OK, I know Lehman Brothers just tanked, Fannie and Freddie have been seized, and AIG has been taken over by the Fed, but can we put all that aside for just a few minutes and talk about me for a change, please? I have liquidity problems of my own, and that being the case, I only have so much patience for Wall Street melodrama anyway anymore. It’s getting exhausting. I mean, seriously, what are are you and I going to do about it right this minute? Won’t things still be totally, terminally screwed up tomorrow? Am I right? Of course I am. So let’s take a little “me” break today for a change of pace.
Here’s what’s going on this month in Evelyn’s life:
Last Friday, I got a letter from the escrow department of my mortgage company letting me know that the dying, rust-belt city where I still own a small house in a bad neighborhood (because I couldn’t sell it after I moved to another state to take a job) has decided to hike my property taxes by $610 a year, thus causing a shortfall in my escrow account. I now have a choice. I can send the mortgage company $610 today, or I can pay an extra $50 each month on the house payment for the next twelve months.
The city, which is in northern Indiana, was once a major manufacturing center but has been decimated in recent years by the fall of the U.S. steel and auto industries. The government there is now in serious financial trouble. The tax base has eroded, companies have moved overseas, businesses are failing, unemployment is off the charts, and now, thousands of people are losing their homes to foreclosure.
Because the situation is so dire, and because the city has already cut essential services to the bone and still can’t generate the revenue needed to maintain normal operations (not public services, just day-to-day government operations), the city has seized on an opportunity and is hiking property taxes in the poorest neighborhoods so that the owners will be forced into foreclosure and the city can then sell the property back to the mortgage companies for pennies on the dollar (plus the cost of the back tax bill).
That strategy is indeed generating a small but steady stream of revenue for my old home town. It is also creating boarded up, bombed-out slum neighborhoods full of squatters, crack addicts, and meth labs, just like inner Detroit or the neighborhoods in Flint, Michigan. My dying city is literally eating itself to stay alive, and appeals by concerned citizens to turn the trend around fall on deaf ears. When there is nothing else to eat, we eat each other. Just shouting, “Stop it!” isn’t effective in such situations, no matter how passionate the shout may be.
“Scrapping” (the practice of pulling scrap copper and steel out of abandoned homes and buildings) has become a huge cottage industry here, and though such break-ins are illegal and the trade is dangerous, it continues to grow. A few months back, two homeless men were killed by other scrappers who wanted their haul. They stole the stolen scrap from the men, killed them, and stuffed them down a manhole. Such is life in the post-industrial Midwest in 2008.
On the block where my little house is located, fully half of the buildings are vacant and boarded up. I had my house on the market for a year and a half, asking only what was left on the mortgage and offering to pay all closing costs, everything negotiable. Not one person ever viewed the house, much less made an offer. The house has a new roof, a new furnace, new siding, and new appliances, and I couldn’t get anyone to even view it, much less make an offer, and this at a negotiable asking price of $39,000.
After a year, my real estate agent started to get testy. “People want nice kitchens and bathrooms. Why don’t you put some money into these two rooms and see if that helps?” I have no money to put into upgrading a house in a slum neighborhood in a dying city; I can barely pay my own bills where I am, and honestly, if no one is looking at the house, what difference would it make if I installed gold leaf appliances? A house two doors down is still for sale for $8900. Four years ago, when I bought this house, it was in a nice neighborhood. A new grade school was built right across the street in 2005. All that doesn’t matter.
So when my realtor asked me after a year and a half of not showing my house even one single time why didn’t I remodel the place, I said, “Why don’t you?”
That was the end of my realtor.
After flailing around for a couple more months once the realtor fled, I was finally able to rent the house to my daughter’s mother-in-law. She likes it there, and renting to her also means that our kids get to keep their privacy. But now, with the tax increase, I pay more on the mortgage than I take in for rent. I still take the homestead deduction because, if I don’t, the property taxes will shoot up to $4000 a year on a house I can’t sell at any price: not for the $37,000 I owe on it, not for $20,000, and not for $4000.
People tell me, “Walk away. Don’t waste another cent.” But I do still see some good coming out of renting it: one less bombed-out house in my town, a place where my daughter’s mother-in-law is happy, the knowledge that I am not directly contributing to the decay of a major urban center. So for now I will pay the extra $50 a month and pray for the best. But I know it can’t last.
Like a lot of Americans right now, I am always one disaster away from bankruptcy. So, apparently, is our entire financial system. That cheers me up a little bit (as in, at least it’s not personal), but it’s hard to maintain my good humor when I keep getting love letters from the city, the mortgage company, the insurance company, and God knows who else. I get depressed sometimes. And now the bank where I took the job (the one that landed me farther north with an unsold home in Indiana) is on a short list of four or five big regional banks most likely to tank in the near future, right behind WaMu.
So, OK, Wall Street is (once again) having a very, very bad week. That’s a problem. Pundits are all over the TV and radio explaining that this promises to be the worst financial disaster since the Great Depression, and that no easy fixes loom on the horizon. A hard correction is in process, they say, and it won’t be finished this year, next year, or maybe the year after that. (A few weeks ago, these same pundits were saying that it was way too early to call the current economic slowdown a recession.)
Here’s what bugs me today: while Wall Street is having its Very, Very Bad Week, Main Street is having a very, very bad yesterday, today, tomorrow, and what’s more, a fairly miserable foreseeable future. For every Bear Stearns that goes down, thousands of cities lose jobs, tax income, and infrastructure. For every Lehman Brothers that cashes in, millions of people like you and me lose homes, cars, and retirement benefits. For every AIG that goes bust by betting high on the wrong horse, another couple generations of kids can kiss college and all hope of progress goodbye.
So yes, I’m worried about Wall Street.
What I want to know is, when will Wall Street worry about me?
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“When will Wall Street worry about me?”
My sentiments exactly!
And since you and I have such deep pockets we can bail-out anyone and everyone except ourselves. I don’t know about your pockets, but ours seem to shrink a little more each day.
I’m also in one of those Indiana cities hit by the downturn in the auto industry. People around here were worried enough about that, now they are worried about their bank accounts however meager they are.
Great blog you “amateurs” have here. I just found it through one of my Google Alerts. I’m now a subscriber!
Thank you!
Ev – I certainly sympathize with your dilemma. You might this an interesting solution to your and many other people’s problems, esp. during this time of financial crisis.
A friend of mine in a Southern small city actively bought “slum location” run-down houses for a song (like yours.) Some of the reasons for the creation of the slum neighborhood stemmed from similar reasons as you experienced in the Midwest – closing or shifting employment centers, prejudice (despite the typical protest that racism is on the decline in the US!), public attitudes and unimaginative government buraeucracies.
Instead of looking solely for tenants to create cash-flow and profits, he offered the potential residents (mainly very low income minorities) the following:
1. A monthly rent without profit – simply to cover (fixed) mortgage costs and property taxes. Not too amazingly, many of the “slum tenants” could well afford the few hundred (usually $250 – 300/mo).
2. The tenant is responsible for making specific improvements and maintenance (mow the lawns, clean up the property, paint (he provides materials) etc.
He also provided initial frig/stove, made sure that furnaces, wiring and plumbing were up to standard, ound floors, basemennts etc. when he bought the houses.
3. Here’s the key: As an incentive, he permits the tenants (legally, in writing) to buy the improved property at the end of five years at a pre-set, fixed, cost if they have paid their monthly rent on time and complied with the conditions of maintenance.
In less than the first three years, all five of the houses are rented with many more people wishing to buy.
Unfortunately, he’s not rich and not able to buy another series of houses (he’s retired).
The results:
1. An upgraded and improved section of town with stable residents who were previously marginally or unemployed “slum residents.”
2. A stable neighborhood with a decrease of crime (dope, prostitution, etc.) with children in schools, not on the streets.
3. Previously unheard-of formation of a “community” with residents addressing and acting upon common problems rationally and responsibly..
All of this was done without a cent of federal or state government funding!
It is but one example from true life how the economic theory of “satisfycing” rather than maximizing can not only accomplish a necessary economic and social “good” but provide the owner with a very satisfying monthly income!
If enough people took this one example to heart, the process could be repeated from town to town, city to city.
A journey starts with a single step, as the Asian saying goes. Well, the first step has been taken!
It is now necesssary for individuals to see the practicality of the idea and to implement it in their neighborhood.
Perhaps some wealthier individuals might be interested in applying the “satisfycing” principle on a larger basis???
Unlike our cadidates, this does not require “talk” let alone incorrect or misleading promise, but it requires action and the basic goodwill of people that initially spawned the growth of the United States.
Interested?
Hi Betty! Thank you for your comments! I think that, yes, we are all witnessing shrinking pockets lately, and I fear they’ll be getting even smaller now.
Stephan, what you described is pretty much the arrangement I have with my tenant. I wish the city could be creative and broker similar arrangements in the abandoned homes. I would think some revenue and people living in the structures would be preferable to what is happening. Thank you for your thoughts!
I remember years back employee at Lehman, Goldman Sacks and other investment firm earn at least 300 K to 600K per year for selling mortage back security . If those same group cash out the money, and now the wealth they created and the mess they left behinded fianced by US American citizen those in school for a job those lost a job or those working hard to retire. Our tax money goes into those and smart small group of bundits. THis system is stupid. Stop the rescue . Let everything collapse so what at least we are all poor. And I don’t have to pay taxs for that later
Hi johnathan,
I think lots of people are angry about the bail-out right now, and as we speak it is getting even bigger and more complex. I guess we’ll have to wait and see how this government plan proceeds. Thank you for taking the time to share your thoughts.
Turbulence is life force. It is opportunity. Let’s love turbulence and use it for change.