Always bet on Blue

April 12, 2010 10:47 PM

In 2007, I quit my job at a startup and moved across the country to work at Amazon. I did this because starting in 2006 (I believe), I'd been reading on Metafilter about the housing bubble and the crisis that would result when it popped, and I felt that I needed to be in a more secure financial situation. Unfortunately, I didn't have an account back then, so I don't have favorites. What's the earliest post on the blue about the mortgage crisis.

I feel the need to ask because it drives me batty every time I hear "no one saw it coming". I always felt the mess we were working ourselves into was obvious to anyone willing to just read a little about what the financial world was doing at that time. Of course, I was spoiled by having people do all the legwork for me and post about it here. I'd kind of like to read those old posts and know who to thank.

posted by heathkit to MetaFilter-Related at 10:47 PM (29 comments total)

Don't know if it's the earliest but there is some discussion of a bubble in this December 2002 post.
posted by Mitheral at 11:12 PM on April 12, 2010

As a possible point of consideration related your request, I have been reading messages about the coming financial meltdown guest-starring housing and stock market bubbles since the mid-1980s. Perhaps earlier than that. Every year there were people, including real and purported experts, screaming about how bad it would be and how it was going to go down Real Soon Now. Quite a few of those people had arguments which seemed to be—and possibly were—supported by their selection of facts, articles, statistics, damned statistics, and anecdotes.

The fact that a serious global financial crisis finally happened (though not to the extent that many feared/foresaw/insisted upon, or at least not yet) does not automatically make geniuses or prophets of those who predicted it. Instead, many of those making predictions were lucky in their timing when screaming DOOM!

Saying that no one saw this coming is part and parcel of the oh-so-earnest mea culpas of financial execs testifying before Congress, but really, a lot of people apparently did see this one coming. Some of those people called it for just and rational reasons, some did not. In fact, This American Life recently did a segment on a hedge fund which profited heavily from one facet of the meltdown, and which may have deliberately made things worse to increase their profit. The segment mentions that others involved in the markets saw big problems looming as well.

Bottom line: a lot of people who successfully predicted the failure were lucky at best and charlatans at worst. Consider due diligence for who might deserve your thanks and, per your topic title, remember that always betting on something, even Blue, is a sucker's bet.
posted by mdevore at 12:00 AM on April 13, 2010 [5 favorites]

I agree with you, the Economist had lots of articles warning about the possible housing bubbles and some of those did make it to the Blue as I recall them too.

Here is a link from June of 2005 that describes the global housing price bubble.
posted by dealing away at 12:43 AM on April 13, 2010

There was no housing bubble.
posted by telstar at 1:06 AM on April 13, 2010

I've been trying to find that comment on the blue, about a year or so ago, where somebody made a list of links to every major discussion about the economic crisis on MetaFilter. I remember thinking how that comment demonstrated that not only was the information available for people to see what was going on, but that there were a significant number of MeFites who had been discussing it already for years. I wish I could find it. It was a neat little compendium.
posted by iamkimiam at 1:21 AM on April 13, 2010

In mid-2006, I had a big chunk of cash saved up and was thinking of buying my first home. I attended a few first-time homebuyer seminars at my credit union, but I hadn't started looking at places.

Although I don't remember specifics, I recall reading more than one metafilter thread about the housing market. I came away with the impression that something was very much amiss in home valuations. This feeling was confirmed when I started playing with mortgage calculators and realized that I wasn't terribly excited about living in the kind of house I could afford to purchase. It seemed the same monthly payment would rent a much nicer place. It was like there was this big premium on owning a house, beyond its value as a place to live.

So instead of buying a house, I decided to join a couple friends and founded a Silicon Valley startup. Crazy as it sounds, it seemed less risky than buying a home. Even if the startup crashed and burned (as is often the case), I'd only lose my initial investment and a year or two of my time. Unlike a mortgage, the startup wasn't going to go underwater. Worst case, I could abandon ship and find another job.

Looking back, the startup was the right choice. Between the housing crash and the following financial crisis, both paths would have encountered worst-case economic conditions. But buying a house would have been a lot more destructive to my personal finances.

Thanks, Metafilter. You give better advice than the people at my credit union.
posted by ryanrs at 1:22 AM on April 13, 2010 [4 favorites]

The fact that a serious global financial crisis finally happened [..] does not automatically make geniuses or prophets of those who predicted it.

Metafilter also predicted the Icelandic financial crisis:

2007-08-13 Iceland subprime? (yes)
2007-11-06 Can I move my money to Reykjavik? (don't)
2008-05-17 The Most Civilized Country (alarm bells)
2008-10-03 Suckers going down in Iceland (boom)
posted by ryanrs at 1:42 AM on April 13, 2010 [1 favorite]

Also...correct me if I'm wrong somehow...but your account details say you joined in 2002. So how did you not have an account in 2006/2007?

Well how about that.... my memory isn't that good actually. Think there were a few years there where I had an account and forgot about it. Or maybe I just didn't realize you could favorite things. In any case, my earliest favorite is from like 2008.

Also, I originally thought this was an askme, but since it's about metafilter, doesn't it belong here? Oh well, even if this is the wrong place for it, it's the right place to talk about whether its the wrong place.
posted by heathkit at 2:08 AM on April 13, 2010 [1 favorite]

I predict a financial meltdown driven by both short and long selling of bundled mortgage options at the very peak of Boomers moving into retirement communities. This will exactly coincide with the time when I'm in the least position to take financial advantage. You can bank on it.
posted by vapidave at 2:40 AM on April 13, 2010

ryanrs: Metafilter also predicted the Icelandic financial crisis

I won't claim to have foreseen what would happen in any detail, but the sorry state of Icelandic banking affairs was fairly apparent to everyone who cared to know about it.

Same goes for the housing bubble.

Sadly, it was in the interest of too many powerful people to believe that neither the Icelandic banking sector nor the American housing market had any systemic problems.

Yesterday I was reading a parliamentary report on how the collapse of the Icelandic economy happened and... oy vey... so much stupid... so much stupid.

heathkit: Also, I originally thought this was an askme, but since it's about metafilter, doesn't it belong here?

This is the right place for it.
posted by Kattullus at 2:50 AM on April 13, 2010

It seemed the same monthly payment would rent a much nicer place. It was like there was this big premium on owning a house, beyond its value as a place to live.

I'm not a financial wizard (pretty much the opposite, in fact) but isn't this exactly what I should expect? When I make a monthly payment on a house, I'm not just purchasing the right to live there for the month, I'm also getting a little bit of the house itself at the same time. That's going to cost more than merely living there.
posted by DU at 3:06 AM on April 13, 2010

iamkimiam, I expect you're probably thinking of Asparagirl's comment.
posted by cgc373 at 5:06 AM on April 13, 2010 [2 favorites]

When I make a monthly payment on a house, I'm not just purchasing the right to live there for the month, I'm also getting a little bit of the house itself at the same time.

No, the entire house becomes yours when you execute the sale. You also assume a large debt at the same time, and it's the debt that is gradually reduced. Houses are quantized.
posted by fantabulous timewaster at 6:12 AM on April 13, 2010

shhhhhhhh people might think we represent the wisdom of the lumpen masses or some such
posted by infini at 6:47 AM on April 13, 2010

DU writes "I'm not a financial wizard (pretty much the opposite, in fact) but isn't this exactly what I should expect? When I make a monthly payment on a house, I'm not just purchasing the right to live there for the month, I'm also getting a little bit of the house itself at the same time. That's going to cost more than merely living there."

Generally speaking for non speculative residential housing the rent on a house should equal the monthly mortgage with 25% down + taxes + management fee + maintenance costs + a bit of profit to make it worth while. When your average SFH's mortgage payment is significantly greater then what you can rent it for then that property is over valued.
posted by Mitheral at 7:17 AM on April 13, 2010

I remember reading some very dire predictions, perhaps from Mutant, about the trashy investments that were being re-bundled as AAA or whatever-level quality investments, in around 2006; and I remember a very alarming prediction about bank failures; and the funny thing is, the reality turned out to be way worse than those alarming predictions. I wish I could find that thread, it had some great and prescient information.
posted by Mister_A at 7:19 AM on April 13, 2010

Kattullus: "it was in the interest of too many powerful people to MAKE OTHERS believe"

FTFY
posted by idiopath at 7:39 AM on April 13, 2010

Or maybe I just didn't realize you could favorite things.

We didn't have favourites until May 2006.
posted by ODiV at 8:24 AM on April 13, 2010

Muppetboy in 2003 and 2005.
posted by Combustible Edison Lighthouse at 8:37 AM on April 13, 2010 [1 favorite]

cgc373! Thank you!

You've inspired a flash of genius, and I finally just figured out your user name. My day is all downhill from here...
posted by iamkimiam at 10:11 AM on April 13, 2010

Okay, here's my prediction:

Over the next 2 years, the housing bubble will burst. then over the following 2 years, we will slip into an unusually bad recession and the stock market will tank a second time, taking it to lows not imagined possible now. the overall impact, when combined with a growing crisis in the commodities markets (oil in particular) will be worse than the 1970's. the financial fallout will be the worst in living memory. we will have banking scandals, bailouts, bankruptcies and inevitably massive increases in taxation (which will all fall on property holders since the federal government will push all costs down on the states). the upside is that we have the infrastructure to bail ourselves out again. so the recession will not be as bad as the 1930's. the downside is that public mood might actually be worse than the 1930's. i don't think people are resilient enough these days to cope with a serious and prolonged recession. things are about to get very, very hard. welcome to The Not-So-Great Depression.

posted by muppetboy at 10:53 PM on June 16, 2005 [12 favorites +]

Whoa.
posted by jabberjaw at 10:45 AM on April 13, 2010 [4 favorites]

How many times over the last year or so did we read on the blue that the bubble was about to blow?

I was sure it would happen in '03, '04 and '05. Any day now it's got to happen because people keep telling me it will. Right? RIGHT?!

Woil: buy a house. Buy within your means and you'll be OK. Don't let the things you read on the big blue scare you away from one of the best investments you'll probably ever make.
posted by photoslob at 7:53 PM on June 16, 2005

heh.
posted by joedan at 11:38 AM on April 13, 2010

Happy to help, iamkimiam.

Some folks call me ceege or ceeg, pronounced SEEJ.
posted by cgc373 at 11:42 AM on April 13, 2010

Well, idiopath, if reading the report has left me with one single impression it's that people bought their own hype. They took dumps onto gilded dishes, told everyone it was chocolate mousse, and then ate it all up themselves and asked for seconds (not bitter at all).

A bunch of people acted like idiots and then convinced themselves that their acts of idiocy had been strokes of genius.
posted by Kattullus at 11:43 AM on April 13, 2010

Thanks, Metafilter. You give better advice than the people at my credit union.

I bought my house seven years ago, just as the bubble started -- which became clear when the assessment went up $40,000 between signing the papers and completing closing. I had (and have) a 30-year-fixed, despite my grandfather-in-law urging me to take an interest-only mortgage, and the person writing up the paperwork giving me an interest-only mortgage with a bubble payment without telling me (good thing I read the paperwork -- I just upped my payment to make it equivalent to a 30-year-fixed until I could refi into a normal one a few months later.)

Looking back, I made these decisions without any knowledge of a housing bubble per se -- in fact, I assumed I was buying at the top of the market, and the house might lose value, but I didn't care because I planned to stay at least ten years -- but the articles I read on MetaFilter as the bubble expanded made it clear to me that I'd make the right choices. I also told my wife we'd sell if any house in our neighborhood sold for over $700,000 (although when it did, she refused, which was a shame...as the market began to collapse about two months later. Oh well.)

Similarly, after my father died, my mother's bank manager tried to get her to invest the insurance money in stocks and such, and she basically gave him the finger and stuck with her safe, low-yield investments. This was a very, very short time before the financial markets collapsed.

Sometimes, the best course of action is to look at all the advice people are giving you, then make your own decision with far, far more caution and less optimism.
posted by davejay at 11:57 AM on April 13, 2010 [2 favorites]

When I make a monthly payment on a house, I'm not just purchasing the right to live there for the month, I'm also getting a little bit of the house itself at the same time. That's going to cost more than merely living there.

If that was true, landlords would expect to lose money every month and make it all up on sale. But there are lots of small time landlords that own one or two properties. Those guys could not survive in that kind of business. They need their properties to be profitable on a monthly basis.

As a first time buyer, I didn't have a huge down payment. So I expected my cost of money to be higher than a landlord's. But deducting my mortgage interest should have helped balanced things out. It didn't. Renting was still a lot cheaper than buying.
posted by ryanrs at 2:09 PM on April 13, 2010

[Small time landlords] need their properties to be profitable on a monthly basis.

On second thought, I suppose they could extract income through repeated refinancing. I bet that was popular during the bubble. Still, that's not how landlords traditionally make money. In fact, it's probably an indicator that there's a housing bubble.
posted by ryanrs at 2:20 PM on April 13, 2010

brain_drain posted a link to Housing Panic at the start of December 2006.
posted by carter at 8:29 PM on April 13, 2010

That 2005 post on the housing bubble was just from reading The Economist. The Financial Times had similar stories.

In other words the serious financial press was worried about a housing bubble as soon as rent/price ratios went out of whack and housing prices rose rapidly. I spoke to a hedge fund trader in late 2003 or 2004 who said to me he wished he could figure a good way to short housing. Financial people knew something was amiss. It'd be interesting to see what mutant had heard and when.

The funny thing is that post talks about Australia, where the housing bubble has been worst and still hasn't popped. If I'd ignored what I thought were wildly high Australian property prices and just bought I'd be way better off now.
posted by sien at 5:03 AM on April 14, 2010