Friday, March 28, 2008

The Subprimes Crisis Revisited: An Anonymous Response

On March , 2008, I added my longest blog to date -- on the subprime crisis. It generated some healthy dialog with Notorious, a responder who questioned whether the Bible gave validity to having any debt whatsoever, while thinking through both sides of the issue.

It also generated some offline dialog with friends and family members who wanted to know how autobiographical certains elements of my original post were. We'll leave that for another dialog!

I did receive a new response today, this one from Anonymous . Since "he" left me a simple enough clue to know his identity, I thought I'd take the liberty of posting his response as a new blog. I think Anonymous has something to say to people who are discouraged because they don't feel they make enough money ... or are upside down in a house ... or are burdened by consumer debt ... with a simple message of simplicity, savvy, and faith!

Nice post. I've got a few thoughts to add.

First, my story. I was an urban missionary, living hand-to-mouth in the early 1990's when I bought my first two family in a "soft-second" mortgage program. I had a negative networth from student loans and no prospects for improving my income. Fastforward 15 years.

I own a very nice 4 bedroom home in Connecticut (the wealthiest state in the union) free and clear. How did I do it? Simple but bold moves in an appreciating real estate market. I bought, I sold, I leveraged, I had 18 tenants and property in 3 states then I sold everything, paid an enourmous tax bill, and bought my home with cash in 2004.

From 2004 - 2007 I was a Realtor. You've heard of the "Realtor to the Stars"? I was the "Realtor to the Millionarie Next Door." During that time I was helping smart real estate investors unload their over-priced stuff to folks who didn't have a clue. I sold millions of dollars in real estate during those years. We all saw this coming. Today the smart money is waiting for the bargains. They'll be back. The issue here is "understanding the times" (there's a biblical concept).

Biblical prohibitions about debt are good -- but unless we're going to eliminate a financial instrument that knowledgeable people looking to put capital to work without complete exposure (generally the debt is secured with an asset) then we had better learn to live with debt, and use it wisely.

Sex is dangerous too and monks abstain. Should we become debt-monks?It really has more to do with self-control, courage, and an ability to read a situation dispassionately than anything else.

The millionaries I know don't drive fancy cars, live in big houses, or vacation in exotic places. They're usually modest, often religious, and always very savvy.

Thoughts?

5 comments:

  1. Ah, thanks for the addendum Mark (I changed my handle to a more appropriate descript as I am starting a new blog soon).

    I think the debt secured by assets aspect is what I was making reference to in the discussion of maintaining a "net equity" position. In other words, if I buy a house worth 150K for the bargain price of 110K, and borrow 100K to pay for it I am in a good positive net equity position. I think this is what anonymous is referring to and I can see doing this. I still am at some risk however for not following the letter of the law that interest rates could change or damages, etc that could quickly erode my footing. But is this what the letter of the law is saying?

    Where I would draw the line would be in situations where I am in a net debt position, over-leveraged to the point of gambling with losing everything. Some win big doing it but the way is littered with many more who lose this lottery. Many families wilt under the heavy burden of over extending themselves with debt as you say.

    One must be wise and when in doubt trust the true principles of God's word over their own wisdom. I love the Proverbs which speak heavily on this topic and have been saved many a time by trusting these words over my own eyes.

    I think the parable of the talents is a good place to see where smart investment and business decisions are supported biblically. One must pray and use good judgement and not be blinded by their own greed.

    Nice topic.

    -Mike (AKA Notorious1)

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  2. I sympathize with dr.g's concerns.

    Leveraging assets is a dangerous practice, and I've seen people get hurt using it. It is also the way most people get wealthy quickly -- no matter the venture.

    Biblical warnings and prohibitions on debt are very important to understand and heed. I think most of those concern the binding obligations debts place us under and generally those laws were intended to keep God's elect out of servitude -- especially since the Lord had a prior claim on his people after delivering them. We've been bought with a price, how can we serve two masters?

    My earlier comments I think need clarification at two points. First, when I brought up loans as financial instruments, I was speaking of the lender's point of view. If we say debt is always sinful, aren't we prohibiting the practice of lending money at interest?

    People lend money at interest because they want the benefit of a return without the exposure of ownership. Is that wrong? Muslims think so.

    From the borrower's point of view, I know I sometimes prefer a loan to a partnership because I want the benefits of a higher return than I would have in a partnership.

    Secondly, I think consumer debt is a whole different category. The sort of debt I'm open to carrying is investment debt. I think consumer debt is always bad news. That sort of debt should be avoided through simply living within your means.

    Mortimus

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  3. Very tidy Mortimus. I am glad that even in our business ventures we have not been left as orphans to be without guide on what we should do.

    Biblical principles and the guiding of the Holy Spirit help us to make wise decisions to the extent we follow. In my limited experience, that guidance can take some surprising turns...even sometimes opposite of what my mind tells me to do. Recently I was led to invest in the company of a guy that everything in my gut said was likely to fail. Nonetheless I am sure I was to invest if for nothing else to demonstrate love towards this brother and help God do a bigger work in his life. He basically told me to give towards this endeavor and never expect a monetary return.

    How many times has God told us to do something we did not want to do? I was called to do what I am doing today and love what I do, yet I did not want to do it at the time of my call. It was only after obedience I was able to realize how much it was the correct way for me. "With the heart mans plans his way but the Lord directs his steps" is a powerful truth. We must be willing to set our feet where he tells them to land in every area of our lives.

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  4. dr. g,

    I think I know what you're speaking about. The relationship of human wisdom and the workings of Providence is beyond my ability to understand.

    The Lord does things according to the counsel of his will and doesn't ask my opinion. Nevertheless he has equipped me with a mind that sees patterns and relationships within his creation and calls me to be a steward. Prayefully and humbly I use my mind realizing that he may overrule at any moment for a purpose I may never understand in this life.

    I think, though, that some things that can often be inscrutible to the fallen mind can be grasped by someone who reads the New Testament with eyes of faith. Matters relating to servanthood, humility, giving, and obedience make perfect sense when you beleive in a God who honors those who trust in him.

    Nevertheless, I've seen people attribute some nutty things to the leading of God. For example, I know of a fellow who "felt-led" to tithe his gross business income. Generally businessmen I know who tithe, tithe on the net. That fellow is out of business today.

    Mortimus

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  5. Dr. G and Anonymous (who is Mortimus in later posts):

    Great debate and agreement -- and some real nuggets of wisdom.

    In terms of biblical teaching on debt and finance you are hitting issues of "hermeneutics" -- how do we interpret the Bible? The great Luther statement of sola scriptura has always left out his complete thought; his full statement of biblical authority was "the scriptures rightly divided" ... interpreted.

    In parables of building a tower and starting a war, Jesus referenced the idea of "counting the cost" ... In the parable of the talents He called cited the non-investor as evil and the investor as faithful! In the Old Testament, Abraham left a land of wealth and was a major risk taker -- he picked up his "tent stakes" ten different times to look for greener pastures!

    One myth on entrepreneurs is that they are the major risk-takers. The reality is that successful entrepreneurs focus on enterprises that they have more knowledge on and more passion for!

    No resolve in my comments, but it's a great topic and the discussion was very good.

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