[rwwff]

$this->bbcode_second_pass_quote('Eli', 'T')he poor fools that are going to be crushed as this economic collapse sets in deserve our pity not our derision.

[mgibbons19]

You seem to know different average middle class ppl than I do.

[artiko]

Something about inteligence and fools Keep smiling...

Two men were digging a ditch on a very hot day. One said to the other, "Why are we down in this hole digging a ditch when our boss is standing up there in the shade of a tree?" "I don't know," responded the other. "I'll ask him."
So he climbed out of the hole and went to his boss. "Why are we digging in the hot sun and you're standing in the shade?" "Intelligence," the boss said. "What do you mean, 'intelligence'?"
The boss said, "Well, I'll show you. I'll put my hand on this tree and I want you to hit it with your fist as hard as you can." The ditch digger took a mighty swing and tried to hit the boss' hand. The boss removed his hand and the ditch digger hit the tree. The boss said, "That's intelligence!"
The ditch digger went back to his hole. His friend asked, "What did he say?" "He said we are down here because of intelligence." "What's intelligence?" said the friend. The ditch digger put his hand on his face and said, "Take your shovel and hit my hand."

[rogerhb]

$this->bbcode_second_pass_quote('Eli', 'T')he reason we are in such a sorry mess right now is because very wealthy people at the top wanted to be insanely wealthy.

[jupiters_release]

$this->bbcode_second_pass_quote('mmasters', 'A')ll of the history of central banks has been about boom bust cycles. We can only print away and borrow from the future for so long until the reckoning day comes.

I actually think we've gone too far past point - what's kept it from blowing up is all the patch work behind the scenes - think a superior version of Enron. However in this case they keep plugging up the dam until the time is "just right" to burst it.

Funny enough, I see a potential solution to peak oil, the debt situation in the US, the rise of China, consumerism and much more...

I'm starting to think within a few years there will be some fear-mongering "big event". The markets will go to hell - stocks, real estate, treasury bonds, there will be a dollar crisis (perhaps a fannie/freddie default as a scapegoat leading to a US treasury bond crisis of some sort). People drain their accounts out of the markets into gold in mass.

Gold soars, the US government undergoes a major restructuring, lays off tons of government employees. The central banks crash the gold markets, use the gain to buy up the renegotiated government debt. Then afterwards, the post crash gold is gobbled up on the cheap by the central banks.

It's a 1-2 punch. The markets go to hell, big money grab. People bail into gold, it crashes, next big money grab. At the end of the day you have a worldwide depression and the world's savings have been manipulated to salvage the US. The middle east and asia get a raw deal on their US treasuries; the "big event" and the restructuring has the US population effectively controlled from revolting, China gets knocked down to size; the rich get richer and more powerful; the US is quietly on top again (all things considered); Hank Paulson gets his legacy. And of course with all the demand destruction for oil the peak oil disaster is staved off 10-20 years.

What do you guys think? Probably impossible to say how it will exactly play out but I sense something like this coming.

[Kfish]

Intelligence isn't the only factor. After losing most of his fortune in the South Sea Bubble, Isaac Newton famously lamented, "I can calculate the movements of heavenly bodies but not the minds of men."

Indeed, 'smart' people (myself included) frequently exhibit higher-risk behaviour because they're accustomed to success.

This kind of behaviour is not precisely stupidity, but rather a learned response to abnormal economic circumstances (booming economy, easy credit) which is being further encouraged by institutions profiting from it. It's a failure to verify the dominant message (spend, spend) with independent fact (economic indicators, debt / equity ratio).

It IS possible to live on a significantly lower income than current expectations indicate. Hell, I'm currently living on 10K a year, renting close to the city centre. However, these methods are not widely taught and the social expectations that would reinforce them are long gone, replaced by social expectations that reinforce the behaviour described above.

Hey, Lighthouse, where are you finding these RE deals? I'm in Brisbane and want to get some land up that way. A couple of acres within a few km of a local town would be great.

[Laughs_Last]

Laughing at fools. I’ve made a tongue-in-cheek screen name out of it, but it would be foolish to think that I will escape a similar fate as those that I might laugh at. Like Kfish just said, intelligence is a poor safeguard against foolishness.

But while we’re at it, it is important to distinguish between schadenfreude and comic situational irony. Much of what we are tempted to laugh at deserves lament.

[rogerhb]

$this->bbcode_second_pass_quote('Laughs_Last', 'M')uch of what we are tempted to laugh at deserves lament.

[SeasonOfPain]

Many studies have indicated that laughter is based upon the same base emotional impulses as fear. Perhaps some of it is whistling in the dark.

However, I will admit that I partake in altogether too much schadenfreude myself these days, and I think a greater cause of it is frustration. When you've expended a large amount of energy attempting to warn people and received only scorn and ridicule in return, it is very difficult not to become bitterly amused when those same people (or representatives of them) encounter misfortune.

I know it's not particularly helpful to myself or others, but it definitely is a primal emotion that comes easily.

[Miki]

IMO, it all boils down to 3 factors:

1-Studies in Decision Making (Cognitive Psychology) show that we are much more irrational in our decisions than we think we are. This is conducive to irrational risk taking (ie, people take great risks because they're convinced their decisions are rational). Anyone interested in the most common errors of judgement that we *all* commit, can read about the pioneering work of Tversky & Kahneman.

$this->bbcode_second_pass_quote('', 'O')ne very important result of Kahneman and Tversky work is demonstrating that people's attitudes toward risks concerning gains may be quite different from their attitudes toward risks concerning losses. For example, when given a choice between getting $1000 with certainty or having a 50% chance of getting $2500 they may well choose the certain $1000 in preference to the uncertain chance of getting $2500 even though the mathematical expectation of the uncertain option is $1250. This is a perfectly reasonable attitude that is described as risk-aversion. But Kahneman and Tversky found that the same people when confronted with a certain loss of $1000 versus a 50% chance of no loss or a $2500 loss do often choose the risky alternative. This is called risk-seeking behavior. This is not necessarily irrational but it is important for analysts to recognize the asymmetry of human choices.

[Vexed]

A (currently unemployed) friend of mine recently made the plunge on a $400,000+ McMansion on a postage stamp lot. He has kids, and he felt like he just couldn’t wait any longer. He spent a good 20 minutes trying to convince me that he had made a remarkable buy and that in six months of ownership he had already accumulated $30,000 in equity (apparently what is allowing him to continue his huge monthly mortgage payments). Even so, the guy was brimming with confidence. He’s been aiming for this goal his whole life.

I’m not laughing at him. I am worried for him and his kids. I am wondering how to help him when he realizes the hole he has dug for himself and his family.

Hopefully, he is smarter than I am.

[Jack]

$this->bbcode_second_pass_quote('Vexed', '
')I’m not laughing at him. I am worried for him and his kids. I am wondering how to help him when he realizes the hole he has dug for himself and his family.

[Miki]

$this->bbcode_second_pass_quote('Jack', 'H')is resentment will probably destroy the friendship.

[Jack]

$this->bbcode_second_pass_quote('Miki', '')$this->bbcode_second_pass_quote('Jack', 'H')is resentment will probably destroy the friendship.

[smiley]

I know the feeling.

A friend of mine recently bought a house. Two weeks ago he came by to brag about how good a deal he struck. He took an >100% ARM mortgage, based on one of those stock market schemes. From the excess money he bought a sports car.

He's now up to his eyeballs in debt, but it is a win-win situation he told me, as he would benefit from both the stock market rises and the housing price increases and if one would fall behind the other would compensate.

He rejects the notion that rising interest rates and falling stock and housing prices are possible at the same time. And he certainly does not want to think about the consequences that that would have for him.

He's alone and has a just about average income. Even without PO he would be barely be able to finance this all. He's cutting it right down to the wire, and unless he wins the state lottery I can only see this go awry.

Would I help him?

No certainly not.

That might sound harsh, him being a friend and all. But for me it is a moral issue.

These people are the ones that look for the shortcuts in life. They are like the people that cut in line at the store. And, yeah, if you cut in line you shouldn't be surprised to be kicked out of the store.

Bottom line is: he took a calculated risk. Probably he would deny that he knew about the risks when it all comes tumbling down, but he does.

And that means he should face the consequences.

[dbarberic]

$this->bbcode_second_pass_quote('Falconoffury', 'I')'m talking about people who are leveraged over their eyeballs with house payments, car payments, loan payments, student loans, and other loans.

[BigTex]

$this->bbcode_second_pass_quote('Kfish', 'I')ntelligence isn't the only factor. After losing most of his fortune in the South Sea Bubble, Isaac Newton famously lamented, "I can calculate the movements of heavenly bodies but not the minds of men."

Indeed, 'smart' people (myself included) frequently exhibit higher-risk behaviour because they're accustomed to success.

This kind of behaviour is not precisely stupidity, but rather a learned response to abnormal economic circumstances (booming economy, easy credit) which is being further encouraged by institutions profiting from it. It's a failure to verify the dominant message (spend, spend) with independent fact (economic indicators, debt / equity ratio).

It IS possible to live on a significantly lower income than current expectations indicate. Hell, I'm currently living on 10K a year, renting close to the city centre. However, these methods are not widely taught and the social expectations that would reinforce them are long gone, replaced by social expectations that reinforce the behaviour described above.

Hey, Lighthouse, where are you finding these RE deals? I'm in Brisbane and want to get some land up that way. A couple of acres within a few km of a local town would be great.

[Vexed]

$this->bbcode_second_pass_quote('smiley', 'I') know the feeling.

A friend of mine recently bought a house. Two weeks ago he came by to brag about how good a deal he struck. He took an >100% ARM mortgage, based on one of those stock market schemes. From the excess money he bought a sports car.

[strider3700]

$this->bbcode_second_pass_quote('Laughs_Last', '
')As for being bad itself, student loans are a gamble just like other loans. Instead of speculating on the future of a stock value or the value of real property, student loans gamble on the future earning potential of an individual’s new skill set.