Friday, December 5, 2008

Michael Lewis' subprime parable

Michael Lewis decides to live beyond his means (in a manner of speaking) - he rented rather than bought a house that he couldn't afford (emphases mine). I don't fully agree with him that:

Americans feel a deep urge to live in houses that are bigger than they can afford. This desire cuts so cleanly through the population that it touches just about everyone. It’s the acceptable lust.

... But the real moral is that when a middle-class couple buys a house they can’t afford, defaults on their mortgage, and then sits down to explain it to a reporter from the New York Times, they can be confident that he will overlook the reason for their financial distress: the peculiar willingness of Americans to risk it all for a house above their station. People who buy something they cannot afford usually hear a little voice warning them away or prodding them to feel guilty. But when the item in question is a house, all the signals in American life conspire to drown out the little voice. The tax code tells people like the Garcias that while their interest payments are now gargantuan relative to their income, they’re deductible. Their friends tell them how impressed they are—and they mean it. Their family tells them that while theirs is indeed a big house, they have worked hard, and Americans who work hard deserve to own a dream house. Their kids love them for it.

... It’s no good pretending that Americans didn’t know they couldn’t afford such properties, or that they were seduced into believing they could afford them by mendacious mortgage brokers or Wall Street traders. If they hadn’t lusted after the bigger house, they never would have met the mortgage brokers in the first place. The money-lending business didn’t create the American desire for unaffordable housing. It simply facilitated it.

The best passage was:

The pool was another example. Because we moved in during the winter, we didn’t pay that much attention to it at first. Had we bothered to dip our fingers in, we’d have discovered that it was not merely heated but was saltwater. It was a full six weeks before we really even ­noticed the pool house. Full bathroom, full kitchen, shiny new Viking range, and a fridge stuffed with 24 bottles of champagne. For a few weeks I felt that all of this was excessive. Then one day I became aware of the inconvenience of having to walk, dripping wet, from the pool back into the main house. This is what you need a pool house for—so you can make the transition from water to dry land without the trouble of walking the whole 15 yards back into the house and climbing a long flight of stairs to the giant dressing room. From that moment on, it seemed to me terribly inconvenient to not have a pool house. How on earth did people with pools, but no special house adjacent to them, cope?

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