Bacon's Rebellion

Democracy Thrives in Sunlight

IT IS MainStream Media’s FAULT

—

by

James A. Bacon
in

A teaser on the front page of today’s WaPo says:

“Outlook
“Feeding a Gloomy Monster
“Research shows that media news reports can affect consumer confidence. So how much of the current recession is the media’s fault?”

The answer is simple:

MainStream Media is largely responsible for the current economic crisis.

But not for the reasons that Eric Weiner explores in his story “The Year of Living Gloomily: The recession is bad enough. A relentless news cycle is making it worse.”

Most of what Weiner is true, or mostly true, and is well worth reading. But Weiner’s ‘reasons’ only spotlight the pitfalls of creating a Regional, nation-state or Global economies that are driven primarily by consumer consumption – when the consumers are uninformed about the cumulative consequences of their actions.

The truth is citizens do not pay all that much attention to “the news.” That has been documented by a much larger body of research than the one Weiner cites. MainStream Media likes to pretend that citizens pay close attention to their content and thus their advertising. That is the only way they can sell advertising. That is also why they run stories like Weiner’s rather than drilling down to the real causes of civilizations dysfunctions and it discontents.

Sure, bad “news” feeds on itself and saturation coverage leverages bad decisions for the reasons that Weiner outlines. However, what is REALLY driving down the consumption-dependent economy is what is happening in:

The Household – “We owe more on the mortgage than the house is worth.” “Our monthly out-go exceeds our in-come.” “Our credit interest card rate just went up again.” “We cannot refinance again to get cash to pay the doctor bills, buy a new car or make a weekly trip to Charlestown Races and Slots.

The Dooryard – “Joe and Martha have filled for bankruptcy.” “The people across the street cannot afford to get their roof fixed.”

The Cluster – “Did you see what that house on the next street is listed for?”

The Neighborhood – “Two more stores closed at the Neighborhood Center.” “Wal*Mart has that for a dollar less.” See “THE PROBLEM WITH CARS – Learning from Big Boxes.”

The job – “There is talk of more layoffs at the office.”

The family – “Our daughter who went off to with her new college degree to Atlanta and then started a business with her partner said at Christmas dinner that she may have to move back …” “Great Grandad did not put a college fund check in each great grandchild’s holiday card because his retirement account is frozen by the bank…”

And in the Village, the Community and the Region.

In other words what is driving down the economy is…

The unsustainable consumer driven economy.

So why is MainStream Media to blame?

As noted above, citizens and their Organizations (aka, consumers) are uninformed about the cumulative consequences of their actions – the cumulative impact with the most widespread and unsustainable impact is dysfunctional human settlement patterns.

Telling citizens the truth about Mass OverConsumption kills MainStream Media ad revenue.

As noted in GENERATIONAL GENERALIZATION:

The emerging reality is Collapse of the Mass OverConsumption ‘civilization.’ It is on the brink of Collapse because those at the top of the Ziggurat have been wasting Natural Capital to:

• Pay the total cost of a ‘driven-to-frenzy-by-technology’ society, much of which has been written off as ‘externalities,’ and

• Subsidize the full cost of dysfunctional settlement patterns.

The role of MainStream Media is complex. One view is spelled out in THE ESTATES MATRIX. Since 1973 MainStream Media has abandoned the Fourth Estate become a Second Estate Enterprise. Since MainStream Media must live off of advertising, truth about the impact of Mass OverConsumption is toxic. Every MainStream Media employee knows that illuminating reality is cutting their own throat.

MainStream Media driving consumption drives profits and profits buy the publishers / owners of Media Enterprises trout fishing retreats in Montana and the fox hunting estates in the Piedmont.

That is not “bad” if citizens had the information they need to make intelligent decisions in the voting booth and in the marketplace.

Citizens do not have that information.

Those who like to think it is their duty to inform ‘the public’ are out of a job and / or will lose their job if they challenge the Myths that “growth and consumption raises all boats” and that “competition without an informed market fairly – or sustainablely – allocates resources.”

EMR

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30 responses to “IT IS MainStream Media’s FAULT”

  1. Ray Hyde Avatar
    Ray Hyde

    The unsustainable, consumer driven economy?

    Is there any other kind?

    Seems to me that it is eithe consumer driven, or there is no economy, which would be, by definition, unsustainable.

    ?????????

    RH

  2. Ray Hyde Avatar
    Ray Hyde

    People frequently owe more on their car than it is worth, but they don’t seem to freak out over that.

    Why do you suppose that is?

    RH

  3. Larry G Avatar
    Larry G

    what does it mean when folks from the left and folks from the right – and folks with all sorts of different views agree on one thing – that the mainstream media is at fault for not telling people the “truth”?

    and what does it say about the folks who hold these various views that .. the cause of a stupid and uninformed public is the mainstream media?

    We want a ‘free” press to be able to tell it like it is from any/all quadrants of viewpoints but then when they don’t tell us what we think they should be telling us – they are evil and deserve to be reviled.

    in short – people are stupid and uninformed because they read the wrong stuff….

    not that they don’t read at all mind you – but that they read the wrong stuff….

    ahem

  4. Anonymous Avatar
    Anonymous

    MSM is not relevant anymore.

    People say other people read the wrongstuff because you can pick whatever “news” you want

    “News” anymore is just another wing of politics

    NMM

  5. Anonymous Avatar
    Anonymous

    Would someone please tell “RH” that a sustainable economy depends on informed consumers, not deluded consumers?

  6. MIGHTYBIGMEDIA Avatar
    MIGHTYBIGMEDIA

    “Main Stream Media” may add to an atmosphere of angst but what is driving the economy into a ditch are the realities on the ground… a housing collapse and massive layoffs with more to come. It’s true that media may fan the flames but they didn’t start the fire… nor can they put it out.
    At the core of the socioeconomic problems we face today you’ll find a basic lack of personal responsibility combined with unchecked capitalism.

    When people “sell” without regard for “worth” and value profit over fairness… capitalism becomes evil. For too long we have applauded those few to whom we transfer our wealth. We regard them as role models and ignore the backs they step on as they climb onto their lofty thrones. How many beggars are we willing to tolerate for every billionaire we crown?

  7. Reid Greenmun Avatar
    Reid Greenmun

    Greed is the root cause of the mess we now find our nation suffering from.

    Greed on the part of those that worked hard to PROMOTE a culture of DEBT.

    Greed on the part of those who feel into the trap and “bought” what they could not afford instead of SAVING their money to pay for things when they could afford them.

    The role of “Human Settlement Patterns” in this economic crash is just one of many symptoms, not the disease.

    DEBT is the disease. The government, our schools, and our media/culture promoted the use of DEBT as a desirable and ACCEPTABLE means to live beyound our means.

    Many unethical business leaders raked in a whole lot of personal wealth in the process. Speculators that contribute nothing of any real value played “the system” and extracted wealth out of “the system”.

    ETHICS failed.

    The root cause of this mess might well be traced back to the forces in our nation that worked hard to destroy religious values and traditional families whereby PARENTS were not forced to both work to sustain at least the same qulaity of life their parents enjoyed. The lack of PARENTS to teach their children how to handle their money helped fuel this mess.

    The GREED that allowed the horrific shift of our nation’s economy from a manufacturing base to a service sector economy made things worse.

    CREDIT keep the boat afloat for a while – but that Ponzi scheme, much like Mr. Madoff’s plight, had to end once the music stopped and those left holding “paper” (electronic wealth) could not find a chair and were stuck “holding the bag”.

    So then what happened?

    Our government, bought and paid for in a very CORRUPT poltical system (again, a lack of ETHICS) rushed to BORROW BILLIONS and stick the future American Taxpayers with generations of NEW DEBT so that their “friends” (those wealthy individuals and corporations that “donated” to campaigns and political parties) within the corrupt political system could find a way to grab a chair – and leave the American people stuck holding the bag.

    By “people” we are really talking about my daughter, and HER future, (not yet born) children – you know, our grandchildren.

    I submit that the failure began when we failed to adhere to place importance on Americans remaining people of faith and religious people that are taught to act in an ETHICAL manner.

  8. Ray Hyde Avatar
    Ray Hyde

    Would someone please tell “RH” that a sustainable economy depends on informed consumers, not deluded consumers?

    Sustainable for how long?

    No one supposes that mankind is looking at an infinite future, short of sustainable space travel.

    In the meantime, a sustainable economy depends first on f profits: short term profits that can evenetually become long term profits.

    Preferentially thee profits can be supported with less energy used than can be collected from the land needed to generate the profits. Agriculture, for example can do this, under some circumstances, and in some locations.

    Based on the amount of renewable energy we can reasonably capture, we can estimate the amount of sustainable energy avaialable, and the lifestyle we can afford to support.

    That standard of living is likely to be so low that we will not sit here renewably while ignoring thousand of years of non renewable energy. But, to whatever extent we use that energy, we are no longer talking about a sustainable economy, but sustainable for how long.

    Posing this issue as a false dichotomy (sustainable or not) is not helpful in understanding the real issues at hand.

    Anyone who does not understand this is deluded, which is probably why they choose to remain anonymous.

    Let’s not delude ourselves into thinking we can afford a clean environment, without a strong economy to pay for it. Without BOTH of those we are back to talking about “Sustainable for how long?

    RH

  9. Ray Hyde Avatar
    Ray Hyde

    “Greed on the part of those who feel into the trap and “bought” what they could not afford instead of SAVING their money to pay for things when they could afford them.”

    Reid:

    There is a time and a place for debt.

    It would be stupid to save for decades so you could pay 100% up front for some capital expenditure that you will then use for decades. That is the kind of “savings” that we cannot afford.

    If excess borrowing amounts to stealing from our children, then excess savings amounts to giving them things they have not earned.

    In the past 20 years our economy has grown by 17 trillion dollars, and the recent problems have shrunk that by a third.

    We took too much risk.

    But the flip side is the risk we would have taken with a “no debt” economy, and that risk is that it might have grown at a much much slower rate, with the result that we would all be worse off than with the boom and bust.

    From my point of view, greed resulted in people who could buy pretty much whatever they pleased, using thir multimillion dollar bonuses. But that money had to come from somewhere, and that happened becuase we failed collectively in our responsibilities to protect private property. We allowed them to steal from us, based on a distorted view of property rights.

    I deny the popular but mistaken idea that speculators provide no real value to the economy. They provide liquidity that allows the real producers to buy and sell at will. In fact, speculators might have played a bigger role in PREVENTING what happpend, except they were hamstrung by rules against “short selling”.

    I’ll agree that sooner or later someone is going to have to build something and take it somewhere to sell. We cannot all take in each others laundry. But in order for that to happen, you will need consumers, and some of them will need to have a reasonable amount of debt. Without it we will quickly find out that we cannot “afford” much of what we actually need.

    A reasonable amount of debt is the fuel that fires the long term profits that our children will need.

    RH

  10. Ray Hyde Avatar
    Ray Hyde

    The WSJ edit page worries about over-zealous environmental regulation: “Green groups have a history of rejecting cost-benefit analysis as a matter of ideology more than utility. They don’t trust business, and they believe that their own specific environmental goals are a higher public good than whatever is lost to society from exorbitant costs. But there is a price for everything in life, and reasonable regulation ought to include a judgment about relative costs and benefits.”

    RH

  11. Reid Greenmun Avatar
    Reid Greenmun

    Ray, taking on massive consumer debt to purchase a lifestyle a family or individual cannot really afford may serve the retail sector but it is unsustainable without those assuming the debt producing anything of real value or a tangible product being produced that has legitimate value.

    I agree that the lenders allowed for too much “risk” when lending.

    But this could have been avoided had everyone actied ina ETHICAL manner.

    At anyrate, it wasn’t the “human settlement patterns” that lead to the economic meltdown we have witnessed, it was GREED and a lack of ETHICS on the part of those that promoted a culture of debt as an acceptable stratagy to create the impression of “growth” and “wealth”.

    I agree that taking out a loan to purchase a big ticket item like a home or a car is not such a bad thing, provided the borrower and the lender consider the borrower’s debt-to-income ratio.

    But what we have witnessed was a culture that resulted in a wide spread use of consumer credit to pay for daily expenses when the cost of living and the cost of taxes was escallating far more rapidly than wages were increasing – since 2000 many Americans saw their pay rise modestly while their cost of living skyrocketed.

    In the same time frame, government DEBT skyrocketed too – as did government spending and government entitlement programs.

  12. Larry G Avatar
    Larry G

    there is nothing wrong with getting a mortgage on a home with the intent of it being the place where you will live while you work and then retire – as long as you make enough money to pay the monthly debt that you agreed to pay when you accepted money to buy the house – money that was not yours.

    What is wrong is buying a home that you cannot afford on the premise that it will increase in value such that you can make money on it when you sell it

    .. and if the home does not appreciate in value – so that you make a profit – you can walk away from the responsibility to pay what you agreed to pay.

    What is wrong – is an entire generation of people who think that they are not only entitled to be able to own more home than they can realistically afford and that they are entitled to that house appreciating in value.

    No one is entitled to own a home that is more home than what they can afford and no one is entitled to being able to make a profit on selling a home.

    A generation of people were willing to go into debt for way more than they could afford to pay from their salary – on the premise that they could make enough money on the subsequent sale of the house – to pay it off and pocket a profit.

    And we had a whole bunch of others…from mortgage companies to home builders to land speculators who all based their business plan on that guy getting a mortgage – when he did not qualify for that mortgage.

    Hey.. this aint rocket science folks.

    We had a giant ponzi scheme and it ultimately did what all ponzi schemes do – it failed – and the last folks holding the bag got burnt….

    Even in this blog – the thought was expressed by more than one person at more than one occasion that much of our economy was based on the building and owning and maintaining homes…

    but gee Reid.. there have always been folks who were “ethically-challenged” in the past… and I’m quite sure that this meltdown will not result in the extinction of those folks…

    they’ll always be around… doing their thing…

    ..and if you folks REALLY like some ironies… take a little visit to your local 7-11 or similar .. and hang out around the counter where they sell lottery tickets… and you’ll see.. that this “meltdown” does not appear to have hurt lottery sales in the least…

    now.. why is that?

    and here’s the bonus question:

    if you walked up to someone playing the lottery .. and offered them a mortgage on a house … without a credit/employment check – do you think they’d take you up on the offer?

    I rest my case.

  13. Larry G Avatar
    Larry G

    and you know…..

    this is yet another example of what happens when the government subsidizes a private market activity….

    by giving tax breaks on home ownership….

    you know.. they stopped letting folks write off the interest on automobiles years ago when they realized it was a dumb thing for the government to be doing…

    but they could not bring themselves to do the same thing with homes…

    perhaps now is the time to do it.. and let homes and the building and selling of homes be like anything else in the economy…..and let the market work as it should…

  14. Anonymous Avatar
    Anonymous

    Reid:

    Agreed: thereis no point in charging your toothpaste pn credit.

    Unless the alternative is peridontal and heart disesase.

    Everything is a trade-off, and the cost of whatever it is you have is the value of whatever it was you gave up.

    RH

  15. Ray Hyde Avatar
    Ray Hyde

    there is nothing wrong with getting a mortgage on a home – period. The rest of Larry’s comments don’t apply.

    You could make a perfectly good investment in a home and be in it as few as three years. Many military families do this all the time.

    There are very good tools online to show you graphically exactly what your rent vs buy trade off is, and you can vary the parameters to see the risk involved.

    Sure, you take a loan and you take money that isn;t yours with a promise topay it back.

    That is one half the bargain. The lender loans money to you – at a price – and that price reflects the risk that he won’t get all his money back or won’t get it as planned.

    It is not a one-sided deal.

    He has come to you because he is UNABLE to find a better place for his money. He has to compete with all the other people who have unused money for a (reasonably) safe place to park it, considering the rate of return and the cost of inflation.

    Right now, it appears as if there are virtually no safe havens. Even federal bonds are now at zero nterest, leaving the buyers open to the full ravages of inflation until they find something better.

    Something better is hard to find especially if you are scared witless.

    A neighborhood full of foreclosures pretty much defines the bottom of a market. Most likely, you could buy anything in such a neighborhood, and it could only go up in value.

    There is nothing wrong with buying a home that you cannot afford (indefinitely) on the premise that it will increase in value such that you can make money on it when you sell it: that is called speculation and it provides the opportunity for a seller to unload, when he might not be able to therwise. The speculator is providing liquidity, and he is taking the risk that he will lose money if the plan falls short.

    And so is his lender.

    As they say in the movies, “It’s just business”. The only thing that is wrong about any of this is if you lie on the mortgage application.

    RH

  16. Ray Hyde Avatar
    Ray Hyde

    “…when the cost of living and the cost of taxes was escallating far more rapidly than wages were increasing – since 2000 many Americans saw their pay rise modestly while their cost of living skyrocketed.”

    Their cost of living went up because of far more than taxes. Our total tax burden has barely increased over the last ten years. To the extent it has, is mainly because we earned more money and moved into higher tax brackets and larger homes with higher real estate taxes.

    Blaming our cost of living increases ontaxes is incorrect. If you want to see where our money went, then look at education and health care.

    RH

  17. Ray Hyde Avatar
    Ray Hyde

    “No one is entitled to own a home that is more home than what they can afford and no one is entitled to being able to make a profit on selling a home.”

    You don’t own it until the loan is paid, in which case you obviously can afford it.

    But, nowhere does anything anywhaere say that you cannot take out a loan that is not supported by your income. Suppopse I inherit $200,000 and I plan to use that money to supplement my income and ability to make the mortgage for a few years. I buy a nice country club home and meet all the right people. I take the risk that my income will increase before I run out of supplementary funds.

    As long as I don’t lie on the application, nothing wrong or unethical has occurred.

    No one has the “right” to make money on any investment, but historically it is pretty hard to lose out on a home. If you look at the rent vs buy calculators under any reasonable scenario, then it is easy to see why.

    Even today, less than one percent of mortgages are in trouble. 30% of homes are owned outright and 60% are in little danger of defaulting.

    What you call subsidizing home mortgages is not at all what it seems. A landlord is allowed to deduct the interest on his rentals as a business expense. Without the home mortgage deduction homeowners would not be playing on a level field. Then, only landlords would be subsidized. As it is, all homeowners get the same treatment.

    Without the mortgage interest deduction, everyone would be better off to buy their neighbors house and rent it back to them. The mortgage interest deduction is not a subsidy, but a means of preventing such a charade.

    You could try to make the argument that neigher owner should get the break: would you be willing to send back all the mortgage deduction you took? Or do you support a two tier system: those that got here first and those that came later?

    If you succeeded in that, then everyother industry would have an advantage over housing, because every other kind of interest is deductible as a business expense. Ypu and I could go inthe auto leasing business: I lease you your car and you lease me mine. We each deduct the interest.

    (Obviously there are practical reasons this can’t work, but this is for illustration. And it DOES play a part in why car leases are so cheap.)

    But our friends down the streat in the house business can’t do that, and they will cry foul.

    The mortgage interest deduction is there for a reason and it isn’t going away, no matter how you try to wave the “subsidy” flag.

    Your view of how the market should work is incorrect: everything else in the economy DOES depend on deductible interest. There is no reason for housing to be any different.

    ———————-

    Oh yeah, it works both ways. I buy a backhoe and lease it to one of my contractor friends until it is paid for. I have to declare the “interest” I collect as income. But if I borrowed the money for the backhoe, then that is deductible.

    RH

  18. Jim Avatar
    Jim

    We are waking up from a “spend, borrow, spend, borrow” nightmare. For the last eight years there has been no accountability on nearly every front. Taxation is NOT the problem… representation is. Taxes, while never a pleasure, are clearly a necessity. The breakdown has occurred on the representation side of the equation… our elected officials have failed us. Instead of funding “bridges to nowhere” we should have been building bridges to the future; fixing social security, developing alternative energy sources, solving the health care mess!. Instead of searching for “weapons of mass distraction” we should have kept our eyes on the ball, Afghanistan. But no, our “leaders” convinced us to flush billions a year down that toilet called Iraq… and it’s money we couldn’t spare.

    I hate paying taxes but I am so sick and tired of this “no new taxes” mentality. As our infrastructure ages and new issues arise more money is required… we just need to spend it more wisely!

    As far as housing as an investment goes… who do you think will be buying all of those foreclosures as we hit rock bottom, the same speculators who drove the market up the last time… and guess what… it’s not the working man!

  19. Larry G Avatar
    Larry G

    re: “Oh yeah, it works both ways. I buy a backhoe and lease it to one of my contractor friends until it is paid for. I have to declare the “interest” I collect as income. But if I borrowed the money for the backhoe, then that is deductible.”

    How about we replace the word “backhoe” with “house”?

    Does it still work the way you say it does?

  20. Larry G Avatar
    Larry G

    Here’s another question.

    why would anyone loan money to another person with a terrible credit score in the first place?

    Why would any investment company buy packages of such loans – each of them made to a person with a terrible credit score?

    The credit card companies and companies that make loans on cars – like GMAC – they won’t loan money to people with bad credit scores – so why did the mortgage companies do it?

  21. Ray Hyde Avatar
    Ray Hyde

    “How about we replace the word “backhoe” with “house”?

    Does it still work the way you say it does?”

    Yes, absolutely.

    The bank charges you interest on the money you borrow for your rental house. You deduct the interest they charge you, and they pay taxes on the income. But if they borrow the money in turn from some mutual fund or other investors, then the interest they pay is deductible.

    Likewise if you later sell your rental home and take back the mortgage, installment sale or rent to buy, then your “interest” income is taxable to you and deductible to the buyer. Depending on the type of sale your “interest” will take different forms, but the result is the same.

    The whole point of my post is that houses are no different from backhoes or any other capital item, and there is no reason to treat them differently.

    I think Jim is right, taxes aren’t the problem: representation is. “We” write the rules and whne they are rules we agree with we think thats fine, it is the rule of law. If you think downzoning and other kinds of takings are stealing (unethical) well, too bad, go find some more votes.

    But when we don’t agree with the rules, or don’t understand the whole picture, then we claim a market failure, external costs, subsidies, unethical behavior or whatever else suits our mood.

    All of it is a result of one sided thinking, for which liberals, conservatives, democrats, republicans, greens, free market capitalists, and single issue politicians of all sstripes are equally guilty. I put “no new taxes” and “no more autonomobiles” in the same category. Now is the time to stop knee-jerk, pre-progrmmed thinking and really take the time and expense to figure out what works, as opposed to what we would like to work.

    I would like and 80% reduction in CO2 emissions to work, but frankly, I think that is a fantasy, so we need to come up with something else.

    —————————-

    “why would anyone loan money to another person with a terrible credit score in the first place?”

    That’s easy. How does someone with a bad credit score ever get a chance to improve it?

    Someone decides to take a risk, and they expect to coer that risk with high interest rates or good collateral. You see the ads for instant loans, using your car title as collateral. It is still a risk to the lender: you could crash the car or it might be stolen. But they do it because overall, there is profit in it.

    If I buy a backhoe for someone, it is my backhoe until it is paid for. It could get stolen off the jobsite, and I’d be out of luck (after insurance).

    So, why would someone insure the damn thing? Overall,the premiums they charge are greater than the risk of loss. GMAC may have a credit score minimum below which they won’t loan. Guido has different standards, and people with bad credit DO get cars.

    Think about the micro loans that are so popular these days. Who would take such a risk? Well, the loans are small, it won’t break you if one goes south. For people with no credit and no hope, as some people in India a $200 loan for a sewing machine is a huge deal. It offers hope, self determination, and pride in being able to pay it back.

    Some people have a different risk/reward quotient than you do. It does not mean they are wrong or stupid. But, in the housing market we got to the point that it was so easy, people stopped thinking about risk: we developed a herd mentality and the lemmings ran off the cliff, each following the ahole in front of them.

    “no new taxes” is the same kind of group think, and followed to its extreme, it will also lead to extreme results.

    ————————-

    One thing I have not seen here on the blog is the culpability of the three major risk ratings agencies. If there was a place in the whole deal where ethics went out the window, this was it.

    The analysis sections were apparently saying “we can’t rate this” and they were being overruled by the marketing departments. They profited from deals they made possible with implausible ratings: the fox was guarding the henhouse, and this was clearly a failure of elementary checks and balances that should have been regulated.

    None of the hedge funds or mortgage backes securities failures wold have been possible had these three companies (or even ONE of them) been doing their job.

    Think of “The Perfect Storm” people who spent their lives at sea had assessd their risk under a known set of rules, reliable for decades or even centuries.

    Then one day three low pressure areas collided.

    RH

  22. Larry G Avatar
    Larry G

    why would you lend someone 300,000 who had a credit score so low that they’d not qualify for a car loan or a credit card?

    re: writing interest off on a loan..

    why not cars then or anything that you’d get a loan on including credit cards?

  23. Ray Hyde Avatar
    Ray Hyde

    That used to be the case. We effectively got a tax increase when they eliminated the deduction for consumer loans and credit cards.

    An unintended result was that people then turned to their home equity loans, which they could deduct; and the result was all that consume spending chaged to the home equity.

    But, it is easy enough to start some business and buy things you can remotely relate to that through the business…. it is another loophole that gets widely abused. So there is another unintended consequence.

    Suppose (hypohetically) I need gravel for the driveway. The driveway goes first to the barn and then a little further to the house. If I buy gravel to the barn, that’s a farm expense, then I buy more gravel from the barn to the house and pay for that out of my personal account. I also borrow the money for the barn gravel and deduct the interest.

    Then the house contains the farm office, so part of the house expenses are also deductible. (including, I imagine, part of the driveway expense.)

    Both the farm and the house have paid their full locational costs, and the costs are apportioned according to IRS rules. But, realistically the house has more trips in and out than the farm, so the house is being “subsidised” through excess use of the road built for the farm. The IRS would be better off if they made me put some kind of toll on my own driveway according to what I’m using it for!

    In this example there is probably nothing unethical or illegal. Even if you think there is something not quite 100% right about this, you have to wonder if the transaction costs make it worth pursuing. If it makes me uncomfortable, I can always choose some other apportionment of use, 50/50 or something, and make my deductions accordingly.

    But that’s just me. I at least try to keep things on the up and up, but lord knows there is probably some rule I have broken unknowingly.

    Plenty of other “small business” owners take things to much greater extremes, and no doubt some of it is because personal interest is no longer deductable.

    Ii have separate phone and vehicles for the farm, because it makes accounting easier. But many businesses share such things sit personal use, and internet as well. Who is to say what apportionment is accurate? And then if they hafe an “operating loan” to run their business, well, the interest is deductible……

    Sigh.

    RH

  24. Ray Hyde Avatar
    Ray Hyde

    “why would you lend someone 300,000 who had a credit score so low that they’d not qualify for a car loan or a credit card?”

    1). If you thought the reward warranted the risk. At 28% interest, you can take a lot of risk.

    2). Every other place you might put your money has even more risk. The money HAS TO GO SOMEWHERE.

    I lost 50% on my international stock fund, and got NOTHING out of it. I might have done better buying a backhoe for any fly-by-night pickup truck contractor.

    On the other hand, the money has been in that fund long enough that my previous profits still exceed my current loss. It is the same deal with lending: you don’t get the full picture by looking at just one loss.

    But if I had only been in that fund since last year, I’d be hurting. Same as if I had bought a house last year. But thE money HAS TO GO SOMEWHERE, and right now there seems to be no safe harbour. Under these conditions that $300k loan to a bad risk might not be irrational. Make him pay you eery week so you can cut your losses early, instead of waiting three or six months to get the bad news from your fund.

    The saying goes that the market can remain irrational longer than you can remain solvent. That is what happend to the banks, but it doesn;t mean that banking is inherently unprofitable or risky, always.

    RH

  25. Ray Hyde Avatar
    Ray Hyde

    look at it this way. If you want me to take your boat to Europe this summer, I’d probably charge you $5000 plus expenses, assuming you have a halfway decent boat.

    But if you want me to take in now, in January, Id want a damn good boat and I’d charge you $10,000 for risk of constant gales all the way across.

    So, $5000 and we are talking about risking my LIFE out there (in addition to your boat). I can still buy insurance on both, but the rates will be a lot different.

    A $300,000 loan? Where is the risk in that, by comparison? There is a reason why I point to the statistical value of human life as the lowest common denominator: at some point money boils down to lives, or quality of lives.

    That is the whole point of money.

    If I lose that $300 grand it might cost me my life someday, if I need a heart transplant and can’t afford it.

    At 28% interest, I’d take that risk in a heartbeat compared to three weeks of whole gale in January.

    RH

  26. Larry G Avatar
    Larry G

    In a larger context – why would hundreds of mortgage companies – ALL of them – make THOUSANDS, MILLIONs of loans to people with bad Credit Scores – to the same people whose credit scores were so bad that they’d not qualify for a car loan at 1/10 the amount of the mortgage that they were approved for?

    Why would these mortgage companies make a loan that the car companies and credit card companies would not make – for a whole lot less money at risk?

  27. Ray Hyde Avatar
    Ray Hyde

    “In a larger context – why would hundreds of mortgage companies – ALL of them – make THOUSANDS, MILLIONs of loans to people with bad Credit Scores “

    1) Groupthink.

    2) They were re-selling the risk. for th epeople charged with making the loans, the business made sense. They made a lot of money, even if theyare no longer in the mrtgage selling business now. As youwould say, no one has a RIGHT to make money writing mortgages.

    3) The risk was repackaged and resold under fraudulent terms. The three credit rating agencies are largely responsible for making this possible.

    There is nothing fundamentally wrong with the idea of mortgage backed securities. The problem came when they were sold with falsified risk ratings or they were unrateable.

    4) You can take ANY kind of risk if the proposed benefit is high enough.

    I don’t understand your reasoning.

    You seem to think that NO proposed payback is sufficient to justify the risk of lending to poor prospects. The flip side would be that with a guaranteed payback you would be willing to lend at zero payback, which would be silly.

    But on the other hand, you seem to think that ANY expense to reduce mercury is worth reducing the risk of exposure, regardless of the actual cost of that risk.

    In either case, you put an extreme price on avoiding risk, regardless of the actual value of the proposed loss.

    This is a well known psychological condition, that can be measured.

    If we lose $100 we are much unhappier than we are happy if we win $100. If the $100 is stolen, then we are really unhappy.

    Most everyone speeds as they go about their business, but we don’t celebrate when we arrive. But let us get a ticket just once, and we may grumble about it for days.

    —————————

    About those thousands and millions of bad loans:

    The vast majority of them are actually good loans.

    Anybody know the actual umber of total foreclosures? Is it really millions?

    Is it really all MSM’s fault?
    Give me a break, there is plenty of fault to go around. We all cheered when our 401 K’s went up, riding on the backs of Enron, Petfood.com, and Mortgage backed securities.

    We COULD have avoided those risks, along with the peaks and valleys. But the OTHER risk is that under such oppressive rules we would have grown much more slowly overall, and we would all be worse off.

    “Q: Is it economically possible to simultaneously demand low electricity prices but no new generating plants, while using ever increasing amounts of electricity.

    Q: Is it economically possible to simultaneously have “open space” laws forbidding building while increasing “affordable housing”? “

    For the answers, see Thomas Sowell.

    RH

  28. Larry G Avatar
    Larry G

    re: ” …You seem to think that NO proposed payback is sufficient to justify the risk of lending to poor prospects.”

    nope.

    my reasoning is why do we have such a lending environment – the poor practices of which – can bring down the entire economy and force the government to bail out those who should have suffered the fate of those who do dumb and risky loan practices.

    Instead, everyone – even those with good credit and those who handle credit responsibly and don’t take debt they cannot handle – all of these folks – are going to have to pay for the folks who took bad risks that the consequences of which should have been theirs alone.

    I’m fine with whatever level of risk others are willing to engage in with their own assets.

    If they want to do stupid stuff that will cost them their assets – fine.

    I’m not fine with them doing that and the rest of us having to pay to fix what they broke.

    and I’m asking… those who say that this was the result of greed, ethics, etc… what exactly would keep this whole thing from happening again.

    Do any of us truly think that we’re going to do away with stupid, risky, greedy, unethical behavior and that’s our plan for the future – just outlaw bad behavior?

    That’s the problem I have with blaming all of this on “bad behavior” as the cause.

  29. Jim Avatar
    Jim

    Larry G said…
    Do any of us truly think that we’re going to do away with stupid, risky, greedy, unethical behavior and that’s our plan for the future – just outlaw bad behavior?

    No… but here’s a thought… let’s put some REAL regulations in place. That’s why we form governments in the first place. Oops…did I say the dreaded “R” word? I’m sorry… let me get back in step, “NO NEW REGULATIONS! NO NEW TAXES! Excuse me… I’ve got to go paint some signs.

  30. Ray Hyde Avatar
    Ray Hyde

    “all of these folks – are going to have to pay for the folks who took bad risks that the consequences of which should have been theirs alone.”

    I realize that thee are people like my brother, who has virtually all his wealth tied up in real estate, and has NO other investments.

    But I submit that he is the exception. Virtually everyone else is invested in banks and companies that banks support throuh lending and other means. No matter what their personal borrowing virtues are, they are still at risk if we let the banking system and auto industry collapse.

    What we are talking about is whether we pay for this mess with our tax dollars or our investment dollars and retirement funds and our emplyment prospects, and the future of our economy.

    This isn;t a uestion of the banks payin for their own stupidity and greed, however simplistic and satisfying that might sound.

    RH

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