The theme of this blog, which admittedly I often stretch and occasionally just ignore, is that the money advice we Americans get is lousy.
That advice comes from several sources. There are publications and 
broadcasts of various kinds. Aside from often lacking much wisdom or insight, these sources of information suffer from the fact that they are aimed at a broad and anonymous audience. By their nature, they are one-size-fits-all, leaving individuals to work out for themselves any customizations that might be required. On the other hand, this advice is free or nearly so.
More near-free advice can be had from friends and relatives. Some of this is probably good, but given the general state of PF knowledge out there the chances of hitting on a gifted amateur with sound ideas is low.
At the top of the advice food chain are professionals who give advice to particular individuals, presumably based those individuals’ situations, in exchange for money in the form of fees and/or commissions. In principle, that ought to work best and I have no doubt that there are many paid advisors out there who do a great job. But I am also pretty sure that many others, maybe even most others, are not up to snuff.
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I really thought it would take longer than this.
If you have been reading this blog for a while you know that I am generally skeptical of the proposition that we will learn much of anything from the Great Recession. My assumption has long been that given five or ten years we will be the same bunch of ignorant fools we always were, doing the same foolish things.
But I did think that in the shorter term, this year and next, some of the more obviously foolish stuff would be avoided. I didn’t think anybody would be willing to invest in GM in 2010. And I didn’t think that anybody would be discussing taking out new no-money-down mortgages any time soon. I was wrong on both counts.
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Today I am going to explain something complicated, so pay attention. Particularly if you write for the Wall Street Journal. My topic has to do with the
exotic topic of homeownership.
Many homeowners owe money on a special type of loan collateralized by the house, called a mortgage. Sometimes, they “refinance” these mortgages, often to take advantage of a lower interest rate. Generally, that is no more complicated than paying off lender A with money borrowed from lender B.
However, and here is where it gets really confusing, sometimes the money from lender B is not the exact same amount owed to lender A. If more money comes from lender B, then the refinancing is termed “cash-out.” It is called that because the borrower actually leaves the closing with more cash than they had previously.
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It is rare that I read something I wished I had written, and even rarer that it come from a source belonging to the old media. When that happens I get one of my infrequent opportunities to write something positive.
So today I write nice things about a post at The Atlantic by Megan McArdle. (Okay, so a blog post is not exactly old media, but it’s from the The Atlantic, a magazine older than most rocks.) Of course, in saying nice things about that post I will be saying un-nice things about its subject, the New York Times. There is only so charming I can be.
Last week the Times, a publication I really need to learn not to take seriously, ran an article on its front page that was moronic even by its own rapidly decaying standards. Biggest Defaulters on Mortgages Are the Rich told us that rich folks are more likely to strategically default on their mortgage than ordinary wholesome middle class folks.
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On the last Tuesday of every month two pieces of data are released. We get the monthly update on the Case-Shiller Home Price Index, which is based on thousands of real estate transactions, in which real families spend what is often their life savings. And we get the monthly number from the Conference Board’s Consumer Confidence Index, which is based on a short questionnaire sent to 5000 households asking them how optimistic they feel.
Yesterday the C-S 20 City Composite showed a nice little uptick, +0.8% for April, +3.8% year on year. That reversed a few months of downticks and was reassuring to those of us rooting for stability in the housing market.
The CCI, on the other hand, was down to 52.9 from 62.7. That undoes two months of gains and returns us to a point just above the March level.
How did the stock market react? Was it cheered by what households actually did with their money in April or depressed by what they said to pollsters in June? The S&P was down –3.1%.
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broadcasts of various kinds. Aside from often lacking much wisdom or insight, these sources of information suffer from the fact that they are aimed at a broad and anonymous audience. By their nature, they are one-size-fits-all, leaving individuals to work out for themselves any customizations that might be required. On the other hand, this advice is free or nearly so.
Expert Advice, Housing, Media | Frank Curmudgeon | 
August 25, 2010 12:59 pm | 
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