Monday, March 17, 2008

Corned Beef and Kvetch

Mrs. Chancelucky and I went to a corned beef and cabbage St. Patrick’s day dinner over the weekend with seven other strangers all in late middle age. They were nice enough, but the conversation kept turning to dismal topics. It started with talk about younger relatives who were losing their homes in the mortgage crisis. It moved to talk of elderly relatives who need extensive care, how much time it takes, and how much it really costs. There were some segues to the employment situation for our children, health care options and quality of services, and my two least favorite dinner table topics home remodeling and other people’s vacations. Somewhere in there we talked about the fact that the state is now requiring that schoolchildren with diabetes who can not administer their own insulin shots have it given by a qualified health professional, i.e. a school nurse. At one time that wouldn’t have been a problem but budget declines over the last twenty years have rendered the school nurse a nearly extinct species in my state.

While Bear Stearns saw it’s stock drop from sixty dollars a share to two dollars a share (the price Morgan got it) in two weeks, I keep thinking about the difference between a main street vs. a wall street approach to the current problem. Over the last few years thousands of families got lured into buying houses with the combination of low variable interest mortgages paired with very low down payments like five thousand dollars. In addition, some odd financial tools appeared like negative amortization loans. In some really bad cases, folks who had owned their home for many years were tempted to remodel based on the attractively low rates. All of this was based on the notion that home prices would go up and that the economy would continue to grow. Apparently, a lot of buyers were told not to worry about rate increases etc. already built into their loans.

Now thousands of would be homeowners can’t make their payments for various reasons and they’re losing their stake in the most typical American dream. The Wall St. Solution seems to be to bail out the bank in some way and to find ways to protect the various financial institutions who helped to make this mess. There has also been some talk about a freeze on interest rate hikes with variable loans and some level of forebearance or restructuring for certain kinds of loans.

I’m wondering if a Main Street solution might look different. For one, I’m thinking that one end of all of this is a bunch of paper. At the other end, you have real families and actual physical homes that tend to do better when its occupants have some stake in the value of the property. At some fundamental level, people need to live somewhere. If a couple families default on a loan in a town, it’s a big deal to them but not that significant to the community itself. The lender forecloses then puts the house back up for sale and generally gets a slightly below market price. The family hopefully moves on to a more modest place.

When it becomes hundreds or thousands of homes though, the problem is a bit different.
For one, the price of homes drops dramatically and a large portion of the town has to move away. The lender now owns paper for a bunch of homes whose value has decreased dramatically. In the meantime various families are looking for alternate living quarters as a downward spiral begins.

I’m not a finance person, but it seems to me that if there’s no lost “opportunity” cost (as in ready buyers at the old price) for the lender then it makes perfect sense to simply rent the home back to the homeowner at a price significantly lower than the mortgage itself, say a payment somewhere close to what it was when the house first sold. The money would strictly be rent as opposed to going towards anything resembling equity and any other money the bank loses would come out of the eventual sale of the house. There’s no displaced family. The bank doesn’t lose out on the whole stream of payments and perhaps more important a bunch of housing inventory doesn’t suddenly hit the market and further lower prices. The financially overextended family keeps some sort of stake in home ownership in the community.

The insulin problem is similar. Other than the fact that there are hundreds of thousands of non-qualified people (family members) who administer insulin (my mother did it for my grandfather for 3 years) anyway, the actual issue is that there aren’t qualified health care professionals who work near public schools. One result is that some schools are paying a service $55/hour to send out an LVN supervised by an RN or a Doctor to drive out to the school and give the shots. If you co-locate community health clinics in the public school and serve the community at large, possible solutions become much easier. The clinic then has ready access to several hundred families who use the school for preventative medical advice and treatment.

Senior centers that work closely with schools and pre-schools offer similar synergies. For instance, relatively able-bodied elderly folk often make very good daycare providers. In turn, students can learn any number of job skills helping the elderly. Obviously, there are many whose condition on either end makes this impossible, but we’ve lost the capacity to take advantage of these possibilities largely because we lay out our communities in curiously irrational ways. We talk constantly about finding ways for our vehicles to get better gas mileage. It actually makes much more sense to build towns in which cars are less necessary. If you can, for instance, walk to work, school, and shopping, then you could have the least efficient vehicle imaginable and still use less gas than someone with a plug in Prius.

Although our hosts were great and the guests were quite funny and friendly, I hate these endless conversations about how everything about our lives is doomed and how it will cost hundreds of thousands of dollars each year to attend to a single elderly person. Similarly, it would be a criminally stupid society that leaves thousands of homes vacant because of a failed mortgage system. Looking back wasn’t it obvious that some of these finance practices were more or less begging to have this happen?

Anyway, if anyone invites us to dinner again, something that won’t happen if any of those guests see that, I’d much rather talk about solutions. I hate getting trapped in conversations about the compound interest of misery. There have got to be more interesting ways to talk about this stuff and maybe there are things we can actually try. Otherwise, it all feels like corned beef and kvetch instead of cabbage.

Meanwhile, I'm grateful that we're just talking about these things rather than being the people living them right now.



At 3/17/2008 06:24:00 PM, Anonymous Anonymous said...

It is hard to get caught in the doom + gloom death spiral conversations in which folk seem to want to one-up each other with worse dooms or worse glooms. It's unconscious on their part, but tends to make you feel as if your head will explode.

I just found out that etymologically "scuttlebutt" means a hole in the deck (scuttle) in which rests a butt or cask or barrel. The word was originally scuttlecask. The crew on ships hung out around the scuttlebutt and gossiped. So a scuttlebutt was the original watercooler!! Cool or what?!

At 3/18/2008 09:50:00 AM, Blogger Chancelucky said...

Except I don't think they had water in that cask.
I definitely have to practice finding ways to jump shift those sorts of conversations. They just don't accomplish much other than to make everyone feel miserable.


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