no effort whatsoever) will sometimes indulge in zero-down mortgages with preposterous payments and adjustable-rate loans that are nothing more than ticking bombs, never suspecting that they'd be better off with a handful of scratchers and a Powerball ticket. There was another story in the Times this week, about a couple who came to California, liked it here, and decided to stay and buy a house. A few years later they sold at a large profit, and used the funds to buy a larger house. That one sold even faster, and they doubled their money, which they then put toward the purchase of an even larger house. With an Adjustable Rate Mortgage (ARM), and then a second mortgage...

You see this coming, don't you? Sure enough, the real estate market slowed down, they defaulted on their second mortgage, and then their ARM "adjusted," almost doubling their mortgage payments. Congress is trying to pass some new legislation to prevent people in this situation from being forced from their homes, but it won't pass in time; the folks in the story are being foreclosed on right now. It’s impressive that they aren’t being bitter or angry about the situation; the couple in question say they weren’t victimized by predatory lending or fooled by bad sales people or screwed over with poor financial advice; they just got greedy and didn’t quit the game in time. They’re young enough to start over, and they fully intend to be smarter about things this time around. But that doesn’t change the fact that they are starting over in their late 40s…

Folks, the simple fact is that if it was easy to make a fortune in real estate, everybody would do it – and during the current fad for real estate investment, just about everybody tried it, with the usual fad results – a handful of people did well, everybody else lost their shirts, and the rich get richer enabling the foolish dreams of people who should know better. Of course, the mortgage companies are indulging in their own stupidity throughout all of these events. But that’s a story for another day…