The Mortgage Bankers Association (MBA), which is the trade group for scuba divers mortgage bankers, would have been perhaps the most optimistic about the future of real estate. They very much had a vested interest in you buying a home with a loan, and having you pay your bills on time. John Courson is the CEO of the MBA. The WSJ highlights the MBA’s stance on paying your mortgage:

(Courson) said he believed mortgage borrowers should keep paying their loans even if that no longer seemed to be in their economic interest. He said paying off a mortgage isn’t only a matter of personal interest. Defaults hurt neighborhoods by lowering property values, Mr. Courson said. “What about the message they will send to their family and their kids and their friends?” he asked.

Ouch. No questioning how he feels. But that’s how he feels about you, not how he feels about the MBA. See, in 2007, the MBA got into real estate themselves. They bought a $79 million building in Washington DC. They put just $4 million down, or 5% of the value, and financed the rest using a 30 year variable rate.

They planned to occupy 40% of the space and lease out the rest to businesses. Turns out real estate isn’t as easy as HGTV made it out to be. They only ever got to 50% capacity, including their office space. That just doesn’t pay the bills. So even though Courson told YOU to pay your mortgage even if it doesn’t make sense so as to keep property values up, the MBA will not be doing that.

They are hardcore underwater on this property. It’s so bad they had to sell for just over half the price they payed, $41.3 million. So much for keeping property values up right Courson?

A commercial real estate data house has purchased the building from the MBA. The MBA meanwhile has decided their interests would be best served by leasing. That’s right, the Mortgage Bankers Association can’t afford, and plans to avoid, getting a mortgage.

I really wish this development received more attention than it has. It’s perhaps the ultimate irony of the recession. Please pass this along, share it with loved ones. It’s a civic duty.

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This story is actually old (relatively speaking) but I wanted the initial media buzz to die off before I started talking about it.

This big story is that more wives are outearning their husbands than ever before. Considering that only 4% of women outearned their husbands in 1970, not increasing this number would have been a bigger surprise.

Recession related activities have no doubt increased the percentage of women out-earning their husbands. This being because blue collar and construction jobs have suffered the most, whereas women work in more stable industries. So when the dudes lose their jobs, their wives start outearning them by default.

So what percentage of wives do you think are outearning their husbands these days. Keep in mind it has to be an amount that would be newsworthy. 50%? 40%? 30%? Nope, just 22% of wives are outearning their husbands these days. No offense ladies, but that just isn’t news.

But fear not friends because I have some actual analysis for this story. Back in 1970 only 4% of women outearned their husbands. A lot of that came down to women not having to work to make ends meet. The men made enough money and many wives stayed at home to raise the family. Perfectly acceptable back then, and today.

However it was in the mid-century that many women started going to work. By the 1980s (and I don’t have any statistics) it was quite common for women to work and no one would have been surprised to see a family where Mom is bringing home the bacon. It wasn’t common, but wasn’t surprising either.

So the women are getting shafted. Sure they are making more and probably have more say-so in the family finances, but at what cost? They used to get to stay at home all day and do all those things you see in 1950s movies and TV shows. That may sounds a bit sexist or some other term that alludes me, but think about the stresses of modern work. You have to worry about getting laid off. Your boss is a jerk. You might get reassigned to an awful place to live. You rely on your income to make ends meet and stress about what will happen if that income were to vanish. I could go on and on, but I’m certain most of the people reading this understand my point.

Women have gotten the short end of the stick. They used to have the option to go to work. Now they basically don’t have a choice. I’m all for women and men doing what they want, but there was once a time when the women had a choice.

Welcome to the world of men ladies, you’ve got the good, but you get the bad and the ugly too.

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Are you ready for some football? I’m not. As you know I am currently living in the DC area. Well DC got like 15 feet of snow last night and another 40 feet are expected today. Unfortunately I am not in DC this weekend to see all of this as it’s happening. Wherever I am, I am technically stranded since I can’t get back to my apartment. This is very unfortunate as my wife and I recently bought ourselves a wedding present, a 42 inch TV (it’s a PHILIPS!). I was really excited at the prospect of watching football in HD but since I can’t get to my TV that isn’t going to happen. Furthermore, my buddy has an even bigger TV and is having a Super Bowl party. But since I can’t get to the DC area, I can’t watch it. I used to love snow.

Enough complaining though. I’ve got a couple of Super Bowl related links to share with you. The first is the Adzone from Hulu. If you just watch the Super Bowl for the ads, might I suggest waiting a day and watching them in the Adzone. They’ll have them all there.

The second is called the Saints Super Bowl Drinking Game. I used to love playing drinking games like this, but thankfully the games I played didn’t have harsh drinking punishments. This one is pretty cruel in that area, but it’s so hilarious you have to give it a look. Whoever came up with it has a pretty good idea about the silly discussions announcers have in football games.

That’s it with the exception of my Super Bowl prediction. It would be nice if the Saints won, it would be a good thing for New Orleans. But I don’t think they have it in them. My money is on the Colts, if I were a betting man. If you’ve got a prediction, put it in the comments.

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So my featured link this week is actually from USA Today.  It’s a graphical interface where you put in your annual salary (and hit enter) and it draws a nice a pretty chart for you.  The chart tells you exactly how much of the taxes you’re paying to fund what programs.  I knew defense would be high, but it pained me to see how much goes to paying interest on government debt.  Another really cool feature is it adjusts your income for inflation all the way back to 1940 and shows how much your taxes back then would have gone to what.  It was a really fund graphic and I lost a good 30 minutes with it the other day.  Check it out.

Here’s the rest of the interesting things I’ve read lately:

Punch Debt In The Face creates an interesting debate about the morals of paying off mortgages in this recession.  Plenty of people can afford to pay their mortgages (even if they are underwater on it) but choose to walk away because in the long run they would save money by foreclosing and just buying a house at current prices.  Would you walk away from a mortgage, even if could afford to pay it?

Go To Retirement talks about an interesting tactic that the Obama Administration may start pushing towards people hitting retirement age. People want guaranteed income in the days without pensions, and annuities are a way to get them. This post talks a little bit more about what annuities are, and what you should look for in one.

The Dough Roller weighs the pros and cons of buying pet insurance. As someone who has drained his accounts on more than one occasion for dog related emergencies, I’ve considered pet insurance many times. I haven’t caved yet, but maybe I should before another emergency strikes.

Economists Do It With Models introduces us to a new kind of insurnace. I’ve said before that you can insure anything. This helps prove my point. Companies are now buying what’s called “Tiger Insurance”. No it isn’t protection from tigers, it’s protection from endorsers going crazy and tainting the company’s brand. Sounds crazy, but I’d be interested if Tiger was endorsing Weakonomics.

Got a link you want to share?  Post it in the comments or email me and I might include it in my next roundup.

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Imagine you’re at the bar spitting game to the hottest person of your attraction. Things are going great, you’re pretty sure you’re heading to their place instead of yours tonight. At the very least you’ll get a phone number and can do some sexting.

But you get the cold shoulder. You wasted money on drinks and precious time. Now it’s 15 minutes from last call and the crowd has really been picked over. You don’t want to go home alone so you’re left with only one choice… you got to lower your standards.

Now the picture I’ve painted may be familiar to some, and foreign to others. But we all have experience in being forced to lower our standards just to get what we want. No where is this more true than in our finances, especially with this recession stuff.

If before you wanted to buy a Mercedes, you may have decided on a Volkswagen instead. If you used to get pizza every Friday for the family, you might now be checking out the newest flavors of Hamburger Helper. And if in 2007 you were all about the Grey Goose, perhaps today you’re considering Mr. Boston.

Grey Goose and Mr. Boston are vodkas sold on opposite sides of the value spectrum. Grey Goose is what you would call a top shelf, and Mr. Boston is best found in the hands of passed out college students. It’s a recession, we all have to lower our standards. And that’s exactly what’s happened to us Americans.

Because of this recession, you, me (well not me I don’t buy liquor), and your drunk uncle Tom are all cutting back on their spirit consumption. Well, we’re Americans, we don’t really cut back. And when it comes to alcohol, more is usually better, or so we think. In this recession we’ve cut back on our spending for premium booze, but increased our spending on the cheap stuff.

Now this is hardly news, though many news agencies reported just on this as if it’s some kind of a surprise. It’s as big a revelation as unemployment going up, or home sales falling, in a recession. But I won’t leave you broke and sober without even a lesson.

Businesses are more prepared for recessions than you think. Well some are. Take Bacardi for example. The before mentioned Grey Goose is owned by them. But they also sell vodkas under the Bacardi brand for much cheaper. They own many brands across many different kinds of spirits in all the different price ranges. This way when the economy is good they make money on the premium brands and when the economy turns sour they make profits on the cheap stuff.

Just like you diversify your investments, companies diversify their product portfolios. If you would have asked me if I thought a liquor company needed to diversify beyond just liquor I would have said yes. But then again I forgot how much the American consumer loves their alcohol. So perhaps this was news after all.

Photo: melody.loves.you

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My wife is a big fan of American Idol. And I must admit that I myself like the first part of the season when all the people are trying out. And anything that inspires a post for Weakonomics can’t be half bad. Scratch that, it usually means it’s all bad.

Let me tell you about an observation we’ve all made but rarely discuss: We’re obsessed with the big win.

We want to see people go from nothing to something almost overnight. We’re fascinated with the stories of kids in rough neighborhoods growing up to become basketball stars, little country girls from the rural Southeast making it big on American Idol, and of course every story of a modest guy or girl that wins millions in the lottery.

Why do we care about these stories? Because we’re obsessed with the big win. We’re not really happy for any of these people going from little to a lot overnight. We’re happy because they seemed to do it with minimal effort. In the terms of lottery winners, that’s very much the case. With basketball players, it’s not, but they make it look easy. The same goes for American Idol.

We’re obsessed with the big win because it gives us hope that we can “make it” too. We’re lazy, and don’t want to do the work necessary to get rich and famous, so we watch the 0.0000001% of people that actually do make it with minimal effort and everyone thinks odds are in their favor now.

American Idol tryouts, as shown on TV are filled with talented singers, and people who think they are talented. Many of them walk into the show with the expectation that they’ll surely make it to the next round. I’m sure many of them are just acting out to get on TV, but even I have to believe some of these people are so stupid they actually believe they stand a chance.

The truth is that most people with more than a million dollars in their accounts have been busting their butts their entire lives. In fact, if you look at the richest people in the world, most of them have done nothing but work for their entire adult life. Many of them went to college, then entered the workforce, then climbed their way to the top of a company by being a good worker. They were never distracted by the big win, they remained focused.

The tragedy of the big win phenomenon is that it’s just as important to the economy as anything else. We need people that hold out their entire lives, working for low wages and hoping for that powerball win or that one of their kids becomes an NFL star; few actually pay off. We need people motivated by only going from rags to riches, and not pursuing something in the middle. Because we need people to work low wage jobs.

It’s that hope that keeps them from trying to do more with their lives, it’s that hope that keeps them on Jerry Springer instead of CNBC, and it’s the obsession with the big win that keeps people from reaching their full potential.

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A year and a half ago I wrote about the who pays for the Olympics in Beijing. Weakonomics was in its infancy but it remains one of my most favorite posts to date.

Now the Vancouver Winter Olympics are just around the corner. I’m going to retouch some things from that post but I’m also going to expand and focus on some of the details of the business behind the Olympics in Vancouver.

But first, let’s look at how all Olympic games are paid for. In order to pick which city and country will play host for the Olympics, interested parties submit bids to the International Olympic Committee (IOC). This was previously rumored to be a situation in which various people may bribe or try to sway opinion in “inappropriate” ways. New rules keep this from happening.

Vancouver won the bid, but as far as I can tell, the bidding does not include any direct transfer of funds from any parties to the IOC. That happens elsewhere.

The IOC handles all the money making ventures not through the winning bidder, but like any other media event. They sell the rights to broadcast the games all over the world. Media companies will usually bid on a country-by-country basis. In the US, NBC has been the home of the Olympics since 2000. They have the rights for Vancouver and for London which will be the summer games in 2010. They paid over $800 million for Vancouver and even more for London. NBC met the bid that the IOC wanted, whereas competing bids from FOX and ESPN were much less desirable. ESPN proposed a revenue share, which the IOC was not interested in. Similar, though probably less expensive deals were made with other networks in other countries. The IOC further raises money with official sponsorships such as Visa.

The local and national government of Canada will invest significant resources in upgrading or building facilities to host the games. They’ll also provided much needed security through the Royal Canadian Mounted Police. Governments and businesses are happy to provide the funding because they expect to make it back with tourism money and getting their region on the international stage.

So the IOC uses the governments to build facilities and media companies to broadcast the games, but they still have to pay for a bunch of overhead and someone has to buy all those medals right? Well, the estimated cost to run the Olympics in Vancouver is a little under $2 billion. However this number could be as high as $6 billion. No one knows for sure.

Now before I let you go we need to go back to NBC. Remember they’re shelling out what will amount to a couple billion for the rights to broadcast the Olympics in Vancouver and London, and that doesn’t even include the cost of sending over hundreds of NBC employees and production staff to film the thing. They expect to make their money back. Or at least they expected to make their money back. Back when they placed their bid, the economy was doing great. NBC projected revenue from the advertising they would sell to at least outpace their costs, otherwise they probably wouldn’t bother with a bid at all.

But we’re in a recession. Advertisers aren’t spending what they once did for commercials, even during big ticket items like the Olympics. General Motors used to be counted on for $100 million in advertising sales, but going bankrupt put an end to that. NBC’s former owners (GE) stupidly announced publicly that they expect to lose $200 million on the Olympics this year. Making an announcement like that before all the lines had been signed on advertising deals probably gave some advertisers more bargaining room. So the losses could certainly be higher. NBC is now owned by Comcast, so they get to sweat it too.

All this and we haven’t yet covered everything. Who pays for the Olympic teams? The US Olympic team may be close by, but someone has to pay for them to get to Vancouver and give them all their cool clothes. They have their own sponsors, many of whom will also be advertisers on the TV broadcasts. Some countries will receive money directly from their government, if the US team needed it they would too, but I doubt they need it. You can also donate of course, but seriously, don’t.

So like I said the first time around, we all pay for the Olympics one way or another. Whether your tax dollars are building a stadium or you buy the products you see advertised while you watch the white knuckle intensity that is curling, it’s you that pays for the Olympics. Be proud, the Olympics are awesome. And while we barely won the medal count (lost the gold count) to the Chinese in 2008, it’s the Canadians and Germans we will focus on this time.

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Thankfully, we have a law that keeps the national debt from getting out of hand. See, our Congress sets a limit on the amount of debt that can be issued. They’re not the brainless politicians we thought they were! They actually have a handle on all this debt. Without Congressional approval, the Treasury Department can’t just issue more debt. Checks and balances for the win right?

But wait. Going back as far as 1940 (the furthest I found), Congress has voted to raise the debt ceiling almost every year. On Christmas Eve last year, they voted to raise the debt ceiling to $12.394 trillion. So this debt ceiling stuff is more like a formality than actual legislation designed to reign in spending, like declaring war before you invade a country.

But let’s assume for a moment that someone in Congress actually had the stones to rally his/her colleagues to vote against an increase in the national debt ceiling. This means that the government will basically be barred from issuing new debt.

What would happen if the government couldn’t borrow money anymore?

From just a fiscal standpoint, two things would immediately happen: taxes would shoot up and government spending would tank. Because so much of our economy relies on government spending (financed with borrowing) there would be economic repercussions from all the spending cuts. With higher taxes, businesses and people alike will have less money to spend, and the economy would suffer a double blow.

If the government is banned from borrowing more money, it could send a signal that the government can no longer afford the interest on their debt (even with getting more debt) and the nation could default on debt. The chances of this increases as interest rates rise.

People that currently own government bonds will want to get out of them, creating a selling frenzy and killing the value of the bonds.

I could go on and on and on about what could happen. The truth is no one will know with certainty because people are unpredictable. With a team of economists and a warehouse full of that whiteboard paint I’m lusting over you still wouldn’t know for sure. But just for the sake of fun I’ve created a scenario:

Immediately everyone’s tax rate jumps by 25% and the federal budget is cut 10%. Tax refunds are postponed by 2 years until the budget crisis (as it would be called) is fixed. Existing Treasury debt tanks in value and Wall Street encounters another financial crisis as only the Fed has any sliver of a chance to control the economy. But anything they do is not enough. Everyone stops buying stuff because no one knows what the dollar is worth anymore. The Chinese Yuan spikes in value (because it’s been kept artificially deflated) and the Chinese invest in all the private businesses in the US lifting us out a depression caused by the budget crisis. The whole process takes more than 3 years.

The effect of not raising the debt ceiling is ripping off the bandaid of a wound that needs to be cleaned. Our debt is insanely high, with no sign of going down. At some point we won’t be able to pay our debts. This might be at $100 trillion in national debt our $15 trillion. The truth is it’s probably closer to $100 than $15, but that is no excuse.

Congress must reign in spending, but the truth is no one wants to be the Congress that finally takes the cake away from the fat kid. It’s political suicide. What we can, and should hope for, is to slow our borrowing so much that our GDP can catch up and pass some kind of threshold like 30% of GDP, instead of the 100% we’re fast approaching. This would take a while.

PS, after I wrote this post the Senate passed a bill to raise the debt ceiling from $12.4 trillion to $14.3 trillion, which is just $0.1 trillion less than our GDP last year.

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Weakonomics Survey

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