The American Dream has always included buying a house.  Saving up enough for a down payment on your own house was something to aim for and be proud of.  Renting, conventional wisdom held, was throwing money away. 

In fact, our whole tax structure was setup in such a way to significantly incentivize people to take out a mortgage and buy a house.  Would we be in the financial position we are now if you didn't get to deduct mortgage interest off your taxes?  Less people would have purchased homes and the government wouldn't have had to return all that cash after mortgage interest deductions--maybe the deficit would have been a little smaller.  Maybe our own deficits would have been a little smaller, too, since buying a house tends to come with lots of little (and big) unforseen expenses.

Put aside the market crash for the moment.  I think it might be worth reexamining our lemming-like participation in this asset class as a society.

Moreover, owning a home tends to keep you geographically anchored.  Think about what society  and the working world is placing a premium on these days--flexibility.  People with an expertise--be it consulting, languages, engineering, etc.--go where the work is and get highly compensated for the "inconvenience".  At the same time, people who can be flexible about their own cash outflows can take more entrepreneurial risks, whereas lots of people with good ideas or passions can't join startups because they have a mortgage to pay. 

Your average Detroit autoworker, on the other hand, is not only in danger of losing his job, if he hasn't already, but, his family they can't even move.  So forget the pie in the sky notion of getting retrained to take a cleantech job working on building and repairing windmills in the Great Plains, because they can't sell their house.

When I was at GM, we took part in the leveraged buyout of AMF, the bowling company.  One of the first thing the buyout fund that led the deal did was to do a sale-leaseback.  In other words, they decided that owning a bunch of real estate wasn't a good way to capitalize this business, so they sold it, put the cash towards higher ROI investments in the company as well as a dividend to the shareholders, and just paid rent as an expense. 

Historically, bubble aside, owning real estate is a lower risk, higher cashflow investment--certainly meant to return less than the equity markets.  So why do we push so many young people and young families to try and buy a home?  Shouldn't they be putting their capital into potentially higher returning investments?

You might provide examples of real estate transactions that have worked for people in rising markets... and I'm sure there are lots--but the historical, long term performance of the asset class isn't that high.  Excess returns from individual transactions not only incur a boatload of unsystematic risk (like that you accidently built the house on a sinkhole), but require alpha on the part of the manager.  Like most illiquid/private asset classes, the diversity of returns among managers is very high.  In other words...  You can make a killing in real estate if you know what you're doing and you wind up getting lucky enough to bet on a good property, but don't be so quick to assume everyone can be better than average. 

What are some of the other things young people might invest in.  Well, think about my specific case?  In order to buy an apartment (you know, since I did the silly thing of buying something I could afford), I moved out to Bay Ridge, Brooklyn, a 45 minute commute into the city.  On average, I go into the city six days a week.  That's about an extra 4 hours of time compared to if I was living in the city per week.  Multiplied over a whole year, at a rate of $100 an hour (let's say I chose to do consulting with that time), you're talking about $20,000 a year.  I never factored that cost in.  Nor did I factor the social cost.  Who am I not building better relationships with because I live further away?  Isn't investing in my social network at this point a higher potential return than real estate as an asset class--especially given that I'm an entrepreneur? 

So what would the issue be if we just rented our whole lives?  People might say that you wouldn't have anything to leave to your kids--but we tax the hell out of inheretences anyway--not to mention the fact that you shouldn't need to buy a house to save money.  Personally, I think if we de-anchored ourselves from one spot for a big chunk of our lives, we might be better suited to take advantage of career opportunites, meet new people, and experience new things.  Tell me where the flaw in this argument is. 

As the Dow dipped into the 6000's and we wondered how low it would go,perhaps even 5000, is there any doubt in our minds that fear is the mantra of the day and investors are just running scared?

Forget fundamentals.  Forget earnings.

Everyday, we keep hearing how much worse it's getting.  Jobless claims, layoffs, falling revenues.  It's economic armageddon in an echo chamber.  Turn on the TV and feel like shit--and the networks are tripping over each other to make it sound worse and worse.  Remember, fear drives ratings.

"How the falling economy increases preditory behavior on MySpace...  tonight at 11."

"Mother of four kills her neighbor and feeds him to her kids after getting laid off.  What's the job status of the people on *your* block?"

"When we come back, what you don't know about the stimulus could kill you."

Well, is it me, or isn't the government supposed to be really good at keeping secrets and lying to us?  I mean, it's been almost 60 years since Roswell, right?  We still don't know who shot JFK either. 

Why can't we get some good old fashion men in black action on this economy?  For starters, let's start releasing economic data that isn't as bad as expected--and little by little turning it up.  So, one month we have job losses that aren't as bad as predicted.  Next month a little better.  Next month, flat unemployment.  Would anyone even really notice the difference between 8.5% unemployment and 8.3%?  It's not like turning on the TV during a blistering heatwave and having the government trying to convince you that it's 45 degrees. 

Then, we'll start paying off reporters and influencing them to write positive stories about people returning to the malls and getting jobs.  I'm sure there are more than a few reporters, given what they make, that would post a slanted story in exchange for having their credit card debt just mysteriously disappear due to a "computer glitch".  Economic stories are slanted anyway.  Think of all those holiday shopping stories.  You can't say anything significant about same store sales just by walking the stores, yet hundreds of stories get written every year before the numbers come out about how good of a season it is--and it directly affects how many people come out and shop.  It's all a matter of crafting a story--and some story angles would be a lot more helpful than others right about now--instead of the same old media scare tactics. 

See...  It's happening already.  Did you see this bullshit housing starts data?  Up 22%!!  Who in the world is *starting* a house right now?  Is there anyone out there who has seen ground broken on a new house?  No... no one... It's totally made up data, but yet the market rallied on the news.

Am I ok with being lied to?  Absolutely.  Why?  Because right now we're being bombarded with so much "truth" and in such a manner that it's almost like being lied to.  Sure, financial institutions are in serious trouble... and yes, some people might have to move out their houses into apartments...maybe many...  but half of this whole financial armageddon is due to the media preying on people's fears.  Is it me or aren't you afraid to even open up your wallet?  Because of fear, valuations can't stabilize.  I say the government should be acting like a doting parent and not only telling us it's going to be ok, but backing that up with some fuzzy math that says it is ok.  I'll pretend I believe it.

"The discrepancy between the grandeur of the failure and the stature of the man is a puzzlement. We are still trying to compute it."

Op-Ed Columnist - A President Forgotten but Not Gone - NYTimes.com

"When asked on ABCs This Week where Mr. Obama stood on the issue, Mr. Emanuel seemed to suggest that Mr. Obama, as a last resort, might be open to tapping the rescue fund to help carmakers, calling the auto industry an essential part of our industrial base."

Emanuel Urges Aid for Auto Industry - NYTimes.com

Umm... Yeah, I happened to watch this morning's This Week.   George Stephanopolous pressed Emanuel over and over again to try to get him to say that Obama would use the $700 billion rescue fund for the auto industry.  Emanuel did not say that.  Instead, he clearly stated that there were other funds that had been offered, that there were other resources they could tap and that the gov't would look into options because the auto industry is really important.  However, to write the headline "Emanuel Urges Aid for Auto Industry" and to suggest that that aid is coming out of the rescue fund is totally irresponsible journalism.

I've been having a Twitter exchange with James Eiden about how you can call an election with such small percentages of the votes in for a state.  I didn't think it's that difficult to figure out how it's done, but apparently, it needs more than 140 characters so here goes:

News organizations triangulate from a number of different sources: primary voting, new voter registrations, previous elections, demographics, and yes, exit polling.  Exit polling, given its unpredictability, I imagine is mostly used as a backup check at this point--to make sure long tail events didn't occur. 

So how do you call a state with 1% in?

Let's take our example state of Jesusland:

Jesusland has 100 voting districts, each representing an equal number of voters.

What are things we know about Jesusland before the election happens?

- Number of registered voters for each party in each district. 

- Primary results from that year.

- Historical records.

We know most people generally vote along party lines, so when you have districts that are heavily Republican or Democrat, you can pretty much count on those folks to go to one side or the other right away.  This is where exit polling comes in.  When you exit poll all of Jesusland's Republican heavy election districts and it seems like there wasn't a major shift against the tide, you can count those votes as in the bag within a margin of error--especially if those same districts turned out in strong numbers for these same candidates in Jesusland's primaries.

That may leave only about a third of the population of Jesusland really in play, making each district about 3.33% of the contested group.  To put the statistical significance of that number in perspective, there are about 180 million potential voters in this whole country.  When national polls are conducted, they're done with less than 10,000 voters and statisticians put them at a 3.5% margin of error.  To get 3.33% of votors responding would be like getting 6 million people nationally to answer a Gallup poll.  So when you see 1% of people reporting and you think it's too early to call, keep in mind that's orders of magnitude more than Gallup usually gets and they're able to get within a few percantage points.  When you get that large of a percent in key districts that are highly contested, you can pretty much call the rest of the race within fair degrees of certainty assuming no major cross-party upheavals.

I mean, it's no different than the whole map of the US, really.  If Ohio, Florida, and Pennsylvania polls closed at 4 in the afternoon, we'd know who the president was by dinnertime.

Via Heif... 

"What happens to the Obama "network" after the election? It's an intriguing question. The capacity that has been built to mobilize people's time and money greatly exceeds that of the parties. Think about it: Obama's campaign has mobilized on the order of two million or more individuals in one fashion or another. It has raised unprecedented amounts of money from unprecedented numbers of people. This is not a typical case of a campaign as an ad hoc organization that goes into mothballs for four years. The lights are not going off on this operation. If Obama loses, the network provides him an instant infrastructure to run again. The more intriguing question to me, as a student of politics, is what happens if, as seems likely right now, he wins."

Complexity and Social Networks Blog: The party after the campaign

Aside from my belief that he is not only the best but the most appropriate candidate for the job, the thing that really excites me about Barack Obama is how many young people I know are seriously interested in politics now--and how active and motivated they have become.  Many times before, candidates have tried to mobilize youth, and come up sure.  This time, it appears, it's for real--and that's great because there's only one policy that guarantees better results from your government: an interested and active populace.  No matter what your persuasion, you have to agree that the second people become detached from and disinterested in the actions of their government, it's over.  We, as a people, have lost.

So, every last one of you who went knocking on doors in Ohio or Pennsylvania, or who called their grandparents in Florida--don't let up!  

I believe Barack Obama is a great man, but the minute we stop pushing as hard as we are now, he'll fail.  We campaign against politics as usual, but if we the people go back to apathy as usual, we wasted a whole lot of effort.  The potential for change he represents requires everyone to give not only their verbal support, but their action and interest.  The tools are there.  The organizational structures are in place.  Don't let up.