If you did not catch it this morning on your commute to work, make sure you take eight minutes to listen to this story from NPR. The report both chastens American home owners and also offers hope. I'm designating it the next installment of Portraits of Our Economic Meltdown.
I think perhaps the most troubling comment in the story came from Mrs. Moore who said, "I look at it this way: You're sitting on a bank, so if you can use it, use it because you can't take it with you, so enjoy it while you can." The sad thing about her attitude is that she seems to have mostly used her "bank" -- the fake equity in her overvalued home -- for charitable expenditures. She used it to help her grandchildren and to pay for the funeral of a family member. I suspect there were other meaningful uses of the money she pulled out of her house.
Yet it wasn't really money she was using. And that was the trouble with the sub-prime mortgage debacle. It is the ongoing fiasco of the American economy. Whether to buy BWMs or to finance a college education, Americans are not using real money for their lifestyle purchases.
If, for example, a BMW is out of a person's price range and the person really really wants to own one, then the person needs to adjust her lifestyle to work toward that goal (questionable though the goal be). She needs to get a career that earns the kind of money necessary to responsible afford a fancy car. Instead, the usual route Americans take to the BMW dealership is a duel-income household, insufficient savings, and lots of credit card debt.
The high costs of a college education, as another example, is a sign of some systemic issues in the direction that higher education is going here in America. And yet, that does not mean that parents should expect to use fake bubble money to finance the education of their children. This is a recipe for parents leaving no inheritance and adding the burden of their financial care to their children.
The inevitability of owning up to the actual value of our homes and our other possessions is that we'll have to admit that we are, in material terms, worth less than we have come to believe. It seems like policy makers are avoiding that reckoning. Best that individual Americans don't make the same mistake.