Price and value
Life contains endless opportunity for learning. Sometimes the learning might be the wrong lessons, but maybe you can't fear that too much, just admit there's yet more learning to do!
Biggest lesson now for me in our collapsing economy is that price and value are two different things. Value is what something's worth to you, and price is what something's worth to someone else! Well, that's a silly definition, but good enough to start with.
I come to this conclusion getting my house APPRAISED for refinancing at 72% of the "fair market value" estimate assessed for property taxes. Probably the appraised value now is LOWER than the actual "replacement costs" if my house burned down and had to be rebuild from scratch! Well, that makes me wonder what insurance means - do I insure "replacement costs" or "market costs"? Obviously the first, and of course that opens the door to corruption - if my house can SELL for $100k, and costs $200k to replace, if I have to sell now, I'm better off with (sneaky) arson!
And then I read about how rental rates are falling, which is surprising to me if people are getting foreclosed upon and going to renting, but apparently that's not a major force. But in general the amount I can charge for rent as a landlord is largely independent of the expenses needed to maintain the property.
Renters like to lament they're not gaining equity by paying rent, but now millions of home "owners" are underwater, buying homes and borrowing money much greater than they can ever sell the property for, so they could have negative equity for a decade. Imagine that - if you're very lucky and pay outrageous fraction of your income for the next 5-10 years, and are superfrugal, your reward will be to reduce your mortgage to a point that you have ZERO equity! That's depressing, even if you have faith you'll get above water eventually. It also means you're stuck where you are, and if change jobs, you can't relocate closer to work, like you could as a renter.
And I also think about fairness. We all WANT to be treated fairly. If last year I bought a home at $200k, and I want to sell it this year, I'll feel it's FAIR to ask for $200k. Afterall, it's the same house, same "value". But if the market only supports a $150k sale, I'm "greedy" just to break even! So my POINT is I could think the buyer is taking advantage of me for buying at $150k, while in fact, he's just paying what's fair to him. I'm the FOOL who bought high, sold low.
The game of "prices" can never be played fairly. It's more tricky if there's relations involved. If I bought last year for $150k, and the market price is $200k ths year, I can afford to be "generous" and sell to my brother for $150k. BUT if I bought last year at $200k, and want to sell to my brother this year at $200k, should HE really be expected pay for my foolishness to buy an overpriced home?
All this shows why times like now are so hard. Everyone is in a different place, and those caught underwater have to ultimately look objectively at their position and make decisions based on the new circumstances. It's just like gambling. If you start betting differently because you've won alot, or lost alot, you're probably not going to be making wise decisions. Selling at a loss SEEMS like a fool's choice, but it might be the best choice if it frees up resources for the future.
The government can try to protect us from our shortfalls, and certainly you can't blame us for wanting this, wanting to "socialize losses", divide it out. But there's never any clear line when you need to "break free", accept losses and move on. It's an individual decision, and hoping for a bailout, or next great bubble to save us means delaying hard decisions now.
So that's a quick summary of a few lessons learned, or imagined, and I don't know what anyone should do. I think the U.S. economy is in deep shit, and usually I'm all for "pay now, enjoy later", but there's still an optimal "rate of change". All the government can do is slow down the chaos so we can renegociate with reality, individually and collectively.
It's all scary, thinking how dependent we all are on forced beyond us. There's no safety except maybe on the ground, no debt, no savings, and two hands ready to work.
A last thought, while I have mortgage debt, my goal is clear, reach the ground of assets without debt. But people with money to invest now have a tricker problem. What's safe? In years past you were a chump to get 5% returns, while now you feel good just to hold losses to a minimum! What's curious to me is whether investors themselves can move us towards a stabler place. I mean I'm sure they can, but I'm equally sure "fear" works in mysterious ways, encouraging both thrift and senseless gambling and running after illusions (and new bubbles.)
I honestly have no idea what I could invest in that I'd feel good about, and there must be a million others (with positive money) thinking the same. Well, I know the REAL answer - invest in making one's community stronger, creating neighborhoods and main streets with less collective debt, safe from this chaos. And investing in things we really need - sustainable energy sources, and clean environments. In short, there's more than enough to invest in if the goal is community over profits. So if I ever get there, I'll go there!
OH, final last thought, to contrast my final thought. My "goal" is to strengthen my local community and economy for my own protection. In stark contrast, bright and dim times alike contain "vultures" looking for easy meat to consume, and in fact this is the nature of capitalism itself - to give everything a price, and try to leverage a better price against it. So along with interests for protecting local economies, we're surrounded by people of power and influence looking at the entire world as a playground to exploit to their benefit. That means if YOUR community has some fresh meat you can't clean up fast enough, the vultures will be down to take it from you.
Calling them vultures is a funny metaphor, given vultures are the efficient cleaners of the animal world, having no power to kill anything, just avoid waste. Capitalism is filled by people of wealth and power who gained that wealth and power by not being setimental about locality. Ultimately vulture might be the right word, but probably lions better, since they look to kill the weak, not just consume the dead. The predators are "assets" to community in the sense they keep us on our toes, encourage us to evaluate our own local weaknesses and clean it up BEFORE the outside preditors can get in for the kill - that is we must be somewhat unsentimental also - amputating the appendeges that can't be saved and triaging resources where they'll really make a difference.
Anyway, perhaps its useful to see the capital preditors as both enemies to be opposed, and motivating forces for action. I would despise them, and I do, but I know they only do what others are afraid to do.
Biggest lesson now for me in our collapsing economy is that price and value are two different things. Value is what something's worth to you, and price is what something's worth to someone else! Well, that's a silly definition, but good enough to start with.
I come to this conclusion getting my house APPRAISED for refinancing at 72% of the "fair market value" estimate assessed for property taxes. Probably the appraised value now is LOWER than the actual "replacement costs" if my house burned down and had to be rebuild from scratch! Well, that makes me wonder what insurance means - do I insure "replacement costs" or "market costs"? Obviously the first, and of course that opens the door to corruption - if my house can SELL for $100k, and costs $200k to replace, if I have to sell now, I'm better off with (sneaky) arson!
And then I read about how rental rates are falling, which is surprising to me if people are getting foreclosed upon and going to renting, but apparently that's not a major force. But in general the amount I can charge for rent as a landlord is largely independent of the expenses needed to maintain the property.
Renters like to lament they're not gaining equity by paying rent, but now millions of home "owners" are underwater, buying homes and borrowing money much greater than they can ever sell the property for, so they could have negative equity for a decade. Imagine that - if you're very lucky and pay outrageous fraction of your income for the next 5-10 years, and are superfrugal, your reward will be to reduce your mortgage to a point that you have ZERO equity! That's depressing, even if you have faith you'll get above water eventually. It also means you're stuck where you are, and if change jobs, you can't relocate closer to work, like you could as a renter.
And I also think about fairness. We all WANT to be treated fairly. If last year I bought a home at $200k, and I want to sell it this year, I'll feel it's FAIR to ask for $200k. Afterall, it's the same house, same "value". But if the market only supports a $150k sale, I'm "greedy" just to break even! So my POINT is I could think the buyer is taking advantage of me for buying at $150k, while in fact, he's just paying what's fair to him. I'm the FOOL who bought high, sold low.
The game of "prices" can never be played fairly. It's more tricky if there's relations involved. If I bought last year for $150k, and the market price is $200k ths year, I can afford to be "generous" and sell to my brother for $150k. BUT if I bought last year at $200k, and want to sell to my brother this year at $200k, should HE really be expected pay for my foolishness to buy an overpriced home?
All this shows why times like now are so hard. Everyone is in a different place, and those caught underwater have to ultimately look objectively at their position and make decisions based on the new circumstances. It's just like gambling. If you start betting differently because you've won alot, or lost alot, you're probably not going to be making wise decisions. Selling at a loss SEEMS like a fool's choice, but it might be the best choice if it frees up resources for the future.
The government can try to protect us from our shortfalls, and certainly you can't blame us for wanting this, wanting to "socialize losses", divide it out. But there's never any clear line when you need to "break free", accept losses and move on. It's an individual decision, and hoping for a bailout, or next great bubble to save us means delaying hard decisions now.
So that's a quick summary of a few lessons learned, or imagined, and I don't know what anyone should do. I think the U.S. economy is in deep shit, and usually I'm all for "pay now, enjoy later", but there's still an optimal "rate of change". All the government can do is slow down the chaos so we can renegociate with reality, individually and collectively.
It's all scary, thinking how dependent we all are on forced beyond us. There's no safety except maybe on the ground, no debt, no savings, and two hands ready to work.
A last thought, while I have mortgage debt, my goal is clear, reach the ground of assets without debt. But people with money to invest now have a tricker problem. What's safe? In years past you were a chump to get 5% returns, while now you feel good just to hold losses to a minimum! What's curious to me is whether investors themselves can move us towards a stabler place. I mean I'm sure they can, but I'm equally sure "fear" works in mysterious ways, encouraging both thrift and senseless gambling and running after illusions (and new bubbles.)
I honestly have no idea what I could invest in that I'd feel good about, and there must be a million others (with positive money) thinking the same. Well, I know the REAL answer - invest in making one's community stronger, creating neighborhoods and main streets with less collective debt, safe from this chaos. And investing in things we really need - sustainable energy sources, and clean environments. In short, there's more than enough to invest in if the goal is community over profits. So if I ever get there, I'll go there!
OH, final last thought, to contrast my final thought. My "goal" is to strengthen my local community and economy for my own protection. In stark contrast, bright and dim times alike contain "vultures" looking for easy meat to consume, and in fact this is the nature of capitalism itself - to give everything a price, and try to leverage a better price against it. So along with interests for protecting local economies, we're surrounded by people of power and influence looking at the entire world as a playground to exploit to their benefit. That means if YOUR community has some fresh meat you can't clean up fast enough, the vultures will be down to take it from you.
Calling them vultures is a funny metaphor, given vultures are the efficient cleaners of the animal world, having no power to kill anything, just avoid waste. Capitalism is filled by people of wealth and power who gained that wealth and power by not being setimental about locality. Ultimately vulture might be the right word, but probably lions better, since they look to kill the weak, not just consume the dead. The predators are "assets" to community in the sense they keep us on our toes, encourage us to evaluate our own local weaknesses and clean it up BEFORE the outside preditors can get in for the kill - that is we must be somewhat unsentimental also - amputating the appendeges that can't be saved and triaging resources where they'll really make a difference.
Anyway, perhaps its useful to see the capital preditors as both enemies to be opposed, and motivating forces for action. I would despise them, and I do, but I know they only do what others are afraid to do.
posted by Ares Olympus at 11:42 AM
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