Tuesday, March 24, 2009

You Have Got to Love a Good Mailbag...Right?

Why can’t I afford to buy and own a decent place?

-Lavelle (age 24)

DG: First thought: Thank god you cannot afford a “decent” place. You’re 24 years old in New York City…the average 2 bedroom 2 bathroom apartment is about… I dunno….800K! If you translate New York City real estate rates to more reasonable suburban terms, 800K gets you about 5 bedrooms, 3 baths, 1.5 to 2 acres, and a mini-van.

Also, if you put it in terms of Alaska cost of living, 800K would allow you to never work, play on snow-mobiles, marry a beauty queen, and live like a king. Don’t believe me? Just look at Todd Palin.

It’s ok . McCain choosing Sarah Palin as his running mate was still a good choice. I mean his only viable options boiled down to her and O.J . remember? Huh….wait you mean that’s only what I tell myself to make the night terrors go away? Oh good god.

By the way, the other day I saw a Palin 2012 sticker and I blacked out for about a half hour.

Back to the point, Lavelle, you’re probably thinking in terms of 2002…. where if you drove slow enough past a loan office with an open window, there was a good chance you’d be hit in the face with an approved mortgage. Back then people you’re age were getting outrageous mortgages approved and were getting 800K sort of places. This happened for maybe a ten year period (think mid-Clinton administration to mid to late Bush era), and created a whole half generation of people who were getting dream houses as starter homes at a very young age. But don’t confuse things; they, like you now, really could not afford the places they purchased. A large portion of those folks who bought those homes were among the first to default on their mortgages when the housing market leveled off and interest rates rose (the lion’s share of those wrongly approved mortgages were of the adjustable-interest rate variety). If you think of the housing industry trouble as a giant balloon, than these young people with large homes were basically a long rusty nail. POP!

It’s a good sign that you’re 24 and interested in a real estate investment. I also like thatr you’re level-headed enough to realize you can’t afford it. Maybe we have turned a corner. If there were more around like you 10 years ago maybe this economy would not have gone in the crapper.

What’s a better day to “take off”: Friday or Monday?

Playing hooky
-Nassau County, NY

DG: Definitely Monday. Although I do appreciate the two schools of thought at play. On the one hand, if you play hooky on a Friday, it allows you to go out Thursday and then move seamlessly into “weekend mode”. However, not showing or calling in “sick” on a Friday is a serious red flag. Your boss is sure to take notice. Could very well hurt your long-term employment potential.

I much prefer taking a Monday. In terms of total hours of work missed (my usual priority), this is the preferred route to take. Most Fridays end up being the shortest work day of the week in terms of hours. It is acceptable to both come in later AND leave earlier than usual on a Friday.

In addition, if you come in a little hung-over on a Friday morning after a boozy Thursday night? No problem Thursday is the new Friday. You’re co-workers will love the stories about your late night escapades. You’ll be the mayor for a day and an office-hero!

You come in hung-over on a couple of Tuesdays? People will whisper about your drinking problem, and you might have to pencil yourself in for a “meeting” with human resources.

Another good reason to take a Monday off? You won’t have to answer the “so…how was your weekend?”, “who’s got a case of the Monday’s”-esque questions from everyone and their mother all day long on Monday.

Your last post was interesting. What are your thoughts on "revamping" the economy?

-New York, NY

DG: Glad you enjoyed the post from the other day. Your question is a pretty complex one. It’s going to take a little while for the economy to fully rebound (I’m thinking fourth quarter this year, or first quarter next year) and there are a number of different buttons that government and regulators will have to push along the way to help us get us there.

I believe they MAY have pushed the correct one last week and yesterday when Timothy Geitner released the “Toxic Asset Bailout Plan” to buy up $1 Trillion (yes, I didn’t know that was a real number either) worth of toxic assets. These assets refer mainly to mortgage-backed securities that remain on bank balance sheets.

The reason I say this plan MAY work is that it will be successful if it does two things: 1) adds liquidity to the lending markets and 2) instill general market confidence.

Market liquidity is a big problem right now. People and institutions with cash are very wary about lending it out….especially cash strapped banks. This plan will essentially dump cash into the economy (by way of the banks), creating liquidity in the lending markets, and make borrowing between people and institutions more feasible. Think of cash as a little WD-40 on a creaky wheel. Makes it run smoother. This is a very good thing. Having liquid lending markets with “buyers” and “sellers” being able to match up essentially drives a capitalist system.

It is very important that the government show the general consumer public that they are making efforts to turn this poor economy around, even if the plan is largely a placebo. I don’t know if this “Toxic Asset Plan” will be a catalyst in turning the market around, but it’s something. It at least is an attempt to show people that the government is trying something.
There is some precedent here. Look at your history books. Many of FDR’s New Deal policies were also little more than a placebo. Hell, by and large, most of his public works sponsored programs were little more than having ten guys dig a whole and then having ten different guys fill it back in. But it worked. People believed in that and in him because they wanted to have hope.

People now are maybe a little les naïve then back in 1932, so I think public “hole-digging” exhibitions are out of the question, but people still want to have hope. They still want to believe that the government is going to do something to turn this mess around. The irony (or beauty…depending on how you look at it) is the belief that the market will get better is largely a self-fulfilling prophecy. The more people believe the economy is on the upswing, the more likely it actually will begin to be.

I’m not exactly on the Obama/Geitner bandwagon with this thing just ye, but I hope it does help.

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