Off Topic Friday: Is it the Haves and Have-Nots, or the Will and Will-Nots?

I saw an interesting discussion on twitter last evening. As you might expect, there has been some serious discussion about the economy and the stock market (which are two DIFFERENT things BTW).

As you may know, twitter is heavily populated by “Web 2.0” types that know far more about social media and the internet that I do (or maybe than I ever will). They’re in lots of different fields, and many are actually (gasp!) using twitter and social media as a way to make money or at least  promote their cause to make money. I know, I know, the thought of actually making money when so many are suffering is scandalous.

In particular a pair of posts on the subject of the economy by someone that should know better stood out to me. He said:

“When wealthy invest in growth – GREAT! When wealthy buy up assets at rock-bottom prices cuz they’re the only ones who can: AWFUL!”

“Wealth doesn’t get destroyed in a depression — it just moves around. And by around, I mean “up”.”

I was very surprised to read these posts. I wasn’t surprised to see them on twitter, because the mush-brain socialist crowd is disproportionately represented there, but I was surprised to read it coming from that particular person because both statements show a fundamental lack of understanding of basic economics. Especially in this “internet age”, and especially when written by someone that’s using social media as a promotional tool.

Statement #1 is just bizarre – isn’t buying something low so you can at some point in the future sell it “high” one of the most basic fundamental tenets of the free market and capitalism? I think so – in fact my entire real estate business is predicated on that ONE idea. My client at work – the one that makes cars – thinks so. Starbucks, where I bought my coffee this morning thinks so. And the guy that owns the car wash that I went to yesterday thinks so.

In fact the ONLY way that a business can make a profit is to buy or create something and then sell it for MORE than it cost to make it. That’s the definition of profit. And that’s the definition of business.

And the bit about the “wealthy” being the only ones that can is a bunch of class warfare garbage. The fact is, over the last three years two things were widely available: 

  1. ANYONE with a pulse could have easily built up a “portfolio” of unsecured business credit that amounted to hundreds of thousands of dollars (ask me how I know). I’m sure even the most ardent socialist would agree with me that that kind of capital opens lots of doors, and
  2. ANYONE with a pulse could have bought investment real estate (aka “productive assets”) at rock bottom prices, and could now be reaping the benefits.

And statement #2 that wealth just moves up is – well – misguided. I was going to say silly but I’m stretching here to be as charitable as possible.

The truth is that wealth moves around all the time. Up down, and sideways. The people that produce know this in spades – they take calculated risks, and when the risks pay off then their wealth increases. When the risks fail their wealth decreases. That’s the nature of the beast.

Wealth doesn’t just float around in the ether waiting for a Vanderbilt or Rockefeller to come along. That’s hogwash. This economy both rewards and punishes risk taking (at least it USED to punish it).

So that even in a depression, wealth moves to the people that GO OUT AND GET IT.

The socialists and liberals would have us believe that there is an unequal access to opportunity in this country. I’m telling you that that’s a bunch of BS.

Because this is not about the Haves and Have-Nots.

Far from it.

It’s about the Will and Will-Nots.

When you understand the difference you can be successful in this country. Not before.

Off-Topic Friday: Collateral Damage – Baby Boomers Forced to Delay Retirement

The Wall Street Journal this week highlighted a problem that’s only getting worse as the financial sector melts down. 

Baby Boomers Delay Retirement

Declines in Assets Force a Generation to Face New Reality

By KELLY GREENE

Nancy Davis, a 59-year-old senior marketing manager for a law firm in San Diego, had hoped to ease into her retirement after her son finishes college in two years.

But “I may be 70 before I retire at this point,” she said Friday, after watching the markets take their toll on her 401(k). “It’s very unnerving.”

For millions of Americans approaching retirement, events of recent weeks are delivering a clear message: Not so fast. With nest eggs shrinking, housing prices still falling and anxieties about their financial future growing, the oldest members of the baby-boom generation are putting the brakes on plans to leave the office.

“We’ll see more and more people postpone” their retirement dates, says Helga Cuthbert, a certified financial planner in Decatur, Ga., who spent a good part of last week fielding telephone calls from nervous investors. “Their expectations about the future and the kinds of returns they would get were simply unrealistic.”

As discouraging as that message might sound, it’s exactly what many baby boomers need to hear, according to financial planners and researchers. Most people underestimate how much money they will need for retirements that could easily last two or three decades, and are leaving the work force with nest eggs that are likely to expire long before they do.

Consider: Less than one-quarter of workers age 55 and older — just 23% — have savings and investments totaling $250,000 or more, according to a study published in April by the Employee Benefit Research Institute in Washington. About 60% have less than $100,000. The average retirement age in the U.S. is 63 — but most investors don’t recognize the benefits from working even just two or three additional years, financial advisers say. According to research from T. Rowe Price, the Baltimore-based mutual-funds company, a 62-year-old with a $100,000 salary and a $500,000 nest egg will see his annual retirement income from investments and Social Security rise by 6% for every additional year he remains in the work force.

Working longer “gives people time to build up their 401(k) balance, can result in a bigger benefit from Social Security, and reduces the amount of time people will have to depend on their savings,” says Alicia Munnell, director of the Center for Retirement Research at Boston College and author of a recent book about the value of extending time in the work force. “The arguments in favor of working longer are overwhelming. We just need to convince people.”

Even before events of the past two weeks, some older adults had begun adjusting their sights. In a survey published in May, 27% of surveyed workers age 45-plus said the economic slowdown had prompted them to postpone plans to retire, according to AARP, the Washington-based advocacy group.

John Dougherty is among them. “Two weeks ago, it was frustrating; last week it was scary,” says Mr. Dougherty, a mortgage broker in Raleigh, N.C. who estimates that his nest egg has lost 20% of its value in the past 18 months. He had planned to retire at age 62 — but now, like Ms. Davis, he says 70 might be a more realistic target.

“Time will tell if my physical capabilities will allow me to continue to work that long,” he added.

Patrick Hayes, a 58-year-old physician in Columbus, Ohio, was hoping to retire in two years. “But I’m watching my funds getting smaller and smaller, and I keep hearing this is the worst thing since the Depression,” he says. “It’s particularly tough if the market gets hit in your early years of retirement. If you’re about to retire and something like this happens, maybe you should stay working.

“What I don’t want to do is take 10 years off, be 70 years old — and have to go back to work if I’ve lost my technical skills,” he added.

That story — retirees returning to work — is also being played out in the wake of the market turmoil. At RetirementJobs.com, an online job search provider, “the volume of visitor traffic to our online résumé writing service doubled in the past week,” says Tim Driver, chief executive officer. “The common motivation we’ve heard from these people is that they need to go back to work due to the economy.”

Jack Pogalz, a 63-year-old project manager in Cottage Grove, Minn., was laid off last year from a medical-device maker and has been looking for part-time work as a grant writer in the nonprofit sector. But he recently shifted his job search to full-time employment after realizing that his 401(k) has dropped 16% since December. “That translates into about four years of income” in retirement, he says. “It’s either get back into the work force or retirement’s going to be cut that much shorter.”

So far, he has had a number of interviews but no offers. “The age thing I think is hurting a little bit,” he says. “With the job market increasingly getting tighter, I think it’s going to get more difficult.”

Even retirees who have been prudent with their nest eggs say they’re facing tough times — and tough decisions. “We weren’t extravagant people. We didn’t go on cruises. We didn’t buy a Cadillac. And here we are, we thought we could retire, but our savings are just going too fast for us,” says Noreen Hilinski, a 67-year-old retiree in Madison, Conn. Her financial planner told her recently that she and her husband, a 69-year-old retired engineer, have used about 10% of their investments.

That news has her considering asking the catalog-company where she used to work to let her come back for the holiday season. Her husband is looking for odd jobs, perhaps in a hardware store, she says.

“There’s a lot of people who are going to go back to work in my age bracket,” Ms. Hilinski says. “More and more of my friends are talking about going back to work.”

Jack Wolfe, a 64-year-old retiree from a natural-gas-pipeline company, moved to a lake between Houston and Dallas last year. Now, he’s trying to go back to work, “and the closest we are to anything is 60 or 70 miles,” he says. “I’m probably going to have to go to work for a few months at a time. What I’d really like to do is inspection work on new pipelines.”

After nearly a decade in retirement, “I’m trying to go back to work and let our portfolio build back up,” he explained. “We’ve lost such a big amount of money lately, we’re going to get to the point where we can’t recover.”

He and his wife, also retired from the same company, lost about half their savings after Sept. 11, 2001, he says. “We were building it back up really slow. Then this thing hit, and it put the nail in the coffin.”

There is an alternative that will help you salvage retirement savings. Visit Great Lakes Investment Fund to learn more.

Off-Topic Friday: Trivial Pursuit, or More About The Author

The meme bug is sweeping the real estate blogging world again. 

@ToddWaller tagged me a couple of days ago to reveal potentially embarrassing facts, after he had supposedly done so himself. I didn’t see any embarassing things on his list, but there were a bunch of interesting things that I learned about him. So in the spirit of TMI and full disclosure, here are a few mildily interesting things about me that very few people actually know:

  1. I ran for a seat in the California state house representatives in 1990. As a rookie I smoked a sitting city council member in their own city, but ultimately lost in the outlying area of my district because I didn’t have the resources to campaign there.
  2. I was admitted directly from high school into the Electrical Engineering program at the University of Michigan. I started strong with a D average in my first semester, then managed to talk my way from semester to semester without any real improvement. After three years of that they finally threw me out. 
  3. I took a two year break from college and worked at a casino as a blackjack dealer in Lake Tahoe, Nevada. Along the way I met a shocking number of 21 dealers that had quit college and done the same thing – and never left. They were 45 years old and still there dealing cards. That was enough of a wake-up call to convince me to high-tail it back here to finish college.
  4. I met my wife during the second day of grad school orientation at USC. We were engaged in six weeks and got married a year later. That was 18 years ago.
  5. I graduated from USC in 1992 with an MBA with a concentration in finance, and I was one of only two graduates in the my entire MBA program that year to land a much-sought-after investment banking job upon graduation.
  6. I’ve had 12 jobs since graduating from undergraduate school. The shortest was the Investment Banking job in #5, which lasted all of 13 months before the company went under (not my fault – I SWEAR). The longest was 3.5 years at the “old” Hewlett-Packard in Silicon Valley, when Bill and Dave were still alive. I suppose that you could say that when it comes to jobs I have a short attention span.

And I’m sure that’s far more than you ever wanted to know about me. 

So – now it’s my turn to tag a few others to do the same.

Let’s keep things reasonably local:

@12thnight

@MDU1109

@digitalvision

@MichaelBeaton

@primesuspect

@llaurentsmith

It’s your turn to tell everyone a few interesting things about you.

For those following along, hit Twitter and add these folks to your Following list.  There are pearls of wisdom and the wit of kings & queens to be found amongst these folks.  Of course, there’s a lot of stuff out there where you might need a shovel……

Here are the ground rules if you would like to keep this chain letter meme going:

The rules to play are easy …
1. Link to the person who tagged you.
2. Post the rules on the blog.
3. Write six random things about yourself.
4. Tag six people at the end of your post.
5. Let each person know they have been tagged.
6. Let the tagger know when your entry is up.

Off-Topic Friday: Boston-Edison’s History Being Sold for Scrap

I have always been a fan of old homes. Not 1930’s and 40’s. Boring. I’m talking REALLY old ones from the turn of the century.

 

There’s something about walking through one of them when it’s vacant and listening. When I do this I can almost hear the sounds of the families that lived there. I imagine conversations about hopes and dreams, and others about the simple routines of everyday life. It’s at these times that words fail me and I wish that I had spent more time studying poetry.

 

The attention to detail in these homes is magnificent. Real crystal doorknobs, hand made fluted moldings, leaded glass French doors, red oak hardwood floors, and soaring ten foot ceilings.

 

Personally one of the wonderful things about Southeastern Michigan is the large number of these homes. Northville, Saline, Romeo, and of course the city of Detroit all have concentrations of them.

 

So when I moved my family back to Michigan in 1998 I was intent on finding one for us. Having spent 12 years in California, I had grown tired of the neutral colors and stucco exteriors that are so common in the prevailing southwest architecture & design.

 

By far the most spectacular homes of this vintage are concentrated in two areas of Detroit – Indian Village and Boston-Edison.

 

So I focused on both.

 

The problem was that I was the only one looking.

 

I easily located several unbelievable homes, mansions really. I vividly remember my favorite one in Indian Village – 5500 square feet, six bedrooms, four baths, carriage house, garage, and formal dining room that was bigger than my present family room. For $300,000. It needed some work, but it was totally livable.

 

So I packed up my wife and kids and we drove out to look at a few of them.

 

My fascination and love of these homes and neighborhoods lost out to a single question that my wife asked as we looked at the one in Indian Village – “honey I love it, but where is the nearest grocery store?”

 

She was right. At that time I think the closest one that I would have felt comfortable having her go to from Indian Village was in Grosse Pointe Park.

 

So it was the suburbs for us.

 

What got me thinking back to this was a sad column that was in the Wall Street Journal yesterday about the Boston-Edison district that I have included below.

It’s sad to see that the neighborhood is starting to decay at the hands of petty thieves. But it’s heartening to see the residents pulling together to preserve the neighborhood’s rich heritage.

 

Henry Ford’s Detroit Neighborhood 
Tries Hard to Keep Up Appearances

Boston-Edison Survived Riots, White Flight;

Residents Hope to Weather Foreclosures, Too

 By JAMES R. HAGERTY

September 11, 2008; Page A1

DETROIT — The faded elegance of this city’s Boston-Edison neighborhood, once the home of Henry Ford, has survived white flight, the 1967 riots that destroyed nearby shops, and the long decay of the U.S. auto industry. But three years ago, residents started noticing a disturbing trend: More and more of the stately homes were vacant.

“We were losing our homeowners,” says Ada Tinsley, a retired nurse who counts seven empty houses on her block. Elderly homeowners died or moved away. Speculators bought houses, then abandoned them. Longtime residents borrowed against their houses to pay off bills, then found they couldn’t afford their mortgage payments. In the 36-square-block neighborhood, about one in five houses is now vacant, mainly because of foreclosures.

The foreclosure crisis has come as a sucker punch to thousands of neighborhoods across the U.S., from desolate cul-de-sacs in Las Vegas to thickets of mostly empty condo towers in South Florida. What’s unusual about Boston-Edison is that the residents who remain are fighting back.

Organized by an 87-year-old neighborhood association, some do unpaid duty mowing lawns, trimming hedges and picking up litter outside vacant houses. Others park their cars in the driveways of empty houses to make them appear to be lived in. The association’s Web site promotes mansions in need of new owners. Some members have volunteered to rush to the scene when burglars are breaking into empty houses.

Jill Thomas, a mother of two who works for her family’s auto-parts salvage business, has lost count of how many times she and her neighbors have called the police about suspicious people, such as a man recently seen towing two shopping carts of scrap behind his bicycle. “911, they know my name,” Ms. Thomas says.

Victoria Koski, who is home-schooling her two children in a Boston-Edison home with four bedrooms and a ballroom, wants banks that own foreclosed properties here to remember the neighborhood’s high aesthetic standards. “There’s a classy way of boarding up a house and a tacky way,” Ms. Koski says. She suggests painting the boards in colors that blend with the stone and brick exteriors.

“We’re simply trying to keep up appearances,” Ms. Koski says.

Many neighborhoods will struggle to do that in the years ahead. Barclays Capital estimates that there are 811,000 bank-owned homes in the U.S., up from 129,000 two years ago, and predicts that the total will grow 60% more before peaking in late 2009.

Thieves mine empty homes for doorknobs, light fixtures, doors, radiators (attractive as scrap metal) and, especially, copper pipes and wiring. “Right now the city of Detroit is the biggest copper-mining location in the country,” jokes Tom Ball, a real-estate agent here. Within a few minutes, these looters can cause damage that costs tens of thousands of dollars to repair.

In a few places, such as Boston-Edison, residents are taking matters into their own hands rather than waiting for political solutions. In Cleveland, a neighborhood group in the Slavic Village area organizes lawn mowing at vacant homes and encourages youths to paint cheerful designs on boarded-up windows. The city of Los Angeles is training neighborhood leaders to report signs of deterioration in vacant homes so action can be taken before blight spreads. Just Cause, a nonprofit group in Oakland, Calif., pressures utility companies not to shut off the water of tenants whose landlords are in foreclosure.

Boston-Edison has an edge over many other threatened areas because it has had an active neighborhood association since the 1920s. Neighbors know one another and can organize themselves for action.

Boston-Edison, named for two of the main streets that cross through it, is about four miles north of downtown and was on the fringes of Detroit when people began building houses here around 1900. Aside from Henry Ford, residents have included the labor leader Walter Reuther, Motown Records founder Berry Gordy Jr. and Sebastian Kresge, who ran the five-and-dime store chain that eventually became Kmart.

In the 1950s, African-American professionals and entrepreneurs began moving into what had been a partly Jewish neighborhood, and Boston-Edison today remains racially diverse. Plutocrats don’t live here anymore. Middle-class people — including teachers and young professionals — restore houses built for the rich. One house has 11 bedrooms and nine bathrooms; others have such features as pipe organs or bowling lanes. Many still have buzzers for summoning the servants.

Neighborhood volunteers track down banks, investors or other absentee owners to urge them to take care of properties. In some cases, they report zoning and code violations to the city.

Houses for Sale

The idea is “to put pressure on the absentee owners to not just let houses rot,” says Jim Hamilton, a retired economics professor who is president of the neighborhood association. But preservation alone isn’t enough. “The only solution for a vacant home is a buyer,” Mr. Hamilton says. The association’s Web site (www.historicbostonedison.org) provides free ads for homes for sale, mostly in the range of about $20,000 to $200,000. The group occasionally organizes tours of available houses.

Then there is the charm offensive. Ms. Tinsley, a lifelong resident who lives in the three-story brick house her grandparents bought in the 1950s, has been cooking meals for a new neighbor who is busy renovating a home he bought two months ago. “I tell people if they move into our block, I’ll feed them for a year,” she says.

Jerald Mitchell, a retired anatomy professor who lives in Henry Ford’s old mansion, took it upon himself to defend a vacant house nearby. He removed mantels and light fixtures and stored them in his garage until a new owner arrived.

Ken Yourist, a graphic artist who has lived in the neighborhood for 10 years, last year began cutting the grass next-door when a foreclosure left it unoccupied. Eventually, he decided to buy the house for $6,500. The previous owner had paid $179,000 for it in April 2006 before defaulting.

To deter thieves, residents banded together earlier this year to hire a private security guard, Mike Mader, to patrol the streets 50 hours a week.

In Pursuit of Perps

On Aug. 4, Mr. Mader, making his rounds, noticed that the back and side doors were open at one vacant house. In the backyard lay a pile of radiators. Mr. Mader used his cellphone to call John Serda, a patrol commander for the Detroit police. About the time Mr. Serda pulled up in his car, two men jumped out of the house through a window and ran down an alley. Messrs. Mader and Serda caught up with the intruders a couple of blocks away, and Mr. Serda arrested them for trespassing.

The neighborhood group is installing motion detectors in some vacant homes and setting them to sound an alarm in a neighbor’s home if someone enters. Ms. Koski, head of the neighborhood security committee, alerts neighbors by phone when suspects are spotted in or near an empty house. “We all get in our cars and mobilize,” she says. The volunteers array their cars around the empty home, making it difficult for thieves to drive off before police arrive. Some people who participate in these “flash mobs” take pictures of the suspects’ vehicles.

“We want to take our neighborhood back,” says Amy Officer, a 38-year-old computer technician who has joined several of these expeditions. She hopes criminals will conclude that it’s too risky to loot in Boston-Edison and move on.

Brian Ceccon, a social worker who keeps a database listing which of the neighborhood’s 930 homes are vacant, sees reason to be encouraged. People have moved into 22 previously empty homes since mid-June, leaving about 185 unoccupied. Mr. Ceccon thinks the recent purchases are “a sign of better times ahead.”