Thursday, August 30, 2007

Requiem for a mall

About 15 years ago, when I was living in Des Moines the first time around, I had a girlfriend who was assistant manager of "Everything .99" at Southridge Mall -- one of those stores where everything costs a dollar. The store had originally been "Everything 1.29," but it knocked 30 cents off to keep the traffic coming in. This week, I returned to Southridge for the first time in probably a dozen years. "Everything .99" was gone; in its place was "Filipino Store," a merchant that, obviously, caters to Des Moines' burgeoning(?) Filipino population.

The evolution of that one storefront sums up perfectly the continued deterioration of Southridge: from downscale retail, to cut-rate downscale retail, to micro-niche retail.

But at least Filipino Store had customers. I counted three people in there (Filipinos, of course), buying groceries and other specialty items not available at Aldi or Fareway. That was three more people than were shopping at "Natural Therapeutics," a jacuzzi dealer whose lone visible employee was keeping shoppers away with some kind of political-rant radio show turned up to full blast, and two more than were browsing the secondhand material at Book Trader, whose lone visible employee was unshaven and disconcertingly bleary-eyed.

Those three storefronts were occupied, though, and at Southridge that's saying something. A visit to the Soutridge Mall website reveals that of 91 specialty retail locations within the mall, 38 are listed as "leasing opportunities," meaning they're vacant. (This count does not include kiosks. When a kiosk is vacant, the mall management just takes it down. So whenever you see a hastily arranged "sitting area" in the center of a mall concourse, it's a good bet there was once a Piercing Pagoda or Sun Tropik on that spot.) Several empty Southridge storefronts are being consolidated into a single large location for discount clothier Steve & Barry's, but even when that project is completed, one-third of the specialty stores will still be vacant.

On the north side of town, at Merle Hay Mall, things are better, but just a bit. On a recent walkthrough, one could see 21 vacant specialty store locations out of a total of about 85, a vacancy rate closer to 20%-25%, compared with 40% at Southridge. While Southridge's vacancies are spread pretty evenly throughout the mall, certain areas of Merle Hay have been hit especially hard. The north end, near Sears, is a particularly stark dead zone. If you ever wondered what a paradigm shift looks like, you can see it here: Empty storefronts still bearing Sam Goody and Suncoast Motion Picture Company signage face each other across a deserted corridor. (In the Internet age, stores like these that sell commodity products are doomed. At a bookstore, at least you can pick up the volumes and page through them. Music and movie stores offer you nothing you can't get online, and in fact much less.)

Southridge is deep into the shopping mall death spiral, while Merle Hay is just starting to slip into the funnel. They show the classic symptoms:

  • Bejeweled islands. In just about any mall, thriving or dying, you'll find jewelry stores wherever corridors intersect. One major reason is that jewelry is the ultimate impulse buy: People want it, but no one needs it, so the stores are positioned to poach people coming to the mall for other purposes. Also, of the people who do go to the mall intending to buy jewelry, few have a particular store in mind. The stores are pretty much interchangeable. To all but the most discriminating buyers, one 50-point diamond or lump of white gold is as good as the next. Thus, location becomes critical, and stores "on the corner" are best poised to grab those customers prepared to stop at the first place they see. When malls are going through their death throes, jewelry stores hold out longer than most. Perhaps their margins are higher -- one really good sale can carry the entire store for a day. Or perhaps years of exposure to all those corner jewelry stores have fixed in people's minds the idea that malls are full of indistinguishable jewelry stores, so that when people are in a mind to buy, they'll go to a mall they might not otherwise frequent. Whatever the reason, when you walk through a dying mall, it will seem like every other store is selling jewelry. That's because during your walk you see one empty storefront after another (and another and another), then you get to an intersection, and there's a jewelry store on every corner. You can see this in action in a stretch of stores in the northwest corner of Southridge. At one corner, there's a Helzberg Diamonds with three vacant stores on one side and two on the other. Directly across the corridor is a Zales with two empty stores on one side, and two out of three stores empty on the other.

  • Cellphone clutter. I don't know why this happens, but it does. Dying malls fill up with stores trying to sell you cellphone service. My only guess is that leasing agents are desperate to get some tenant, any tenant, to fill empty storefronts, and that cellphone sellers have very little overhead. Southridge has separate stores for Nextel, T-Mobile and U.S. Cellular; a Shock City Cellular location that offers Verizon, Sprint and T-Mobile; a Radio Shack that handles AT&T; plus a kiosk that sells phone holsters and other cell-crap. Merle Hay has Verizon, U.S. Cellular, Sprint, Qwest, Shock City, Radio Shack, Cingular/AT&T and an accessories kiosk. Within five years, both of these malls will have microeconomies based exclusively on people selling each other tennis bracelets and two-year unlimited text-messaging contracts.

  • No goods, just services. The business model for American malls in the late 20th century was to offer people a wide range of shopping to get them in the door, and then provide services to keep them there. If a person could get their hair cut at the mall, or get something to eat, they'd be more likely to stay longer and arrange to do all their shopping there. A dying mall sees this dynamic reversed. Stores close, and all that's left is the services. People now come to the mall specifically to get their hair cut. That's fine for the salon, but it does nothing for the mall, it creates no "through" traffic. Each of the two malls has at least three hair or nail salons, for example.

  • Non-retail "store"-fronts. Faced with 40% vacancy rates, a mall will do just about anything for rental revenue. Southridge is now home to two churches, the Iowa Mortgage Association, a temp agency and the Des Moines Jaycees' annual haunted house, a large space that is unused for 11 months of the year.

What's killing the Des Moines malls? The West Des Moines malls, of course. More specifically, Jordan Creek Town Center.

When I first lived here, there were three malls, each with a distinct identity. For lack of better terms, let's just say that Valley West Mall, on what used to be called 35th Street, was the highbrow mall, Merle Hay was the middlebrow mall, and Southridge was the lowbrow mall. The malls' identity reflected their surroundings. Valley West was in the monied western suburbs, Southridge was on the working-class south side, and Merle Hay was on the border of Des Moines and Urbandale. (Snubbed as usual, east-siders have a mall called "Ankeny.") Then, while I was out, Jordan Creek came along to meet a need no one knew existed. Built in the Dallas County portion of West Des Moines (guess which county gets the sales tax revenue), it was to feature high-end retail and restaurants, assuming you consider Dillard's and P.F. Chang's "high end."

With Jordan Creek going up in the western suburbs, which mall stood to lose the most? Here's a map of the Des Moines area, with the pre-existing malls spotted in red and Jordan Creek in blue:

The average person would probably say Valley West. It's the closest of the three, and it targets the same upscale clientele as Jordan Creek. The correct answer, however, is Southridge.

Southridge is what's known in the industry as a "super-regional" mall -- or, it was, before its customer base collapsed. It was designed to be the primary shopping venue for a large area, starting with the south side of Des Moines and extending to Norwalk, Carlisle and Indianola. Indeed, a stroll through Southridge in the early 1990s found it teeming with letter jackets from the high schools in those southern-tier communities. Warren County license plates filled the parking lots. As the southern suburbs became more affluent, the mall underwent a dramatic expansion and renovation, the centerpiece of which was a delightful indoor carousel. Southridge, which had been sliding, was poised for a comeback.

Around this time, Des Moines business leaders, airport boosters and others were again pressing for construction of a southern freeway that would connect Interstate 35 on the west with U.S. 69 on the east, giving Des Moines a true beltway. They would eventually get their wish with the relocated and expanded Iowa Highway 5, a truly beautiful stretch of highway that leads ... pretty much straight to Jordan Creek Town Center. Families that used to come up from the south to shop at Southridge Mall could now hop on this brand-new freeway and in just a few extra minutes be stuffing their faces at the Cheesecake Factory at Jordan Creek. The death of Southridge Mall had begun.

When I was there this week, there was only one child on the carousel.

Merle Hay also took a beating, though not quite as severe. It still has an Old Navy store, a Limited, an Aeropostale, an American Eagle, and an updated Victoria's Secret. (The old Victoria's Secret stores were designed to look like Parisian salons; the updated ones are designed to look like Amsterdam whorehouses.) But there are far fewer people moving through. Merle Hay's proximity to Interstate 35-80 had long brought in shoppers from the north and northwest. Now that same freeway sweeps many of those same shoppers down to Jordan Creek.

What of Valley West? Its website shows just three vacancies out of more than 100 specialty locations, plus two storefronts that are being filled temporarily while Victoria's Secret and The Limited renovate their stores. Closer to Jordan Creek than either of the two other malls, and yet its vacancy rate is under 5%. How can that be? Some theories:

  • The "my mall" effect. For tens of thousands of people in West Des Moines, Valley West is simply "my mall." It's close by and has all the stores they need. If they really have to, they'll go to Jordan Creek -- say, to get an iPod at the Apple store -- but for day-to-day shopping, there's no need to go any further. Merle Hay may benefit from a similar effect, though its immediate and satellite neighborhoods are neither as affluent nor as populous. Southridge, meanwhile, is surrounded almost entirely by commercial property.
  • The I-235 advantage. The city of Des Moines is still the population center of the metro area. And for most people in the city, you would get to Jordan Creek by taking Interstate 235, which goes ... right past Valley West Mall. It's a significantly shorter trip to Valley West, and the payoff for going all the way to Jordan Creek is not much greater.
  • The Southdale strategy. Southdale, in Edina, Minnesota, was "my mall" when I was growing up in Minneapolis. The first fully enclosed shopping center, it was a roaring success from the 1950s until the '90s, when the gigantic Mall of America opened a relatively short drive away down Interstate 494. Despite suffering a sharp initial drop in traffic, Southdale embarked on an extensive renovation plan and an aggressive advertising campaign. The strategy was this: "We can't keep shoppers from going and checking out the megamall. So let them go. When they get fed up with the traffic, the parking hassles, the tourists and the sheer damn size of the place, they'll come back to Southdale." And they did. Twin Cities residents will go to the Mall of America, if they have to, but they don't shop there. Who has the time? Valley West can make this same appeal: Why go all the way out to Jordan Creek, and deal with all the out-of-towners with their Mahaska County license plates and creative turn-signal usage, and park a mile away, and wait at one stoplight after another, when all you need is right here? Valley West has undergone a renovation aimed at looking even more upscale than Jordan Creek. I suspect it will work.

The Des Moines area didn't need another mall, but it got one anyway. Southridge is dying, and Merle Hay isn't looking so hot, either. Who knows? In a few years, maybe we'll need Jordan Creek after all.

Tuesday, August 28, 2007

We have met the stalker, and it is us

One of the top stories on Channel 13's noon news today was that police were following up on a report of a strange man who was seen taking pictures of women in the the downtown skywalks. Downtown businesses are so alarmed by this that they are alerting their employees to Mace the living shit out of anyone who even looks like he might have -- or own -- a camera.

The piece included comments from the police department's PIO, Sgt. Todd Dykstra, who said that they want to know what the guy was up to and that it's conceivable he could be charged with harassment. I have no doubt that Dykstra knows damn well that there's almost no way to make such a charge stick if all the guy was doing was takin' pitchers o' purty gurls in the skywalks. (The Supreme Court has made it abundantly clear that you have no presumption of privacy in a public place. That's why the authorities, and quasi-authorities like Wal-Mart security, are allowed to keep you under surveillance pretty much from the time you step out your front door.) But I understand why Dykstra said what he did: He'd just as soon not have the skywalks filled with weirdos taking pictures of random women. (The Supreme Court also says it's OK for the police to fudge the truth when their heart is in the right place.)

Which brings us back to the reason Channel 13's report this afternoon was unintentionally hilarious. Someone was stalking the skywalks with a camera, shooting pictures of random women. What did Channel 13 do for visuals for this story? It had someone stalk the skywalks with a camera, shooting footage of random women. If I was Todd Dykstra, I'd have Tased that sumbich.

Back at the studio, fifth-string Channel 13 anchorman Patrick Dix was utterly oblivious to the irony. John Bachman would have been all over that shit.

Monday, August 27, 2007

Third Reich funnies

Let's hope there weren't any Holocaust survivors reading the Register's business section today. Because here's the main art from the front page:

Yes, that's what you think it is. A cartoon Nazi. (I think it may actually be "Ilsa: She-Wolf of the SS.") It accompanied the latest installment of "Workbytes," the semiweekly column devoted to helping young people navigate the world of work. Today's topic was bad bosses. A sidebar included some workplace horror stories, including a truly hair-raising account by a waitress whose supervisor knowingly hired a man who had been stalking her. But none of the bad-boss tales was as shocking as the bathos with which this one was delivered:
"The boss runs the place like a concentration camp. It seems as if we are treated like second-class citizens, since we are on the lower end of the pay scale. For example, every department is entitled to a department outing. Not us. Our department hasn't had an outing for years. We also are to have all our time accounted for, even bathroom breaks. If you are scheduled to be in at 8 a.m. and get here at 8 a.m., you are late. You are supposed to be ready to work by 8, not here by 8. If you come in at 8:01, then you have to stay late a minute to make up your time."

Why, it's just like a concentration camp! At Hitler's concentration camps -- or Stalin's, or Mao's, or Pol Pot's -- people were just burned alive, or worked to death, or made to kill their own parents, or ordered to dig their own graves, or stripped of all their dignity and forced to endure hell on earth. But this guy's department didn't even get an outing. And everybody else's did! And if he comes in a minute late in the morning, he has to stay a minute late in the afternoon! He can't go home until 5:01 p.m.! No wonder the Jews were so traumatized at Auschwitz!

Look, I know hyperbole. I understand that this guy's boss was being unfair and unreasonable. I understand that someone, somewhere thinks it's funny to depict asshole bosses as "Nazis." But there's something deeply troubling about the combination of this pathetic story and the illustration.

I frequent a number of message boards for language professionals. Last year a young woman joined one of the boards with the username "Copy Nazi." When asked to explain herself, she said that she has very high standards, is very exacting, and demands strict adherence to rules. And I thought: Oh, that's what defined the Nazis? That they were just such sticklers? A bunch of anal-retentive obsessives hung up on rules? Good God. No, what defined the Nazis was the institutionalization of inhumanity. Strict adherence to petty rules was not their problem. To suggest as much just betrays ignorance. And also a lack of creativity: "Nazi" = "meticulous"? Yeah, haw haw haw, you dumbass.

There's a larger lesson here about comedy. When Jerry Seinfeld named a character the "Soup Nazi," he was deliberately going all the way over the top. The name was meant to reflect poorly not on the soup seller, but rather on Seinfeld himself, for so grossly overreacting to the man's strange behavior. Suppose the character had actually turned out to be a Nazi -- death's-head cap, Jodhpurs and all. It wouldn't have been funny; it would have been in terrible taste. It's only because the man wasn't a Nazi and wasn't depicted as one that calling him one made any comedic sense.

When the person quoted by "Workbytes" says his workplace was "like a concentration camp," it's clear he does so without any self-awareness. He just said something ridiculous, but he doesn't realize it. Because in his solipsistic little world, any workplace's adherence to silly rules is on par with the atrocities of Dachau. Probably because he has no idea what happened at Dachau. But you know? I think I could let that slide, too, if it weren't for the fucking cartoon. The combination of historical and rhetorical cluelessness makes the whole thing offensive.

(And yes, I know she's supposed to look like Col. Klink, but Hogan's Heroes went off the air 40 years ago. It's ancient history, and it's no defense.)

Sunday, August 19, 2007

Valley wins. Big surprise.

Perhaps you saw the story about Iowa high school athletics on the front of the Sports section in Friday's Des Moines Register. Here are the first couple sentences, edited for, um, clarity:

"West Des Moines Valley isn't the only team eligible for the 'Iowa's Largest and Wealthiest High School Award,' though it may seem like it. This marks the fifth consecutive year the Tigers have won, and no school has won more since the creation of the competition in 2000."

OK, technically, the honor is called the "All-Sports Award." As the story says, it has been given out every year since 2000 by the Register. The winning schools, the newspaper says, are determined "based on the performance of athletic teams in all sports." But when you stop and think about it, you realize that the award might as well be based on the demographics of the student body, because those demographics have helped hand the award to Valley every year since 2003.

Before we start, let me make clear that the case we will be building here is not against Valley High School. Valley athletics have an indisputable tradition of excellence. To piss on the school for winning championships is to suggest that the Valley kids should be taking a dive out there. They shouldn't. They're good kids. My wife is a Valley alumna, for pete's sake. No, the case we're building is against the Register's All-Sports Award itself.

First of all, let's talk about size. Valley has by far the largest enrollment of any Iowa high school, with about 1,950 students. That's about 15% larger (about 230 more students) than the next-closest competitor, Des Moines East. Does size matter? You bet it does. Because a huge student population allows a school's teams to draw from a significantly deeper talent pool.

Let's assume that athletic talent is fairly evenly distributed through the population (it isn't, obviously, but we're starting from the most basic concepts). For every 500 students, let's say there is maybe one player in a given sport who is a "10" on a ten-point scale. At progressively lower talent levels, there are more and more students. Out of 500 kids, there are, say, two 9s, three 8s, five 7s, eight 6s, twelve 5s, and so on. In putting together a 20-player team, then, Valley has access to four 10s, eight 9s, and enough 8s to fill out the roster. Valley's team average is 8.4, and the median player, the one in the middle of the team, talent-wise, is a 9.

Nearby Urbandale High School, meanwhile, is similar in a lot of respects to Valley but has fewer than half as many students. So it must make do with maybe one or two 10s, three 9s, five 8s, eight 7s and some 6s. Urbandale's team average is just a little lower at 8.2 -- but the median player is only a 7, two full levels below Valley's. Anyone who knows sports acutely would tell you that the median is more important that the average, which is distorted by extremes. You don't win championships with your stars. You win them with your role players.

So Valley's size alone gives it an advantage toward winning the Register award every single year. But demographics is more than just raw population numbers. The reason Valley is so large is that it's the only conventional public high school in the West Des Moines district, which covers more than 60,000 people in West Des Moines, Clive and portions of Urbandale and Windsor Heights. That territory also constitutes the greatest concentration of wealth in the state. Does money matter? You bet it does. Because an affluent student population also allows a school's teams to draw from a significantly deeper talent pool.

Simply put, rich kids (and upper-middle-class kids) have a leg up on poor kids (and working-class kids). In a richer school, students in the aggregate will have more free time to pursue sports of all kinds, far more opportunity to pursue niche sports such as tennis and golf, and more parks and recreational places in which to pursue them. In a poorer school, more students will have jobs (to help support the family, not just to get spending money), more will be unable to afford specialized sporting equipment, and more will be watching siblings before and after school. In those poorer schools, a certain portion of the student body couldn't play sports even if they wanted to, and many are limited in the sports they can participate in.

That's not to say poorer schools can't and don't field teams that compete at a high level. They do. The catch is: They can't do it in every sport. In any given school, rich or poor, the best basketball players will be playing basketball, the best football players will be playing football, because opportunities are present in those sports from a young age. It's the lesser sports -- the ones that colleges refer to as "non-revenue" sports -- where the competition between rich and poor schools breaks down completely. Thousands of kids in the western suburbs grow up exposed to golf, tennis, soccer, swimming, diving, volleyball. On Des Moines' east side ... not so much. Des Moines East can field a decent basketball team and a track team, of course, but how's their golf team? Their tennis team? Their swimming team?

This is key, you see, because the All-Sports Award depends on participation in "all sports." Friday's Register article includes a little sidebar about how Valley won the All-Sports title. In the past year's state tournaments, Valley teams were:

  • First in girls' swimming
  • First in girls' softball
  • First in girls' soccer
  • Second in boys' track
  • Third in boys' tennis
  • Third in boys' soccer
  • Fourth in boys' swimming
  • Fourth in girls' golf
  • Fifth in boys' golf
  • Seventh in girls' track
  • Semifinalists (third/fourth) in football
  • Semifinalists (third/fourth) in girls' basketball
It's a great record, and all the student-athletes at Valley have every right to be proud of their achievements. Again, nowhere in this post am I alleging that Valley athletes have any unfair or improper advantage on the field of play. However, the Register All-Sports Award rests on essentially unfair and improper criteria. You look at Valley's accomplishments, and you see that what won it the award were its golf teams, its swimming teams, its soccer teams, its tennis teams. When you have 2,000 students, you can have a competitive swim team and a competitive golf team and a competitive tennis team and a competitive soccer team. Other schools -- far smaller schools -- can't have them all. The pool just isn't deep enough.

(The Register award, it should be noted, is given out for three categories of schools: "small," those with 1-349 students; "medium," or 350-799 students; and "large," 800 or more. At the lower levels, no school has dominated year after year like Valley has. But those categories have an upper bound, and no school in them has a combined enrollment/affluence edge as stark as Valley's.)

If the award itself is so skewed, why does the Register even give it out? To understand that, it helps to understand a couple things about the media.

First, when people who don't work in the news media see something irrelevant, trivial or otherwise questionable dressed up as "news," they shake their head and ask, "Slow news day?" The answer is usually: Yes. For sports news, you don't get much deader than August. All that's going on is baseball. If it weren't for Shawn Johnson of West Des Moines(!) slaughtering the opposition in international gymnastics, the Register wouldn't have anything to write about at all. (Besides another preview on the Hawkeyes' backup punter, of course.) So they fill column inches with a bogus award.

Second, you may or may not have noticed this, but community newspaper sports sections aren't exactly fonts of creativity. That's why every other sports headline is a brainless pun on someone's name: "Sabbatini has Tiger by the tail." Get it? Cuz his name is Tiger, and tigers have tails! I'll bet you dollars to doughnuts that someone in the Register hierarchy saw that some other newspaper somewhere was giving out an annual high-school all-sports award and thought, "Hey, why don't we do that?" But they never stopped to think through the criteria. In California, or New York, or Illinois, or even Missouri, you have a lot of large schools from different population centers that can be measured against each other on a roughly equal basis. Iowa does not. Rating high schools according to the Register criteria is always going to be comparing apples to oranges to plums to cherries to grapes, because there are so few teams with apples.

Valley athletes deserve congratulations for a lot of things, but not this.

Friday, August 17, 2007

Hunka hunka noisome overkill

Are you sick yet of the coverage of the 30th anniversary of Elvis' death? Tired of the hagiography of a drug-addicted sexual deviant who died on the toilet? Sorry, but there's nothing I can do for you. We'll be getting this same fucking useless, lazy, media-manufactured "story" every August until the last baby boomer is cold in the ground.

Wednesday, August 15, 2007

WHO's majestic porch

"Van and Bonnie," longtime radio personalities for the local right-wing station, WHO, can be seen in a new television advertisement for Midwest Construction, a local contractor. Midwest has updated the famous(?) "WHO Crystal Studio" at the Iowa State Fairgrounds. Fairgoers are invited to stop by and check out the new surroundings.

The Crystal Studio. Sounds so chic, so futuristic, doesn't it? The name evokes images of sleek modernism, like the Crystal Cathedral in California, or maybe the Crystal Court in Minneapolis, or even the high rises of Crystal City, Virginia, looking out over Washington, D.C. Really, the Fortress of Solitude is what comes to mind.

Or, maybe it just makes you think of a fucking porch:

There's nothing wrong with the building, per se. If I want to add a nice three-season room, I'll definitely consider hiring Midwest Construction for the job. It's the name that's a pretentious joke. Call it the "Panoramic Studio" if you must give it a name. Or the "Fishbowl studio." Or hey, even "The Porch." Imagine how folksy and inviting that would sound in an ad: "Come out and join us on The Porch at the Iowa State Fair."

But instead, it's the Crystal Studio. As the late Merv Griffin would say, "Oooooooooohhh. That's goooood."

Sunday, August 12, 2007

And no shiitake mushrooms!

We've begun to go through a lot of baby food at our house. The boy who for so long considered solid food beneath him -- and as a result wound up with solid food all over him, and all over us -- is now going through a good 10 ounces of the stuff every day. A lot of it he likes: squash, sweet potatoes, carrots, pears, applesauce, green beans. Some of it he doesn't care for: bananas, peas, anything with meat in it.

One particular concoction has been met with considerable ambivalence: Vanilla Custard Pudding. He'll take a few bites, but he doesn't seem excited about it. It's sweet, so you'd think he would like it, but there's something funny about the consistency. Or maybe it's the label.

See, Gerber baby food now comes in little clear plastic containers rather than the jars of yore. The particular variety of food is printed on an inner lid that you peel off and throw away -- sort of like on a can of Pringles. Because that lid gets tossed, Gerber also prints the variety on the side of the container, so you know what it is if you put the leftovers in the fridge. There is limited space on the side, though, so sometimes they have to abbreviate. "Apples, Strawberries and Bananas," for example, becomes "APPLES STRAW BANANA."

So maybe when we're feeding him Vanilla Custard Pudding, the boy looks at the spoonful of sticky, whitish goo and then looks at the label ...

... and thinks to himself: Ah, no, I'll pass, thanks.

Friday, August 10, 2007

I'm in the 36-to-50 age group, so I'm close

It turns out that you really are only as old as you feel. As evidence, this week I received my first solicitation to join the AARP, just four months shy of my 38th birthday. The handsome, official-looking packet delivered to my house by government courier* included a flattering come-on, a sturdy plastic temporary membership card with my name on it, and a business-reply envelope so I could send back my enrollment at no cost to me (except the $12.50 membership fee).

I was a little confused as to why AARP Executive Director William Novelli had signed my membership card -- shouldn't I do that? I mean, my driver's license has my signature, not Chet Culver's -- but the matter was quickly forgotten as I read up on all the fantastic services and discounts I could get by joining: 18% off worldwide air ambulance and "medical repatriation" services! 10% off at Best Western! Huge discounts on rental cars! Plus, I remembered what Alan Simpson, the former Republican senator from Wyoming and one of my all-time closet heroes, said about the AARP:

"33 million Americans bound together by a common love of airline discounts and automobile discounts and RV discounts; they're a monstrous organization. ... They're selfish, greedy. They don't care about their grandchildren a whit."

When am I ever going to get another opportunity to join a monstrous organization that guarantees me 25% off at Alamo Rent-A-Car? I mean, al-Qaeda sure as shit isn't going to get me a free upgrade to a full-size car when available, and the damn KKK can't even get the adopt-a-highway to let them pick up trash; no way they're going to offer me prescription benefits.

So I'm going to join this thing. The fine print says I have to be 50 years old, but I'm sure that's just a technicality. I already have my membership card!

Now git them fuckin kids off my lawn or I'm callin the police.


Thursday, August 9, 2007

Rant: Your house isn't worth what you think it is

About a month ago, my wife and I checked out an open house in Johnston. We're not looking to buy a home immediately, but we will be in the market next spring, so we're keeping tabs on what's available, where, and for how much.

The house we looked at was pretty much perfect for us -- and, judging by comments we heard at the open house, for others as well. It was airy and bright, with three large common areas, good-sized bedrooms, a large, open kitchen, a beautiful master suite, a fully finished basement with wet bar and full bath, an excellent space for a home office, and a large back yard with a two-level deck. The home was impeccably maintained and sharply decorated, and it "showed" extremely well. Had we been ready to buy, we would have put in a contract. We'd have been tempted to offer full price, too. The home was that nice.

Further, the sellers had priced the house aggressively, and I mean that in a good way. From their asking price, it was evident that they wanted this thing to sell quickly, and that they weren't going to make the mistake -- epidemic in the current market -- of trying to squeeze every last nickel out of the property at the expense of thousands of dollars in carrying costs. Here is the sale history of the house, according to the Polk County assessor:

6/11/1998: $211,530
5/5/1999: $205,000
6/28/1999: $208,000

The sellers are asking just a little under $268,000, meaning they hope to realize just a 28% profit on a home they've owned for eight years (just 20%, if they have to pay the 7% commission that crooked Iowa realtors are trying to get). That is such a ridiculously reasonable asking price that these people should have their heads examined. This property is the definition of "priced to sell," and when we walked through the home, we commented to the agent handling the open house that it wouldn't stay on the market long at this price.

A month later, it's still on the market. No contract pending. We're watching to see if the price drops as summer bleeds into autumn and the pool of potential buyers (families with kids) grows shallower for the duration of the school year. I wouldn't be surprised if it does, because that "housing bubble" you've heard so much about over the past year or so is very real and has been punctured -- and the damage will not be confined to Southern California or the Northeast.

To be sure, real estate in Iowa has not seen the kind of appreciation that caused housing prices on the coasts to go berserk, but the psychology behind the bubble has manifested itself here. For example, they're building townhouses in cornfields in Grimes. Townhouses -- so named because they maximize the housing capacity on scarce urban land -- are going up amid acres and acres of farmland, much of which is also for sale. With nearly new single-family houses languishing unsold on the MLS for comparable prices, who thinks it's a good idea to be bringing hundreds of $150,000 townhouse units into the inventory in the middle of nowhere? Today, no one. But two years ago, when these things were being platted out, it seemed like a great idea. When have realtors ever been wrong about anything?

Still, Iowans did a far better job of keeping their heads screwed tight on than did other regions of the country. That's why it's too bad that the bursting of the housing bubble resembles an atomic bomb: Even regions not directly in the blast radius are going to get hit with the fallout. And it's the fallout that is keeping that beautiful house in Johnston from selling. To understand how this all fits together, we need to go back and reconstruct the housing bubble one step at a time. Come along, friends ...

Step 1: Don't trust any loan under 30

For decades, the U.S. housing market was driven by conventional mortgages. A buyer made a down payment, traditionally 20% of the price, and financed the rest with a fixed-rate mortgage. He shopped around for the best interest rate he could find, then locked it in for the duration of the loan -- usually 30 years, sometimes 15. Because the rate was fixed, the buyer's payment remained steady. Each month, he paid a little less in interest and a little more in principal, but the total amount of the payment never changed. It was one thing he could count on in a world full of things he couldn't.

For many people, the biggest obstacle to buying a home was coming up with the money for the down payment. On a $150,000 house, for example, they needed to scrape together $30,000. Lenders required a down payment for three primary reasons:

First, it demonstrated a certain level of financial discipline. Before cutting someone a check for six figures, a bank wanted some kind of assurance that the money would be paid back. Someone who had demonstrated enough self-restraint to save up $30,000 toward a down payment represented a significantly better credit risk than someone who spent all their disposable income on pretty bows and ribbons.

Second, by requiring borrowers to put up a substantial chunk of their own assets, the bank ensured that those people had some skin in the game. People are surprisingly quick to default on their obligations when the bank is holding the entire bag. But when you have your own money tied up in a house, you will dig deeper, fight harder, work longer to keep it. It's just human nature.

Third, and most important, a down payment is the lender's hedge against depreciation. Say you put down $30,000 and the bank writes you a loan for $120,000. For all intents and purposes, you own 20% of the house and the bank owns 80%. But if the price of the house falls $10,000, you don't share that loss equally. It all comes out of your share. You now own 14.3% ($20K out of $140K in value) of the house, and the bank owns 85.7%. But the important thing is that if you need to sell the house, the bank will still get all its money back. Barring a collapse in housing prices of greater than 20%, the bank is protected. It's using your equity as a cushion. You're protected, too, because if you absolutely have to, you can still sell the house, pay off the loan, avoid foreclosure, and keep your credit rating intact.

Over the past few years, this aspect of the down payment requirement -- the depreciation hedge -- came to be viewed as a quaint relic as the entire real estate market bought into the delusion -- as it periodically does -- that housing prices never do anything but rise. That delusion had taken hold as money began growing on trees.

Step 2: Refi-fo-fum, I smell low rates

Around the turn of the 21st century, interest rates on conventional mortgages were about 8%, close to their historical averages. Over the next few years, though, rates fell through the floor, hitting 5.5% by mid-2003. Money was cheaper than it had ever been, which allowed people to borrow greater amounts that ever before. The homebuyer above who had borrowed $120,000 for 30 years at 8% interest had a monthly principal and interest payment of $880. At 5.5% interest, however, that same buyer could borrow $155,000 for the same monthly payment.

So, because he was able to borrow about 30% more money, he was now able to buy 30% more house, correct? Move up to a bigger slice of the American dream? Not at all, because the cost of money had gone down for everyone else, too. A buyer who could have borrowed $155,000 at 8% could borrow $200,000 at 5.5%; a buyer who qualified for $200,000 at 8% could now get $258,000; and so on all the way up the scale. Everyone had access to more money, which pushed housing prices up. And that inflation started at the very bottom. In any given market, there's a certain threshold price below which you just won't find decent houses for sale. That threshold price defines the entry-level home. When money is cheap, the number of people wanting entry-level homes outpaces the supply of such homes. The threshold price rises -- and the prices of all other houses rise along with it. Where did all the $70,000 houses go? They became $140,000 houses.

At the same time low rates were driving up home prices, tens of millions of people who had taken out mortgages in the 1980s and '90s at significantly higher rates were rushing to use the cheap money to refinance their homes. Doing so allowed some people to cut their payments by as much as half -- provided that they borrowed only enough money to pay off their old loan. That was a big proviso, however, one that too many homeowners never lived up to.

Here's the smart way to refinance: Someone who had borrowed $120,000 at 9.5% interest in 1995 (a typical rate for the time) would have had a monthly principal and interest payment of $1,009. In 2005, after ten years of payments, he would have still owed about $103,000 in principal. Refinancing that remaining principal at 5.5% for 30 years would have dropped his monthly payment to $585. Or he could have refinanced for 15 years at 5.25%, giving him a payment of $827. This simple refinancing would have saved him $2,200 to $5,000 a year in interest payments.

(But, you ask, what about the mortgage interest tax deduction? Yes, what about it? The idea that you should carry a higher debt-service cost just so you can deduct it from your taxable income is one of the more vile canards offered by those with a stake in money-lending. Our borrower above may have lost a $5,000 tax deduction by reducing his interest payments, but that deduction was worth, at most, $1,600 in tax savings. That means he has at least $3,400 more to save, invest, or just spend on other things. People fail to understand that the mortgage interest deduction is not a tax credit; it doesn't offset your tax bill dollar for dollar. It just allows you to reduce the amount of money subject to tax. So which would you rather do? Have an extra $5,000 in taxable income, which would net you at least $3,400? Or pay $5,000 extra in interest just to get $1,600 back at tax time?)

Unfortunately, for every borrower who refinanced the smart way, there was another who used the process to turn their house into an ATM -- one with tremendous hidden fees. Let's go back to the borrower above. It's 2005, and he owes $103,000 at 9.5% interest. If he put 20% down back when he took out the mortgage, then he now owns $47,000 worth of the $150,000 house. But wait! It's been 10 years, and the house has grown in value. Assuming just a modest 3% annual appreciation, the house is now worth $201,000. So, really, he has $98,000 in equity. If only he could get his hands on some of that money! Think of all the pretty bows and ribbons he could buy! So he finds a lender to write him a new 30-year mortgage for $178,000 at 5.5% interest. Why $178,000? Because that's how much he can borrow at the lower rate without having his $1,009 monthly payment go up. So he uses $103,000 to pay off the original mortgage and walks away with $75,000, all without reducing his monthly cash flow. It's like free money! Except it's not. He now owes more money on the house, has less equity in the house, and is 10 years farther away from paying off the mortgage.

Hundreds of thousands of people refinanced their homes like this -- and not just once. As rates continued to fall, and prices continued to rise, some people refinanced two, three, four, a half-dozen times, each time pulling money out of the property. Occasionally that money went back into the house -- to pay for a new kitchen or bathroom or to update the systems, something that added value. More often, however, the money went into the operating budget rather than the capital budget. People used the equity in their homes to pay for vacations and big-screen TVs and just to pay the bills they racked up by living beyond their means. Their ability to keep the cycle going, however, rested entirely on the assumption that rates would stay low and the house would keep appreciating. What? Interest rate increases? Hey, Jimmy Carter isn't president anymore! And who ever heard of housing prices falling? Cousin Larry, don't be ridiculous!

Meanwhile, one of the little-examined aspects of the refinancing explosion was its tremendous psychological effect on the housing market. "You can always refinance" became a 21st-century mantra, one used to drown out troubling questions such as "How long can I afford these payments?" and "What do I do when the balloon payment comes due?" and "What happens if my adjustable rate mortgage actually, you know, adjusts?" The answer was: "Just refinance!" That was an easy answer when rates had fallen 45% in the past decade; but rates weren't going to fall like that again. They flat-out couldn't.

Low interest rates breathed air into the housing bubble from several directions. First, and most simply, low rates made more money more available to more people. When the supply of money expanded faster than the supply of housing, simple economics dictated that the price of housing must go up. Second, low rates triggered a wave of refinancing, during which people took their single greatest asset (which was not their homes, but rather the equity in their homes), converted it to cash and spent it on gewgaws. Finally, low rates created a false assumption in people's minds that money not only would always be cheap, but would get even cheaper with time ("You can always refinance"). This assumption went hand in hand with the myth that housing values always go up -- a myth that was becoming a religion to the entire U.S. population.

Step 3: Home loans for everybody!

Low interest rates convinced Americans that there was never a better time to be in the housing market. Longtime renters rushed to become buyers, longtime owners rushed to trade up to bigger homes (and bigger mortgages), and competition for housing intensified. The media took notice of the rising prices and began warning their audience that if they didn't buy soon, they'd end up "priced out" of the market. Speculators jumped into the market in hopes of flipping properties for quick profit. Lenders were writing loans right and left, then quickly repackaging the mortgages into securities and selling them to investors. Mortgage brokers were pulling in ever-greater commissions. Realtors were skimming a percentage off increasingly large deals. The money was really flying.

But something was threatening to halt the carousel: The supply of buyers was dwindling. Regardless of how easy financing is to obtain, there comes a point where just about everyone who can buy a house has bought a house and isn't looking to move again (especially when prices are so high). If the housing market was to keep expanding -- if realtors were to keep pulling in commissions, if lenders were to keep bundling mortgages into securities, if builders were to keep cranking out shoddily constructed $850,000 McMansions -- then it was going to need a new pool of buyers. Like maybe ... people who heretofore had not been able to get financing. People who were less than prime credit risks. "Subprime," you might even call these people. But let's not get ahead of ourselves.

The first group the real estate industry looked to were those who had reasonably good credit but couldn't (or wouldn't) meet strict documentation requirements for income and assets. For these folks, lenders offered "stated-income" loans. Such loans had long been available to people who, for one reason or another, refused to open their books to underwriters. (Take a wild guess.) They tended to be high rollers -- folks with significant means but not the right kind of paper. In lieu of providing documentation, these people swore out a statement of their income and/or assets, and the lender vouched for them to the underwriters.

Stated-income loans are known in the financial world as "Alt-A" loans because the statement is an alternative to traditional documentation. Stated-income loans are also known in the financial world as "liar loans" because the statement is often pure fiction. Guess which was the more accurate description of the loans issued over the past five years?

Once these liars (figuratively speaking, of course) had gotten their fill of loans, mortgage lenders cast about for yet another pool to drop their hooks into. At this point, there was really only one group of people left who had yet to buy homes: those with bad credit histories or no credit histories. These people had long been unable to buy a house because their credit reports were stacked with question marks, overdrafts, defaults, late payments, nonpayments, and maxed-out instruments. This was the now-famous -- nay, infamous -- subprime market.

Anyone who tells you that there was no way to predict the current disaster in the subprime sector is lying, stupid, or both. (And to tell this lie with a straight face, you'd have to be stupid. Or evil.) By definition, subprime borrowers are people who can't be trusted to pay back the money you lend them. The hadn't been able to buy because they shouldn't have been able to buy. And yet as the bubble grew and grew and grew, lenders, needing ever more loans to bundle, lent them hundreds of billions of dollars -- and they did it on outrageous terms that diminished their chances of repayment even further.

Lenders, it turns out, were getting exotic.

Step 4. It'll cost you an ARM and a leg

As lenders made their way toward the bottom of the barrel, they were creating millions of additional buyers. As a result, the demand for housing to purchase skyrocketed much faster than the supply of housing for sale. That was pushing prices further upward -- to the point where they were beyond the means of the subprime buyers. In more rational times, these people would have been told that it just wasn't in their best interest to buy. They'd be better off renting. These were not rational times, however.

(This is a good place to stress that when we talk about skyrocketing demand, we are only talking about the demand to buy houses. That demand was soaring, especially at the entry level, but the overall need for housing was not. All through the bubble and up to today, the United States had more homes than it had people to live in them. This is true in all markets, and particularly so in a place like Iowa. People did not have to buy houses. They could have gotten more space for less money by renting. They chose to buy houses. They made this choice because they were being told over and over that they had to buy now or get "priced out" and forfeit their chances of ever owning a home. They were told over and over that they were "throwing their money away" by renting, which was a stone-cold lie. They were getting shelter in return for their money. You don't "throw away" rent money any more than you "throw away" the money you spend on food that you can eat only once. Here's how you really "throw away" money on housing: By buying a house as an "investment property," trying to flip it, then spending $3,000 a month on carrying costs as you wait in vain for a buyer.)

Anyway, back to all those subprime buyers who were watching prices escalate beyond their means. All but the craziest lenders will insist that borrowers be able to at least make the payments at the beginning of the loan. (You want to get a least a couple payments out of somebody before they go deadbeat on you.) But a conventional mortgage for $400,000 -- a fairly typical house price in many markets -- at 6.5% interest carries a monthly payment of $2,528. Subprime borrowers, of course, are charged even higher rates because, well, they're subprime. At 8%, the payment would be $2,935. And if they had the kind of cash flow needed to make those payments, they wouldn't be subprime now, would they?

So lenders offered these people adjustable-rate mortgages, in which the interest rate periodically resets. Sometimes ARMs are a good idea. When rates began to fall from the stratospheric highs of the early 1980s, homeowners with ARMs saw their rates -- and thus their monthly payments -- decline fairly steadily; every reset period left them with more disposable income to spend on Rubik's Cubes and Chipwiches. When interest rates are already low, however, ARMs are just dumb. And to refresh your memory: During the housing bubble, rates were at historic lows.

The ARMs peddled to subprime borrowers typically started with a low introductory rate -- a "teaser" -- that reset after a while. Perhaps the most popular breed of these mortgages was the "2/28": The teaser rate was guaranteed for two years, then the loan would reset to (obviously) higher rates for the next twenty-eight years. Other ARM varieties included 3/27, 5/25 and 7/23. They worked in similar fashion.

So our subprime buyer applies for a loan (Over the phone! No SSN needed!), and the lender writes him a 2/28 mortgage for $400,000. He gets a nice, low teaser rate -- say 2.5%. For the first two years, his monthly payment is $1,580. That's pretty pricey for a family making only $50,000, because it eats up 38% of their gross income. (Personal finance experts say you should keep it under 28%.) However, if they scrimp here and save there, they can manage it. But then, two years in, the loan resets. To 9%. Overnight, their monthly payment nearly doubles to $3,115, or 75% of their gross income. They cannot make the payments.

In the industry, the 2/28 is known as a "suicide loan."

Why would someone take out a loan like this? Several reasons. First, some people are simply delusional. Two years is way in the future! Who knows what will happen by then! I could get a $50,000 raise! Second, some people are easily fooled. Their commission-seeking mortgage broker, perhaps in cahoots with an unscrupulous realtor, kept talking about $1,580. If he mentioned $3,115 at all, he didn't do so very loudly. And third: You can always refinance! Housing prices always go up! Didn't you notice? Rates have been falling! By the time this thing resets, why, I bet you'll have 30% eguity and be able to get a conventional mortgage at 2%! Don't worry about it! It's the American dream! Just sign the papers! Sign, goddammit!

Step 5. One hundred percent, pure love

Weak credit or nonverifiable income doesn't necessarily spike your chances of obtaining a conventional mortgage. The greater your assets, the greater the willingness of lenders to work with you. It goes back to the down payment psychology we discussed earlier: If you have $80,000 in cash to put into a deal, you'll probably find someone to float you four times that, provided your credit report isn't completely radioactive. Your $80K drastically reduces their exposure.

As housing prices climbed, it became essentially impossible to pull together a 20% down payment. Lenders recognized this, and they eased the requirements: 15%, then 10%, then 5%. Some lenders were accepting down payments of 3% for a conventional mortgage. When you're buying a $750,000 house, though, 3% is $22,500. That's real money, not a token payment, not something you easily walk away from.

Of course, subprime borrowers usually don't have those kinds of assets. It's yet another thing that defines them as subprime. A lender could drop its down payment requirement to 1%, and many subprimers would still struggle to pull together $3,000 to buy a $300,000 house -- and you can forget about the $10,000 to $15,000 for closing costs. If lenders were going to get these people into houses, they were going to have to do something that had been utterly anathema to generations of mortgage bankers: They were going to have to front 100% of the purchase price.

Like ARMs and stated-income loans, 100% financing had been around for years, but it was only available -- or advisable -- for a certain kind of borrower: a very experienced, very knowledgeable, very trustworthy real estate investor with good credit and a good relationship with the lender. When a bank loans 100% on a real estate transaction, it is assuming all the risk. If the property doesn't appreciate immediately, the borrower will be "underwater," owing more than the property is worth. If he can't make the payments, the bank can foreclose and sell the house at auction or put it on the market. But if the house has gone down in value, then there is no way for the lender to recoup the money it loaned on the property. One hundred percent financing is a dangerous game, because the lender is running the risk that, if the property declines in value or the payments become to difficult to make, the borrower will simply walk away.

So what happens if the home "owner" simply walks away from the house and allows it to be foreclosed? Well, it goes on his credit report. That can have terrible consequences. Unless you already have bad credit. Like a subprime borrower.

It will come as no surprise by now that 100% financing swept through the mortgage industry like a virus. Bad credit? No credit? No down payment? No problem! Sign here! No money for closing? No problem, either! Just roll the closing costs into the loan itself! By writing loans for the entire purchase price -- more than the price, if closing costs were included -- lenders were not just betting that the bubble would continue inflating. They were staking absolutely everything on it ... at least until they could get the loan bundled and sold to some fool as a "mortgage-backed security." (Sounds safe, doesn't it? Mortgages are the bedrock of the American dream! If this security is backed by mortgages, it must be safe! People wouldn't just walk away from their obligations, right? They'd ruin their credit!)

And lenders had people lined up around the block to sign up for these ridiculous mortgages. As the air comes out of the bubble, and the horror stories roll in, people ask how a guy with a $14,000 yearly income could buy a $720,000 house. This is how. Buyers didn't have to provide proof of income, they didn't have to put up any money of their own, they got payments they could only make for a brief period (long enough for the broker and the realtor to cash in their commissions), and if anyone asked any questions (which no one did), the answer was always: Don't worry about it. Prices always rise. You can always refinance.

One would think that 100% financing was the height of the insanity, that there was no possible way for lenders and borrowers alike to act more irresponsibly than they already were. You'd think that 100% financing, stated-income suicide loans were the last damned straw. But as Yoda told his realtor: No, there is another.

Step 6. This will hold your interest

On a typical loan, a certain portion of the payment goes to pay off the principal -- the actual amount of the loan -- and a certain portion pays the interest. At the beginning of the loan term, the largest chunk of the payment is interest. This sucks for you, but it's fair. If you had $150,000, you could have bought that house outright, but you didn't, so you asked the bank for it. The bank is going to make sure it gets paid (in interest) before you do (in principal, which becomes equity in the house). As mentioned above, with each payment, you pay more in principal and less in interest, a process known as amortization.

But what if you never paid anything on the principal? What if you just paid the interest every month? First and foremost, you could borrow a lot more money. Let's go back to that $150,000 house we were talking about before. If we're considering an interest-only loan, obviously we don't have any money to put down on the house, so we'll be borrowing the whole pot. For simplicity's sake, let's say we can get the same rate for a conventional mortgage and an interest-only mortgage. To finance $150,000 at 6.5% conventionally, your monthly principal and interest payment would be $948. On an interest-only mortgage, just $812.

Let's say $950 is a reasonable monthly payment for you. For that amount you can get a conventional mortgage of $150,000 -- or an interest-only mortgage of $175,000. By going interest-only, you instantly boost your borrowing power by 17%, which means you have 17% more money to bid on houses. When the number of people with interest-only mortgages hits a tipping point, that $150,000 house simply becomes a $175,000 house, because the amount of money available to people in the $150K market has now become $175K.

But wait, there's more. What if you not only didn't pay any principal, you also didn't even pay the whole interest bill every month? Then you'd have what's called a "negative-amortization loan," which is a fancy name for a hole that you simultaneously dig deeper and bury yourself in. In a NegAm loan, you pay less than the stated interest rate, with the difference tacked onto the principal. These loans allow you to borrow even more money for the same payment, which forces prices even higher.

With both interest-only and NegAm loans, the principal does (theoretically) have to be paid back. Usually, at five years into the loan, the terms are recast to a fully amortizing schedule of payments. The payments, of course, explode at this point, but as with all the other batshit-crazy loan products, the assumption is that the borrower will have refinanced or sold the house or done something else to pay the piper before the piper sends the sheriff over to his house with a set of padlocks, a box of nails and a roll of yellow tape.

Step 7. The overvalued house of cards tumbles down

One hundred percent financing, interest-only and NegAm loans all fall into the category of "exotic loans," a term used to describe species of mortgages that mutated in the unnatural environment of the housing market. But one of the most common assumptions about these loans -- an assumption repeated daily in the media throughout the inflation of the bubble -- is dead wrong. That assumption: Exotic loans became necessary because demand was so high and prices were rising so fast that it was the only way for many people to buy houses.

No, no, no. The truth is: Prices were rising so fast because exotic loans, loose credit, and subprime lending created artificial demand. People who had no business buying homes were allowed to borrow vast sums of money that they had no hope of repaying, on terms they had no chance of meeting. They used that money to bid the prices of homes far beyond their value. Then there was a domino effect. When the guy who qualified for a $150,000 conventional mortgage instead got himself a $175,000 interest-only loan, that forced the guy with $175,000 to get a suicide loan for $250,000 to compete for the same house. The family who could have gotten a conventional mortgage for $250,000 then needed a 3/27 ARM for $315,000. A buyer who could have gotten $315,000 then had to take out an exotic mortgage for $400,000. And the daisy chain just got longer and longer and longer. As the prices got higher, in came the speculators and flippers and panicked renters, who inflated demand further and committed to even sketchier mortgages, and the carousel spun faster and faster and faster.

Until ...

Until a lot of things started happening at once. Until the first ARMs began to reset, and people couldn't make the payments, and they began putting their houses on the market. (It's happening in the subprime market now, but Alt-A and prime borrowers' ARMs will be triggering over the next few years, and it will be bloody.) Until interest rates couldn't fall any further, and the refinance ATM suddenly was out of order, and people began putting their houses on the market. Until people who hadn't intended to sell their homes started seeing for-sale signs pop up and decided they'd better get out now. Until all the flippers and speculators saw what was happening and decided to unload their investment properties. Until builders recognized that the resale market was stagnating and began slashing prices and upping incentives, undercutting the very people they'd sold to just months earlier. Until the MLS was bloated with inventory, and homes stopped selling for inflated prices, and then homes stopped selling for any price, and people who could have bought decided to rent and wait to see how far prices fell. Until the subprime market began to collapse entirely, and lenders began tightening credit, and word got out that because of the lending mistakes of the past decade, some 20% of the buying market -- one-fifth of all buyers -- would not be able to obtain mortgages of any kind in the future. No huge irresponsible mortgages, no huge irresponsible bidding wars.

But, really, what put the brakes on the carousel, what popped the bubble, was the simple fact of supply and demand. Financial chicanery had goosed the demand, and herd psychology had created a false belief that supply was short.


So here we are in Iowa. Drive through Beaverdale, Urbandale or Clive, and count the for-sale signs. Stand at the corner of Merle Hay Road and Northwest 70th Avenue, and look at the valley filling with empty houses. Go to Grimes and watch the townhouses grow in the rich Iowa soil. Watch as the supply of housing grows faster than the population. Listen to the Iowa Association of Realtors stress the relatively steady raw number of sales but softpedal the growth in the inventory. See the real estate industry point to still-high median sales prices while neglecting the fact that the median has only remained high because sales at the low end of the market (the subprime end) have dried up.

No, Iowa didn't see the kind of appreciation they saw on the coasts, but in today's world, you can still suffer the symptoms even if you don't have the disease. Too many houses are waiting for too few buyers. Too many ugly, characterless, cheaply built houses are crowding ugly, characterless, cheaply devised developments. Too many overpriced houses are filling the listings.

And, sadly for their owners but perhaps happily for my family, too many beautiful houses that should have been snapped up are languishing on the market for months and months.

I'll give you $240K for it. And I expect help with the closing costs.

Wednesday, August 8, 2007

We just mix it all with Sprite, anyway

A story in Monday's Des Moines Register described a display cabinet that was recently built in the offices of the Iowa Alcoholic Beverages Division in Ankeny. The cabinet holds one bottle each of the top 100 brands of distilled spirits sold in the state. The idea is to promote the sale of premium liquor. The division acts as the wholesaler for all hard liquor sold in the state, so the more top-shelf booze that gets sold, the more money the state makes.

One could argue that it's scandalous for the state government to spend $14,000 on a custom-built liquor cabinet to promote high-end spirits. The real scandal, however, is that it's in the interest of state government to encourage people to drink more liquor. If people aren't going to get exercised over a disgrace like that, then they shouldn't bother being upset over the financial specifics of how the state chooses to promote alcohol consumption. (If we were to go down that road, we could also ask how much money the state makes on cigarette taxes. I don't know the answer, but I will flat-out guarantee you that it far, far, far exceeds the amount of money the state has spent on tobacco-related health problems.)

Anyway, here is a picture of the cabinet. I cannot believe that the Register didn't post a high-res photo. I'd imagine a lot of people would be curious to see where their favorite poison ranks in Iowa's top 100. But the newspaper did run a sidebar with the top 10 (which can be seen in the top left corner of the cabinet). From this list, it appears Iowans could stand to drink a lot more premium liquor -- and the Register could stand to learn a little more about cheap disgusting liquor:

1. Black Velvet Canadian Whisky
(Ewww! It's sad to say it, but alcoholics are the prime driver of sales of distilled spirits, and Black Velvet has long been the alcoholic's favorite. Why is Black Velvet -- which makes even the cleanest glass taste dirty -- the top-selling Canadian whiskey in Iowa, rather that Crown Royal, Seagrams VO, Calvert, Canadian Club, or every granddad's favorite, Windsor Canadian? Because it's the cheapest, of course. Meanwhile, AP style buffs will note that only Scotch is whisky. Everything else is whiskey. Don't blame the paper, though; the Black Velvet label says "whisky.")

2. Captain Morgan Rum
(Captain Morgan makes half a dozen varieties. Which one are we talking about? Captain Morgan's Original Spiced Rum, naturally. One million puking coeds can't be wrong.)

3. Hawkeye Vodka
(An old European proverb holds: "If you can't get your vodka from Russia, get it from Poland. If you can't get it from Poland, try Sweden. If all else fails, try Marshalltown." Hawkeye may or may not be Iowa's nastiest vodka, but it's certainly our cheapest, which is why it's the well vodka of choice for saloons between the rivers.)

4. Five O'Clock Vodka
(Another well vodka, one with an even more troubling name than Hawkeye. "Oh my God, are you drinking?" "Yes, but just vodka." "But it's too early in the day!" "No, it's Five O'Clock!" "Oh, OK, then." Always think twice before choosing a product whose very name is designed to make you feel less like the dissolute alkie you probably are.)

5. Jack Daniel's Black Label
(You know, you can't really argue with this. I was always partial to Jim Beam, but if you prefer Tennessee whiskey to Kentucky bourbon, one can't go wrong with Jack. By the way, if you're one of those people who sadly refers to your bottle as your buddy -- "Me 'n' Johnnie Walker was sitting out on the porch ... " -- remember that the guy the distillery is named after was "Jack Daniel," not "Jack Daniels." The brand name is a possessive: Jack Daniel's Old No. 7 Brand Tennessee Sour Mash Whiskey.)

6. Bacardi Light Rum
(You could do a lot worse in a rum. But you could also do a lot better.)

7. Smirnoff Vodka
(The vodka that nearly killed me. Smirnoff's classic red-label, 80-proof vodka has been rechristened "No. 21," for some pretentious reason. It's a step above the Hawkeyes and Popovs of the vodka universe, but you still might find it in the well in some places.)

8. Barton Vodka
(If you're going to drink a cheap vodka, then at least get one with a funny, inappropriate name -- Hawkeye, Five O'Clock -- or a fakey old-country name -- Popov, Smirnoff. Don't waste your $6.89 on something named after your fourth-grade teacher or that bald white guy who lives on the other side of the cul-de-sac.)

9. J├Ągermeister
(Oh yeah, there it is, baby! Sometimes you just want to close your eyes and drink like it's 1993, and do it out of a shot glass with some kind of sticky residue on the outside. J├Ąger was the Captain Morgan of the '90s.)

10. Jose Cuervo Especial
(This is another one that's totally fine. Cuervo Especial is the No. 1-selling tequila in the world. I'm sure some connoisseur somewhere can rattle off a dozen better-tasting, less-headache-inducing tequilas, but come on. It's Cuervo!)

So there's the top 10: Four cheap vodkas; two trendy-trashy Greek Week favorites; three perfectly acceptable staples; and atop it all, that sweet, golden relapse from Canada. No wonder the state is trying to get boozers to move up the scale. It's a matter of pride.

I'm trying to identify the other bottles in the picture. (The top shelf is Nos. 1-20, left to right; the next shelf down is 21-40; and so on.) Here's what I have so far:

11. ???
12. Seagram's 7
13. McCormick Vodka
14. ???
15. Crown Royal
16. ???
17. Jim Beam
18. Canadian Ltd.
19. Southern Comfort
20. Popov Vodka
21. ???
22. ???
23. Absolut Vodka
24. Skol Vodka
25. Kessler Blended Whiskey
26. Ten High Bourbon
27. Malibu Rum
28. ???
29. Canadian CLub
30. Paramount Peppermint Schnapps
31. DeKuyper Peachtree Schnapps
32. ???
33. ???
34. ???
35. Chi-Chi's Margarita
36. Juarez Tequila
37. E&J Brandy
38. ???
39. DeKuyper Pucker Sour Apple Schnapps
40. ???
41. Windsor Canadian
42. Grey Goose Vodka
43. Hennessey Cognac
44. ???
45. Bailey's Irish Cream
46. Paramount Gin
47. Kahlua
48. Tanqueray Gin
49. Chirstian Brothers Brandy
50. ???
51. Bacardi Limon
52. ???
53. ???
54. ???
55. Cuervo Strawberry Margarita
56. ???
57. ???
58. Old Crow Bourbon
59. ???
60. ???
61. Juarez Tequila Gold
62. ???
63. ???
64. ???
65. ???
66. ???
67. ???
68. ???
69. DeKuyper Hot Damn Cinnamon Schnapps
70. Ancient Age Bourbon
71. DeKuyper Buttershots Schnapps
72. ???
73. Absolut Citron Vodka
74. Rumple Minze Peppermint Schnapps
75. Tortilla Tequila
76. ???
77. Seagram's VO Canadian
78. ???
79. Tequila Rose
80. ???
81. Skyy Vodka
82. Stolichnaya Vodka
83. ???
84. Everclear
85. ???
86. ???
87. Maker's Mark Bourbon
88. ???
89. Gilbey's Gin
90. Wild Turkey
91. ???
92. Paramount Triple Sec
93. ???
94. ???
95. Bombay Sapphire Gin
96. Gordon's Vodka
97. Gordon's Gin
98. Calvert Extra
99. Svedka Vodka
100. ???

Bottoms up.

Saturday, August 4, 2007

Hurry up and die (1st in a series)

Some baby boomers need reading glasses! Katie Hafner of The New York Times is all over the story. Me, I'm frankly more concerned about the ones pissing all over the elevator.