The unceremonious fall from entitlement
The Great Housing Bubble cultivated a gentility of entitlement, a sordid societal residue, a system of reliance, a conviction among people that they may possess anything they wish just because; deserving without earning; Grace.
Divine acceptance is given; whereas, worldly possessions are earned — a basic truth lost through possessory entitlement. Few construct and contribute to the greater good, and many expect easy money from lenders, Governments, housing and stock markets or free-money Ponzi Schemes. We are impaired by our lender’s failure and our Government’s response to the crisis our lenders created; a wound that lingers as a festering sore no bailout balm can remedy.
The emotional fall from Grace has barely begun. The amend-pretend-extend dance will continue until lenders tire of paying the piper. Shadow Inventory contains the new entitlement class; while unemployed renters sleep in shelters, unemployed homeowners squat in luxury, sustain false lives on lender largess, and exalt their status in preparation for the unceremonious fall from entitlement.
The Unceremonious Fall from Entitlement
When famous people fall, it makes news, but when plebs fall, no notice is given; no ritual is performed. The silent souls quietly abandon their perceived privilege while the raucous proles forcefully defend their binding birthright through procedural delays and faithlessly modified promises. In the end, all fall to the support of their own resources and suffer to the degree they resist reshaping their lives to reflect reality.
We witness this fall as HELOC abuse posts, short sales, and foreclosures. Like forensic examiners, we follow clues in the property records looking for what methods were used and what motivated homeowners to borrow and spend their family homes. This work is consequential because unless we see conditions for what they are, unless we see people’s defective reasoning and overriding emotional gambits for what they are, we may fall victim to the same Siren’s Song.
Who will fall, and how much will they suffer?
Suffering is a spiritual concept; suffering is a negative judgment of experience exacerbated by attachment, delusion and aversion. Suffering and attachment directly relate; each soul suffers in proportion to the attachments formed to objects, people, beliefs and ideas, or anything the mind’s grasping can’t bear to lose or give up. Are you aware of your own suffering?
Homedebtor suffering directly relates to their over-indebtedness and HELOC dependency; each suffers in direct proportion to (1) their debt-to-income ratio, (2) the magnitude to which they consistently outspend their wage income, (3) and the extent to which they must have that which they must lose. Rapid appreciation and HELOC spending to supplement lifestyle is not coming back, and all who hold their breath will give up, pass out or walk away. In the interim, they suffer. Quietly and anonymously they hatch fantasies of golden geese and high-flying home prices not to be.
Profiles in Entitlement
Prosaic descriptions of entitlement provides a skeletal structure, but to put meat on the bones we must examine the stories of individuals and families caught up in the compulsion for kool aid. I have profiled thousands of HELOC abuse posts over the years, and each one tells a story of greed and foolishness. If you want a deeper understanding of the motivations of various profiles in HELOC abuse, I recently encapsulated this phenomenon in the post HELOC Abuse Grading System.
The profiles selected each illustrate an aspect of consumer entitlement directly opposed to (1) wealth creation and accumulation or (2) personal responsibility and strength. The names and details have been changed or omitted to spare the guilty gratuitous embarrassment; I seek not to punish but to enlighten and inform.
Borrowing is weak
Dependency is weak, and borrowing is dependency; therefore, borrowing is weak. This simple deductive argument speaks to an oft-ignored truth; borrowing is weak. Saving and borrowing are dualistic opposites like strength and weakness, slavery and freedom.
The inescapable truth greets each debtor the moment their lender says “no.” If a saver and a borrower each want something, the saver is in complete control of a purchase decision, whereas the borrower is utterly dependent upon lender approval. Have you ever been standing in line and watched someone’s credit card be denied payment? Did the would-be purchaser seem strong and powerful to you? Did you cringe with embarrassment? I have — from both sides of the interaction.
The aging socialite
A reader emailed me about the property that became the post HELOC abuse Hollywood Style. The property was purchased in the early 70s in Hollywood for about $150,000. The property was owned by a frugal couple that paid down their debts. The husband died in the late 90s leaving the wife with a beautiful and historic property with millions in equity.
I can imagine the husband’s state-of-mind and heart on his deathbed; he knew he provided well for his family, and although his wife might outlive him for quite some time, he was leaving her comfortably and securely set up for life. The inner peace he felt is something I covet for my own death. So should we all.
If there is an afterlife, and if we have the ability to look in on loved ones after we pass, I hope for this man’s spirit that he resisted the temptation and rests in peace. Watching his wife either through foolish choices or bad advice spend the family fortune and be forced to abandon the family home — a home that had millions in equity at the moment of death — watching that from afar with no ability to intervene is more akin to hell than to heaven.
For the widow, she must move out of her stately mansion, destitute and alone with only memories of her life of entitlement and glamour to comfort her, or torture her, as she lives out her life in relative obscurity after her unceremonious fall from entitlement. Hopefully for her, California’s social entitlement will survive to provide a minimal level of support.
The spendthrift landlord
Entitlement isn’t always over the top, sometimes it is just flippant; a thoughtless attitude toward spending where people just obtain any object of desire at any time for any cost — and doing it like a big shot who is above it all.
A friend of mine told me this story of his now former landlord, a flippant spender quickly approaching his day of reckoning. The owner had three properties; the one my friend rented was his original property purchased in the mid 90s for about $150,000, and a few months after my friend moved in, the owner received a Notice of Default on his $650,000 Option ARM. It turns out the owner used that money to buy another investment property and a $2,000,000+ Coto mansion at the peak in 2006. Based on the property records, we surmised he was facing about a $40,000 monthly nut on properties deeply underwater and precipitously declining in value.
What always struck my frugal friend was the cavalier attitude the owner had toward spending. The landlord would stop buy by in his pimped out truck, brag about decadent spending, and promise to fix items and fail to follow through. It was obvious that discretionary consumer spending took priority over other financial obligations including mortgages. Where is this guy’s next cash infusion going to come from? What lender wants to pour grease down that gutter?
Outspending the Joneses
Truly successful and abundant people are unconcerned with impressing the neighbors or keeping-up-with-the-Joneses. Most inwardly flourishing people live joyous lives and keep a low profile because real wealth prefers anonymity to ostentation. However, the spiritually impoverished elevate themselves above others and seek to elicit jealousy. The jealous procure a fleeting power; addicted to the soul-drain of another, the jealous seek an endless charade of consumerism and comparison, and they pine for those ephemeral emotional payoffs when the jealous believe other people want what they have.
The compulsion toward jealousy leads some to recklessness as we witnessed in Ashes to Ashes; Dust to Dust where one family took out and spent $865,500, or in The Ultimate Post where the family absconded with $1,090,000 in lender money. Somebody has to be the trend setter, someone has to be the Joneses everyone else is keeping up with. When the Joneses are freebasing on lender crack, they set a very, very high bar. With no truly wealthy people spending such prodigious amounts, the Joneses actually surpass the spending of the wealthy they ostensibly emulate.
Is this wise behavior we should all imitate? Is the pleasure of spending and jealousy worth losing the family home? Carpe Diem?
The inconceivable owner
I remember a comment years ago from a married woman in her early 30s who could not conceive a scenario where she would not be owning a house in two years at most. WTF? Entitlement demanded she be housed in the property of her choosing in 18 to 24 months, and no matter the means or the outcome, it was going to happen. Let me provide images of her — absent a home — for her deficient imagination:
- She could realize she cannot afford a home — not likely, but at least possible. Kudos if she does.
- Her husband may realize she cannot afford the home and say no — not likely, unless he has a spine. Ditto above if he does.
- Her family may not be given access to sufficient lender funds to obtain the property she feels entitled to, which means a lender has determined she cannot afford a home — a very likely outcome in the aftermath of the bubble. And wisely so as lenders just lost a trillion dollars lending too much.
It never occurred to this woman that the enablers of her entitlement may choose not to enable it further. Some lender may reveal her entitlement to be an illusion created in her own mind. Also, it never occurred to her that having the object she is entitled to could cause so much pain. Nobody who purchased in 2006 who has a rational understanding of the situation is rejoicing their good fortune.
The sophisticated financial manager
In the heyday of securitization, paper-pushers were tieing up any available, consistent cashflow and providing the owners with a huge, one-time infusion of cash. It was Enron accounting applied on an unprecedented scale. Emulating corporate titans, individuals embarked on personal Ponzi-Style finance and sought ways to liberate their equity for more productive and more indulgent pursuits. The money-changers eagerly embraced this new sophistication among the proletariat, which has come to view debt as something serviced rather than retired, something maximized rather than minimized, something chic rather than shunned.
The most egregious example I found was HELOC Abuse Laguna Beach Style where the owner took out over $5,000,000 in mortgage equity withdrawal. What did he do with that money? Was he saving a business? Was he partying and having a good time? Several not-so-astutely observed nothing wrong with the owner’s behavior, as it was between the borrower and the lender. That sounds very reasonable until the lender looks to you and me to pay the loss.
In the recent post, Will Government Exit the Mortgage Market on Schedule? The property owner relayed the following open message:
“This gentleman makes a lot of assumptions – some of which are correct, and some of which are not. My business is largely about buying low, selling high, and utilizing equity to drive cash flow. The property has been a rental for 11 years. There are better opportunities, so I am selling to purchase some all cash deals. Good investors will use HELOC’s, but in this case there is nothing utilized on the 2nd. The other important aspect is to drive the total cost of your debt down among all the investments that you own – that is why this has been refinanced. Other properties are held all cash. Just funny how he interprets without all the data.”
I replied to the intermediary:
As for his statements about financial management, I think he is crazy, but if he feels good about it, good for him. He implies he took great care with the management of his cost of debt, but appears he was not as successful in managing the total amount of debt since the amount obviously ballooned out of control. Based on what he owes he is not going to net much cash out of this deal, and the only thing he really accomplishes is getting out from under the debt, which is a good thing. He extracted his cash and now he moves on. I don’t see where this improves his wealth much.
Why do people borrow themselves to oblivion? Because they can! Lenders enable this foolishness because they are siphoning borrower cashflow; lenders would prefer lifelong addiction, but if a few flame out, so be it. As long as would-be borrowers view this foolishness as reasonable, responsible and refined, it will continue. Crazy!
California’s social entitlements and obligations
No discussion of entitlement is complete without discussing Our HELOC Economy. California’s debt rating is among the worst of sovereign entities. Lenders simply don’t believe in our willingness to raise taxes or cut spending to balance our budget. We are borrowing in the belief that tax revenues will return to bubble levels, and they won’t. We are broke, and we are over borrowing because we want to maintain our entitlements.
I don’t know what form it will take and who will get cut, but we will come crashing down to the level of support our economy sustains. It may be bond vigilantes making our debt so expensive we are cut off from borrowing. It may be a wise and concerted efforts among politicians to reign in our budget through thoughtful cuts and painful but necessary tax increases… (giggles to self). Or it may be that the economy replaces mortgage equity withdrawal with real productive output and State revenues improve… (not likely, but such denial is current status quo). Start watching California bond yields for signs of our upcoming political crisis.
Status and Entitlement
In the post The Grand Illusion, I discussed the pursuit of status:
Status is an internal perception about what people believe other people think about them. It has nothing to do with what other people actually do think about them (as if that mattered anyway).
For instance, I think the women on the The Real Housewives of Orange County are soulless gold-diggers. My derision is only eclipsed by my disrespect for the way they live, what they believe, and what they represent. However, they think I, and everyone else who knows them through the show, believes they are something special, something to envy as if they really have it “going on.” They have status. Not because people regard them highly, but because they think people do. But I digress…
For people who don’t have the internal strength to base their self worth on what they believe about themselves, they end up basing their self worth on their perceptions of what other people think about them. Once they have given their power away to others in this manner, people will expend tremendous amounts of time, energy and money in a vain attempt to influence other people — hence we have fancy cars, opulent houses, designer clothing, and all the other trappings of conspicuous consumption. In my opinion, this is a sickness (their mind control fails on me.) It is a consuming disease which fed on the borrowed money made available during the housing/credit bubble.
The Real Housewives of Orange County as form of entertainment sickens me as it appeals either to pure schadenfreude or ignorant emulation. Most watch and feel superior — how could you not — but some actually watch looking for role models or a how-to manual for being pretentious — a ghastly side effect our sons and daughters pay with their souls.
As you might imagine, I don’t watch much TV, and I will probably not watch Thursday night’s episode; however, if you feel like an overdose of schadenfreude, you can tune in and watch one pretending family endure the unceremonious fall from entitlement. Apparently, one family has been moving from one entitled situation to another, failing to pay any of their bills, and now they are facing eviction with cameras voyeuristically capturing the ceremonious, theatrical and educational fall.