Skype, Interview, Blog

So here's my idea. Unproven that is.

If I can interview someone and record it via Skype, then I could upload it to my blog.

It seems to me, it would be a great chance to interview authors of books and blogs. And a way to meet some great people.

The Big Short

Every once in a while, I'll have an experience that makes me step aside and reevaluate.
Reading this book, The Big Short, has done that to me.

The last time something like this really affected me was around 25 years ago, when I watched "All the president's men", a movie about Nixon and Watergate. After I saw that movie, I was so pumped, I had to go for a run. To see the free press, different levels of government, our constitution in action, was a powerful experience for me.

This book by Michael Lewis is about the housing crisis in the US. And of those who foresaw it happening, and made huge bets in their beliefs. It can be a bit of a tough read, but I think it's well written and well researched. How these guys did what they did, especially a very interesting fellow named Dr Michael Burry is fascinating.

By Alan Caruba

Warning Signs-Alan Caruba

"I have this theory about Barack Obama. I think he's led a kind of make-believe life in which money was provided and doors were opened because at some point early on somebody or some group took a look at this tall, good looking, half-white, half-black, young man with an exotic African/Muslim name and concluded he could be guided toward a life in politics where his facile speaking skills could even put him in the White House.

In a very real way, he has been a young man in a very big hurry. Who else do you know has written two memoirs before the age of 45? "Dreams of My Father" was published in 1995 when he was only 34 years old. The "Audacity of Hope" followed in 2006. If ,indeed, he did write them himself. There are some who think that his mentor and friend, Bill Ayers, a man who calls himself a "communist with a small 'c'" was the real author.

His political skills consisted of rarely voting on anything that might be deemed controversial.. He went from a legislator in the Illinois legislature to the Senator from that state because he had the good fortune of having Mayor Daley's formidable political machine at his disposal.

He was in the U.S. Senate so briefly that his bid for the presidency was either an act of astonishing self-confidence or part of some greater game plan that had been determined before he first stepped foot in the Capital.

How, many must wonder, was he selected to be a 2004 keynote speaker at the Democrat convention that nominated John Kerry when virtually no one had ever even heard of him before?

He outmaneuvered Hillary Clinton in primaries. He took Iowa by storm. A charming young man, an anomaly in a state with a very small black population, he oozed "cool" in a place where agriculture was the antithesis of cool. He dazzled the locals. And he had an army of volunteers drawn to a charisma that hid any real substance.

And then he had the great good fortune of having the Republicans select one of the most inept candidates for the presidency since Bob Dole. And then John McCain did something crazy. He picked Sarah Palin, an unknown female governor from the very distant state of Alaska . It was a ticket that was reminiscent of 1984's Walter Mondale and Geraldine Ferraro and they went down to defeat.

The mainstream political media fell in love with him. It was a schoolgirl crush with febrile commentators like Chris Mathews swooning then and now over the man. The venom directed against McCain and, in particular, Palin, was extraordinary.

Now, a full year into his first term, all of those gilded years leading up to the White House have left him unprepared to be President.

Left to his own instincts, he has a talent for saying the wrong thing at the wrong time. It swiftly became a joke that he could not deliver even the briefest of statements without the ever-present Tele-Prompters.

Far worse, however, is his capacity to want to "wish away" some terrible realities, not the least of which is the Islamist intention to destroy America and enslave the West. Any student of history knows how swiftly Islam initially spread. It knocked on the doors of Europe, having gained a foothold in Spain . The great crowds that greeted him at home or on his campaign "world tour" were no substitute for having even the slightest grasp of history and the reality of a world filled with really bad people with really bad intentions.

Oddly and perhaps even inevitably, his political experience, a cakewalk, has positioned him to destroy the Democrat Party's hold on power in Congress because in the end it was never about the Party. It was always about his communist ideology, learned at an early age from family, mentors, college professors, and extreme leftist friends and colleagues.

Obama is a man who could deliver a snap judgment about a Boston police officer who arrested an "obstreperous" Harvard professor-friend, but would warn Americans against "jumping to conclusions" about a mass murderer at Fort Hood who shouted "Allahu Akbar." The absurdity of that was lost on no one. He has since compounded this by calling the Christmas bomber "an isolated extremist" only to have to admit a day or two later that he was part of an al Qaeda plot.

He is a man who could strive to close down our detention facility at Guantanamo even though those released were known to have returned to the battlefield against America . He could even instruct his Attorney General to afford the perpetrator of 9/11 a civil trial when no one else would ever even consider such an obscenity. And he is a man who could wait three days before having anything to say about the perpetrator of yet another terrorist attack on Americans and then have to elaborate on his remarks the following day because his first statement was so lame.

The pattern repeats itself. He either blames any problem on the Bush administration or he naively seeks to wish away the truth.

Knock, knock. Anyone home? Anyone there?
Barack Obama exists only as the sock puppet of his handlers, of the people who have maneuvered and manufactured this pathetic individual's life.

When anyone else would quickly and easily produce a birth certificate, this man has spent over a million dollars to deny access to his. Most other documents, the paper trail we all leave in our wake, have been sequestered from review. He has lived a make-believe life whose true facts remain hidden.

We laugh at the ventriloquist's dummy, but what do you do when the dummy is President of the United States of America?

Escape From Freedom

Please watch this video from Pajamas TV


Eric Fromm

1. Authoritarianism. We seek to avoid freedom by fusing ourselves with others, by becoming a part of an authoritarian system like the society of the Middle Ages. There are two ways to approach this. One is to submit to the power of others, becoming passive and compliant. The other is to become an authority yourself, a person who applies structure to others. Either way, you escape your separate identity.

Fromm referred to the extreme version of authoritarianism as masochism and sadism, and points out that both feel compelled to play their separate roles, so that even the sadist, with all his apparent power over the masochist, is not free to choose his actions. But milder versions of authoritarianism are everywhere. In many classes, for example, there is an implicit contract between students and professors: Students demand structure, and the professor sticks to his notes. It seems innocuous and even natural, but this way the students avoid taking any responsibility for their learning, and the professor can avoid taking on the real issues of his field.

2. Destructiveness. Authoritarians respond to a painful existence by, in a sense, eliminating themselves: If there is no me, how can anything hurt me? But others respond to pain by striking out against the world: If I destroy the world, how can it hurt me? It is this escape from freedom that accounts for much of the indiscriminate nastiness of life -- brutality, vandalism, humiliation, vandalism, crime, terrorism....

Fromm adds that, if a person's desire to destroy is blocked by circumstances, he or she may redirect it inward. The most obvious kind of self-destructiveness is, of course, suicide. But we can also include many illnesses, drug addiction, alcoholism, even the joys of passive entertainment. He turns Freud's death instinct upside down: Self-destructiveness is frustrated destructiveness, not the other way around.

3. Automaton conformity. Authoritarians escape by hiding within an authoritarian hierarchy. But our society emphasizes equality! There is less hierarchy to hide in (though plenty remains for anyone who wants it, and some who don't). When we need to hide, we hide in our mass culture instead. When I get dressed in the morning, there are so many decisions! But I only need to look at what you are wearing, and my frustrations disappear. Or I can look at the television, which, like a horoscope, will tell me quickly and effectively what to do. If I look like, talk like, think like, feel like... everyone else in my society, then I disappear into the crowd, and I don't need to acknowledge my freedom or take responsibility. It is the horizontal counterpart to authoritarianism.

The person who uses automaton conformity is like a social chameleon: He takes on the coloring of his surroundings. Since he looks like a million other people, he no longer feels alone. He isn't alone, perhaps, but he's not himself either. The automaton conformist experiences a split between his genuine feelings and the colors he shows the world, very much along the lines of Horney's theory.

In fact, since humanity's "true nature" is freedom, any of these escapes from freedom alienates us from ourselves. Here's what Fromm had to say:

Man is born as a freak of nature, being within nature and yet transcending it. He has to find principles of action and decision making which replace the principles of instincts. he has to have a frame of orientation which permits him to organize a consistent picture of the world as a condition for consistent actions. He has to fight not only against the dangers of dying, starving, and being hurt, but also against another anger which is specifically human: that of becoming insane. In other words, he has to protect himself not only against the danger of losing his life but also against the danger of losing his mind. (Fromm, 1968, p. 61)
I should add here that freedom is in fact a complex idea, and that Fromm is talking about "true" personal freedom, rather than just political freedom (often called liberty): Most of us, whether they are free or not, tend to like the idea of political freedom, because it means that we can do what we want. A good example is the sexual sadist (or masochist) who has a psychological problem that drives his behavior. He is not free in the personal sense, but he will welcome the politically free society that says that what consenting adults do among themselves is not the state's business! Another example involves most of us today: We may well fight for freedom (of the political sort), and yet when we have it, we tend to be conformist and often rather irresponsible. We have the vote, but we fail to use it! Fromm is very much for political freedom -- but he is especially eager that we make use of that freedom and take the responsibility that goes with it.
Families

First iPad Car Install

Video of iPad installation in car

American ingenuity, didn't take long.

From San Fran Chronicle

What really could solve this problem? And it's indeed a problem. That we actually go to work to reduce our deficit. Cut entitlement programs, cut bureaucracies (DOE), get our energy from ourselves (no more oil from SA). Reduce our debt. Don't spend more than we take in.

National debt seen heading for crisis level


With ferocious speed, the financial crisis, recession and efforts to combat the recession have swung the U.S. debt from worrisome to ruinous, promising to handcuff the administration.

Lost amid last month's passage of the new health care law, the Congressional Budget Office issued a report showing that within this decade, President Obama's own budget sends the U.S. government to a potential tipping point where the debt reaches 90 percent of gross domestic product.

Economists Carmen Reinhart of the University of Maryland and Kenneth Rogoff of Harvard University have recently shown that a 90 percent debt-to-GDP ratio usually touches off a crisis.

This year, the debt will reach 63 percent of GDP, a ratio that has ignited crises in smaller wealthy nations. Fiscal crises gripped Canada, Denmark, Sweden, Finland and Ireland when their debts were below where the United States is shortly headed.

Japan's debt is much higher, but most of it is held domestically, and Japan's economy has been weak for 20 years. "I really don't think we want to be like Japan," said UC Berkeley economist Alan Auerbach.

One advantage the United States has - and it is a big one - is that it issues the world's reserve currency and so can print dollars to service its debt.

The Obama budget will add $10 trillion to the national debt in the next decade and will not stabilize the deficit, the CBO found. Deficits are expected to dip as the recovery takes hold, but never below $724 billion a year. Interest costs alone will consume $5.6 trillion this decade. A balanced budget has been widely ruled out as unattainable.

"The real problem is not just current deficits but where we're heading," Auerbach said. "We're on a trajectory where the deficit's going to go down a little and then go up again. And we have no solution for that."

Deficits won't reverse

No one is advocating big tax increases or spending cuts before a recovery takes hold. The problem is that deficits will not reverse even after a full recovery.

Credit rating agency Moody's warned last month of a possible downgrade in U.S. Treasury debt. This year, Social Security is crossing a long-feared milestone at which it is paying more in benefits than it receives in payroll taxes. Study after study in the last year has raised alarms.

"In my judgment, a crisis could occur next week or 10 years from now," said Rudolph Penner, an Urban Institute economist who co-chaired a huge budget report sponsored by the National Academy of Sciences and the National Academy of Public Administration. "I don't really think we can go much beyond 10 years."

Polls show rising public alarm - and public refusal of specific spending cuts or tax increases required to change course. A Field Poll last month showed most Californians do not want to cut the largest parts of the state budget, such as education or transportation.

The polling firm Democracy Corps recently warned Democrats that the deficit now tops unemployment as a voter concern. But it also found voters "unenthusiastic" about the options to close the deficit. Voters overwhelmingly prefer spending cuts to tax hikes but reject cutting specific programs.

Republicans promise to make deficits a premier political issue. But during the health care debate, they opposed any cuts to Medicare, the chief source of rising deficits. They also oppose tax increases and defense cuts. In January, they sabotaged rare bipartisan legislation to create a powerful deficit-reduction commission that would have forced action.

Stabilizing the debt without raising taxes, cutting Medicare or defense, or defaulting on the debt would eviscerate everything else, from the Border Patrol to highways. Earmarks constitute a pittance.

The numbers don't add up for Democrats either. For all their railing against the Bush tax cuts that contributed to the current dilemma, Obama intends to extend almost all of them. That will cost $2.5 trillion, said the Committee for a Responsible Federal Budget. Obama also escalated the war in Afghanistan.

And he joined Republicans in sabotaging the deficit commission by creating a substitute commission by executive order that seems designed to fail. It cannot compel action, and its recommendations are postponed until after the November election.

Consensus difficult

Obama and party leaders stacked it with partisans, from Rep. Jeb Hensarling, R-Texas, to Andrew Stern, head of the Service Employees International Union, making it difficult to get the 14 out of 18 votes required to agree on anything.

The executive order is a study in artfulness. It calls for a deficit target in 2015 that will be largely reached through the recovery and opens a wide escape hatch by saying decisions are contingent on the economy.

Democrats are already picking off low-hanging, deficit-reduction fruit to increase spending instead. Led by Rep. George Miller, D-Martinez, Democrats approved $61 billion in savings last week by cutting banks out of student lending - and used it to expand aid to students and colleges.

Democrats often give the impression that taxes on the rich can fix everything. But the center-left Tax Policy Center ran simulations showing that Obama's budget would have to raise $775 billion in new taxes every year to stabilize deficits at 2 percent of GDP. That means that if Obama keeps his promise not to raise taxes on the middle class, the rich would pay 90 percent of their income in taxes, the center said.

Obama "promised to be honest with the public, and he has a talent for doing so," said Maya MacGuineas, president of the moderate Committee for a Responsible Federal Budget. "Yet he hasn't used it yet to describe what types of hard choices will be involved."

Soaring levels of debt

$10 trillion Amount the

Obama budget will add to the national debt in the next decade.

$5.6 trillion Amount interest costs alone will consume this decade.

63% Debt-to-gross domestic product

ratio this year.

90% Debt-to-gross domestic product ratio anticipated within this decade.

E-mail Carolyn Lochhead at clochhead@sfchronicle.com.

Hadron Collider, Why

Why is this such a big deal?

A Primer on the Great Proton Smashup

For those whose physics knowledge was a bit rusty, the news about the Large Hadron Collider, the world's biggest physics machine, might have been puzzling.
Related

European Collider Begins Its Subatomic Exploration (March 31, 2010)
Yes, the collider finally crashed subatomic particles into one another last week, but why, exactly, is that important? Here is a primer on the collider - with just enough information, hopefully, to impress guests at your next cocktail party.


Let’s be basic. What does a particle physicist do?

Particle physicists have one trick that they do over and over again, which is to smash things together and watch what comes tumbling out.



What does it mean to say that the collider will allow physicists to go back to the Big Bang? Is the collider a time machine?

Physicists suspect that the laws of physics evolved as the universe cooled from billions or trillions of degrees in the first moments of the Big Bang to superfrigid temperatures today (3 degrees Kelvin) — the way water changes from steam to liquid to ice as temperatures decline. As the universe cooled, physicists suspect, everything became more complicated. Particles and forces once indistinguishable developed their own identities, the way Spanish, French and Italian diverged from the original Latin.

By crashing together subatomic particles — protons — physicists create little fireballs that revisit the conditions of these earlier times and see what might have gone on back then, sort of like the scientists in Jurassic Park reincarnating dinosaurs.

For more

Tiger Wood's Press Conf.

"I haven't looked forward to that first tee shot in a long time, not like this. It feels fun again. That's something that's been missing," he said. "I've won numerous tournaments in the last few years, but I wasn't having anywhere near the amount of fun, and why? Because look what I was engaged in. When you're living a life where you're lying all the time, life is not fun. And that's where I was. Now that's been stripped all away and here I am, and it feels fun again."

Wow, a Freudian slip, and no pun intended, all in one sentence.

His genius goes far beyond the golf course.

A Dream of Mine

I am a consumer. I love to consume. Especially ideas. That's why I'm such a fan of the internet. I can consume as much as I want.

And I think it makes me both a smarter and content person.

But besides consuming, I think that I would like to produce. I produce my blog, and with my business I produce fix-it-ness to make others' lives better.

But I actually want to produce something that is tangible. Like grow food, make a gadget, something that I made and can put into your hands.

I think it's natural to want to produce. I'm thankful that so much is given to me. Very thankful. But if I were to actually create something that offers tangible benefit, I believe it would make me happier.

Many of our jobs in the US aren't actually producing. In fact, many production jobs are shifting to 3rd world countries. Which makes sense. I just hope we don't lose the ability to build a bridge, make cars, that sort of thing.

From "Get Rich Slowly"

Spend Based on Who You Are, Not Who You Want to Be



Last Thursday, on April Fool’s Day, I wrote about my obsession with gadgets and how much that’s cost me over the years. As always, your comments and stories were more entertaining (and instructive) than the post itself. In fact, a comment from chacha1 gave me a flash of insight. She wrote:

The thing that’s a *headdesk* for me is the digital piano in my dining room. It’s an excellent instrument, but at the time I bought it I hadn’t played regularly for over ten years. And I’ve had it over six years and have barely played it.

Oh my word. I’ve done this sort of thing so many times in the past, and I continue to make this mistake even today. But it wasn’t until reading this comment that I realized what exactly I was doing wrong.

My problem is that I buy something in order to pursue a hope or a dream, and then expect that this new thing to somehow change who I am. If I buy a new camera, I expect it to make me a pro photographer. If I buy a bunch of Latin books, I expect I’ll be somebody who spends his time reading Latin. (In 2004, I bought a bunch of Latin books just for this purpose; I still don’t know Latin.)

Perhaps the worst example comes from the early 1990s, back when I was struggling most with my spending. I decided I wanted to become a computer programmer. To that end, I spent thousands of dollars on programming books and software tools, as well as subscriptions to programming magazines. Guess what? None of these things made me a programmer. They just put me further into debt. It was as if I’d traded a few thousand dollars for nothing.

Note: In the late 1990s, I eventually did become a computer programmer. But I didn’t do it through buying Stuff. I did it by taking classes at the community college, using free Linux-based tools on old computers, and then getting a couple of programming gigs. You know what? I only had to buy a handful of textbooks to make this happen.
“You are the master of buying something in the hopes that it will create a need,” Kris said after I told her about this post. “Look at all the Stuff you own because you hoped it’d make you become a different person.”

She’s right: chess sets, woodworking tools and books, camera equipment, exercise gear, and more. I write a lot about my battle with Stuff; much of this Stuff can be seen as monuments to my hopes and dreams. In a way, it’s like “keeping up with the Joneses”, except the Joneses are some idealized version of me.

Don’t get me wrong: I’m all for big hopes and dreams, and I think it’s great to find ways to motivate yourself to success. But it’s important to be smart about how you spend on this sort of thing. Yes, tell yourself that if you learn to play the piano, you can buy a keyboard. If you learn to cook, you can buy some fancy kitchen gear. If you lose 40 pounds, you can buy a new wardrobe. (I have stacks of clothes that are several sizes too small; I bought them because I thought it would motivate me to lose weight.)

Buy these things as rewards, not because you expect merely having them will change who you are. Or, another way to think of it: Buy things as you need them instead of buying them with the expectation that you’ll use them. If you find you need a treadmill because you ran all summer, and now the weather is poor, then buy a treadmill. But don’t buy a treadmill just because you think it’ll motivate you to run. Become a runner first.

There’s a part of me that really wants to learn to play the piano. I love the idea of putting an upright piano in the corner of our living room; it’d look great in our hundred-year old house. But I’m older and wiser now, and I know better. It makes no sense to buy a piano just because I want to learn to play. Buying an instrument won’t make me a musician. The first step is to take lessons. If I’m able to stick with piano lessons for a year or more, and if I think I’ll continue to play, well, maybe then a piano would make sense. But not before.

Tangent: This subject also reminds me that many times it’s the amateur hopers and dreamers that buy the fancy equipment. When I took photography classes, the instructors — who were professionals who made their living at this stuff — had the oldest, most outdated equipment of anyone. The students all had the latest gear, but the instructors knew that the equipment doesn’t make the picture — the photographer does. And how do I write? I use a pad of paper or a text editor. I don’t need a fancy word processor or a whiz-bang computer. I don’t need books to teach me how. I take a community college writing class now and then, and I write. More than anything, it’s actually doing the thing you hope and dream about that will make you better — not the equipment.

If you go to the author's web page, scroll down to comment #56 and you will see my comment.

Postmodern Presidency

A Pretentious Word for a World Without Rules

Given thirty years of postmodern relativism in our universities, we were bound to get a postmodern president at some point.

Postmodernism is a fancy word — in terms of culture, nihilist; in terms of politics, an equality of result and the ends justifying the means — that a lot of people throw around to describe the present world of presumed wisdom that evolved in the last part of the 20th century.

More from Victor David Hanson

Not Making A House Payment

LUIGI ZINGALES
The Menace of Strategic Default
Homeowners who walk away from their mortgages undermine our financial system.

HULTON ARCHIVE/GETTY IMAGES
Fortunately, debtors no longer face prison time, as they did in nineteenth-century London, but shouldn’t they pay when they can afford to?
Eighteen years ago, when I bought my first apartment in Chicago, I asked my broker whether, if I defaulted on my mortgage, the lender could come after my income after repossessing the house. I had heard that some states didn’t allow that, and I wondered if Illinois was among them. To my surprise, the broker didn’t know, either, but she promised to find out. It clearly wasn’t a burning question for her, since she still wasn’t able to answer it the next time we met. Our ignorance wasn’t unique. Confident that house prices would never stop rising, most Americans never bothered to check what would happen if they defaulted. After all, who would walk away from a house worth more than the mortgage?

Today, the matter is far from theoretical for the 15.2 million American households holding mortgages that exceed the value of their homes. It will help determine how many of them choose to “default strategically”—that is, walk away from their mortgages even when they can afford them, because they’ve determined that it’s no longer worth it to keep paying. And that, in turn, will help determine the future health of the American housing market—and thus of the U.S. economy.

Many people think that we don’t have to worry about widespread strategic defaults. When I discussed the problem with a board member of one of the top four American banks, he categorically denied its existence: “The idea that people would walk away from their homes when they can still afford to pay the mortgage is unfounded.” A study from the Federal Reserve of Boston seems to confirm his skepticism. Evaluating Massachusetts homeowners during the 1990–91 recession, it found that only 6.4 percent of “underwater” borrowers—that is, those burdened with mortgages that exceeded the value of their homes—ended up in foreclosure. And not all of those households were defaulting strategically; many, presumably, were actually unable to pay their mortgages.

Unfortunately, such evidence may not tell us much about the likelihood of strategic default today. During the 1990–91 recession in Massachusetts, home prices fell just 22.7 percent from peak to trough, and most borrowers had made 20 percent down payments—so few owed much more than their houses were worth. Even people who had bought at the peak owed, on average, just 3 percent more than the value of the house. Over the last few years, by contrast, home prices have fallen by 40 to 50 percent in several areas, and many borrowers had put very little or nothing down when they bought their houses. Furthermore, during the current recession, the problem affects not only those who bought houses at the peak but also those who took advantage of rising house prices to take some money out in a refinancing. This wasn’t the case in 1990–91, when home-equity lines of credit were extremely rare.

Strategic default is hard to define, of course, and presents difficulties for researchers. What exactly does it mean to be able to pay a mortgage? If I default because I’m unwilling to work extra hours to pay my mortgage, is that a strategic default or a necessary one? Nevertheless, a growing body of evidence suggests that in the current recession, strategic default exists and is rising.

The most convincing evidence comes from a study by Experian and the consulting firm Oliver Wyman that tries to measure strategic default by identifying people who go straight from having always been current on their mortgages to being 180 days late—while staying current on all their other debt obligations, such as credit cards and auto loans. The idea is that if somebody pays the credit card but not the mortgage, it’s probably because he wants to default on the mortgage, not because he must. The study estimates that in 2008, 17 percent of all U.S. defaults were strategic, though that figure differs tremendously across groups and regions. For instance, 27 percent of defaults among people with high credit scores appear to be strategic, a figure that jumps to 40 percent in California.

A study by the Amherst Securities Group takes a different approach. It shows that in areas where homeowners generally weren’t underwater, under 1.5 percent of subprime mortgages became nonperforming each month during the third quarter of 2009. But in areas where the average mortgage exceeded the current value of a house by 20 percent or more, the rate of monthly subprime defaults was 4.5 percent. The difference between the two rates probably isn’t due to homeowners’ ability to pay, because the study corrects for unemployment. The assumption, therefore, is that it’s due to homeowners’ willingness to pay when they see how much more expensive their mortgages are than their houses. The difference between the two default rates—the 1.5 percent “natural” rate and the 4.5 percent rate in areas where home prices dropped significantly—suggests that in those areas, two-thirds of defaults seem to be strategic.

Survey-based evidence also suggests that strategic default has become widespread. A survey conducted by the Chicago Booth/Kellogg School Financial Trust Index, which I helped design, asked a representative sample of 1,000 Americans how many people they knew who had defaulted and how many of those people had defaulted even if they could still afford to pay their mortgages. According to the respondents in March 2009, 23 percent of their acquaintances’ defaults were strategic. By September, that fraction had increased to 36 percent.

Though the rate of strategic default is hard to determine, one thing seems certain: the more you owe, relative to the value of your house, the likelier you are to default strategically. Nobody will do that if his mortgage is just 10 percent larger than his house is worth. Of households that owe 50 percent more than their houses are worth, the same survey suggests, 25 percent will default strategically. And a New York Fed study estimates that of households that owe 62 percent more than their houses are worth, a full half will default strategically. The good news is that many homeowners seem unwilling to default even when they owe a lot more than their houses are worth. The bad news is that we aren’t sure why they hold off—or how long they’ll continue to.

In fact, what’s surprising isn’t how many homeowners choose to default strategically, but rather how few do so, given the strong monetary incentives. In many areas, prices have fallen so steeply that the monthly mortgage on a house—if it was acquired just before the housing bubble burst—is twice as expensive as the monthly rent on an identical house. If you were holding such a mortgage, why wouldn’t you default?

The law doesn’t provide much incentive to stay put. It’s true that 39 states permit a lender to come after a borrower’s other assets and income if he defaults (as I would have discovered, had I done my homework 18 years ago). And it’s also true that even in the 11 states that don’t allow that, the restriction applies only to original home loans used to purchase property, not to home-equity lines of credit, while there is some legal uncertainty regarding mortgages issued to refinance existing mortgages. Nevertheless, lenders rarely slap borrowers with a deficiency judgment—a court injunction to pay the difference between the face value of a mortgage and the proceeds that the lender earns by repossessing and selling the house. The procedure is costly and generally not worth the expense because of the limited assets that most Americans own aside from their homes.

The tax code likewise doesn’t impede people from defaulting strategically. Until recently, it’s true, people had to pay taxes on any forgone debt. If you walked away from a house worth, say, $100,000 less than you owed the bank for it, that $100,000 was essentially income, and you had to pay income tax on it. However, in December 2007, Congress made mortgage debt cancellation nontaxable for personal residences. Congress’s aim was to facilitate the renegotiation of underwater mortgages, but the move had an unintended consequence: reducing the cost of walking away.

What does prevent people from strategic default, it seems, is their sense of what’s right. More than 80 percent of Americans think that it’s immoral to default on a mortgage if you can afford to pay it, according to a recent paper by Luigi Guiso, Paola Sapienza, and myself, and these people are 77 percent less likely to declare their intention to default strategically than people who don’t find the act immoral. Perceived social norms also seem to affect the propensity to walk away: knowing somebody who defaulted strategically, or living in an area where many people have done so, makes a person much more likely to declare his willingness to follow suit.

Recently, though, some scholars have begun questioning the moral imperative not to default. Roger Lowenstein, writing in the New York Times, wonders why we should expect homeowners not to default strategically, when banks routinely do so with their underwater investments. Similarly, Lowenstein likens strategic defaults to the “walkaways” that prominent companies have made, such as Tishman Speyer’s default on its Stuyvesant Town property in New York. The analogy isn’t apt, however, because in commercial real estate, contracts explicitly state that borrowers can transfer ownership of the collateral in lieu of repaying the debt. With such an agreement in force, there is no moral obligation to pay any residual debt after the property has been transferred. Such a provision is not present in home mortgages in most states.

University of Arizona law professor Brent White goes further, arguing that defaulting on a mortgage when its value exceeds the value of the house is the rational thing to do and that homeowners refrain only because of media “scare stories” pushed by powerful lenders. He suggests that the government should encourage borrowers to default when it’s in their economic interest, which would force banks to renegotiate the loans. His solution is akin to encouraging people not to pay taxes in an effort to induce the government to reduce fiscal pressure: it might work, but at the cost of putting the entire system at risk.

How much risk? If the underwater homeowners who currently refuse to default changed their minds and decided to abandon their mortgage commitments, the results could be catastrophic. The more people walk away, the more houses get auctioned off, further depressing real-estate prices. This additional decline would push more homeowners into negative territory, leading to still more defaults. Adding to the deadliness of this cycle would be the fact that as more strategic defaults occurred, the social stigma associated with them would lessen. Such a continued collapse is already a distinct possibility in several states: Nevada (where two-thirds of all homeowners are underwater), Arizona (51 percent), Florida (49 percent), Michigan (48 percent), and California (42 percent). Every time a borrower defaults, moreover, he makes future mortgages more expensive (because lenders have to cover the cost) and the mortgage market more inefficient (because many potential borrowers are shut out). This higher cost and reduced availability of credit would depress house prices even more, jeopardizing the possibility of an economic recovery.

Undermining the social norm to repay mortgages, as Lowenstein and White do, is thus a very bad idea. You might just as well say that when a theater is going up in flames, it’s “rational” to trample other people in rushing to the exits.

Not only did the real-estate crisis shove millions of homeowners underwater; it also jeopardized the very social norms that it rests upon. To prevent a complete breakdown in social norms—a breakdown that could take decades to reverse—it’s necessary to facilitate mortgage renegotiations, especially in the areas most affected by the drop in home prices. Unfortunately, the major lenders oppose any reduction of mortgage principal. They’re playing a dangerous game of chicken, gambling that the real-estate market will recover and that any dollar of principal reduction now will be a dollar less in profit for them later. (Even if the market doesn’t recover, they don’t have much to lose, since if they collapse they’re likely to become wards of the state.)

Eric Posner and I have proposed a simple solution to the problem of underwater mortgages. We envision a reform of the bankruptcy code that, in areas where house prices have dropped precipitously, would require lenders to give homeowners the option of resetting their mortgages to the current value of their houses. In exchange, the lenders would get 50 percent of the houses’ future appreciation. To keep homeowners honest—that is, to prevent them from doing minimal upkeep in the knowledge that they stood to gain less from a home-price increase—the capital gain would be measured based on an average of houses selling in the area, rather than on the change in the value of the actual house.

This proposal eliminates all the incentives for a strategic default without excessively rewarding the borrowers. In fact, the proposal’s main appeal is that it tries to split the costs and benefits fairly between lenders and borrowers, without having taxpayers subsidize both, as the Obama administration’s interventions have done. Unfortunately, that makes our proposal unpopular. Since it doesn’t unduly favor any constituency, it isn’t supported by any. And since it doesn’t spend tax revenue, it isn’t favored by politicians, who never tire of rescuing some people with other people’s money.

Luigi Zingales is the Robert C. McCormack Professor of Entrepreneurship and Finance at the University of Chicago Booth School of Business.

Apple I Pad--1st day on sale

This is a video I shot on my Droid. It's at the Brea mall Apple store.



I went to the Apple store at the Brea mall, Brea, CA.

I only went to look, not to buy.

I bought.

I'm excited.

I just told my wife.

I think I'm in trouble.

Vagabond Journey

This is by far my favorite travel blog on the internet.

Why do I post about it? For one, I'd like to send as many people as I can to his blog. His name is Wade. And he's travelling around the world with his wife and child.

His blog is not just about where he's going. It's filled with anecdotes that I take and apply to my own life. Wade's a thoughtful man. As he said one time, a travel journalist will make an area look like the greatest place, a newspaper writer will make it look its worst. Somewhere the truth lies in between. That's where Wade comes in.

Subscribe to his blog, enjoy some delectable writing, and even add your thoughts.

And if you know a really top notch travel blog, let me know.

Women and Pillows

What is it about women and pillows?

On our bed we have so many pillows, I put them on my wife's side of the bed so she can move them when she goes to bed.

Yeah, like that happens. Guess which side they end up on?