IRS may go after underwater homeowners

Homeowners who were underwater on their homes but who took advantage of mortgage relief programs face the prospect of the IRS calculating the amount by which a portion of their loan was forgiven as income. [Read more...]

Occupy foreclosed houses

The Occupy Wall Street folks, who in many cases are being evicted from their downtown campsites, have started a new strategy:  Occupying foreclosed houses.  This includes blocking efforts to evict people, disrupting auctions, fixing up abandoned homes and giving them to homeless people, and just moving into abandoned properties.

See  Occupy protesters take over homes, block evictions – Dec. 6, 2011.

Creative destruction

One side effect of the foreclosure crisis:  Many banks do not want to hold and pay taxes on run-down properties that no one will ever want to buy.  So they are razing the decrepit buildings that plague so many of our big cities and are donating the lots to new land banks.  These, in turn,  are making the land available for next to nothing for new development and neighborhood improvement projects.  (These include churches, which in some cases are getting land for expansion for pennies.) Thus we have an example of capitalism’s “creative destruction.”

See Banks turn to demolition of foreclosed properties to ease housing-market pressures – The Washington Post.

The great comic book bubble

Jonathan V. Last offers a fascinating mashup of two of my favorite topics:  comic books and economics.   Not only that, he draws lessons that apply to the recent popping of the housing bubble:

In 1974 you could buy an average copy of Action Comics #1—the first appearance of Superman—for about $400. By 1984, that comic cost about $5,000. This was real money, and by the end of the decade, comics sales at auction houses such as Christie’s or Sotheby’s were so impressive that the New York Times would take note when, for instance, Detective Comics #27—the first appearance of Batman—sold for a record-breaking $55,000 in December 1991. The Times was there again a few months later, when a copy of Action Comics #1 shattered that record, selling for $82,500. Comic books were as hot as a market could be. At the investment level, high-value comics were appreciating at a fantastic rate. At the retail level, comic-book stores were popping up all across the country to meet a burgeoning demand. As a result, even comics of recent vintage saw giant price gains. A comic that sold initially for 60 cents could often fetch a 1,000 percent return on the investment just a few months later.

But 1992 was the height of the comic-book bubble. Within two years, the entire industry was in danger of going belly up. The business’s biggest player, Marvel, faced bankruptcy. Even the value of blue chips, like Action Comics #1 and Detective Comics #27, plunged. The resulting carnage devastated the lives of thousands of adolescadolescent boys. I know. As a 12-year-old I had a collection worth around $5,000. By the time I was ready to sell my comic books to buy a car—such are the long-term financial plans of teenagers—they were worthless.

The comic-book bubble was the result not of a single mania, but of a confluence of events. Speculation was part of the story. Price gains for the high-value comics throughout the 1980s attracted speculators, who pushed the prices up further. At the retail level, the possibility that each new issue might someday sell for thousands of dollars drove both the sale of new comics and the market for back-issue comics. It was not uncommon for a comic book to sell at its cover price (generally 60 cents or $1) the month it was released and then appreciate to $10 or $15 a few months later.

But the principal cause of the bubble was the industry’s distribution system.

via The Crash of 1993 | The Weekly Standard.

Mr. Last goes on to spell out how the distribution system both inflated the comic book market–not just collectibles but the whole industry–and then brought it crashing down.  Marvel Comics actually went bankrupt in 1996.

The market did recover somewhat. In 2009, thirteen years after bankruptcy, Marvel was bought out by Disney for $4 billion.  And Action Comics #1 now sells for $1.5 million.   But the money today comes not from selling magazines on woodpulp but from intellectual property:  the movies that get made from comic books–as well as the accompanying toys and merchandise–make them valuable.

I lived through what Mr. Last describes.  In my years of reading comic books as a kid, I accumulated some titles that actually became rather valuable.  In the early 1970s, as a college student perennially in need of money, I sold them.  Soon the money was gone and a few years later I was kicking myself at how those titles had skyrocketed in value.  Now I just wish I had them so that I could read them again and re-experience my childhood imagination.

HT: Tom Hering

How someone who makes $15K bought a $700K house

The Washington Post has a story about a single mother of three who made $15,000 a year as a daycare worker who managed in the real estate bubble to buy a house that cost $698,000, only, of course, to lose it. It’s a tale of unbelievable shenanigans on the part of the sellers and lenders, coupled with unbelievable lack of common sense on the part of the buyer. A sample:

The type of financing that had started it all would later come to be known as a liar’s loan because it required no proof of income. Across the country, thousands and thousands of such loans were made. White’s papers cited income of $163,320 a year, even though she says her 2005 income-tax earnings were less than $15,000 and she relied at times on food stamps.

The same papers showed how much she had in her bank account. The total was $14,026, appearing to reflect two deposits made the day before the closing, when a $7,000 check from Zhang’s husband [the seller] was deposited into White’s account at 12:20 p.m., which was one minute after $6,000 in cash was added. . . .

White didn’t dwell on these details at the closing table, and didn’t pay attention to the figures showing that the loan’s adjustable interest rate was starting at 8.6 percent and could rise as high as 15.1 percent after two years.

One after another, White signed papers while waiting for the one she cared most about: her monthly payment. She had not yet been told what it would be.

“Please let this be something I can afford,” she said to herself. She was pretty sure she could afford $2,000. She told herself that if her day-care business did well, perhaps she could afford $2,500. If it was $2,800, she would struggle. Here, now, came reality: $5,635 a month. . . .

For not using a real estate agent, the sellers gave her a 5 percent credit. Some of that was used for closing costs, but about $15,000 came back to White in a check marked “settlement proceeds.”

Added to the $13,000 that had been deposited into her bank account and $11,200 toward the first two mortgage payments, White ended up leaving the closing table with nearly $40,000.

The sellers took away more. After owning the house for 22 1/2 months, Zhang and her husband sold it for $203,000 more than they had paid.

So the buyer paid her mortgage for five months, until the cash she had been given ran out, and then defaulted. She became homeless, whereupon she became eligible for rent subsidies and now has an apartment.

Multiply this, with variations, by many thousands, and this is what brought down our economy.


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