Vic Socotra

04 August 2008

The Wave

Economist Pa ul Krugman was not down at the pool yesterday, though he should have been. He would have liked it. The humidity was down, there was a mild breeze and the rays of the sun were warm and inviting, not scorching, and the water was cool and refreshing.

I had been downtown, to the Eastern Market with my pal Mac, who had been on Chester Nimitz’s staff in the Big One. Despite having lived and commuted in the Washington area since before there was a Beltway, he had never visited the Market, and it is always neat to see something familiar through new eyes.

We bought smoked salmon and exotic cheeses from the vendors in the temporary food court across from the old brick structure that was gutted by the fire last year, and the Cheese Guy told us that they were looking forward to moving back in a year or so.

I looked up at the tent-like roof, wondering what the winter would have in store, but the Cheese Guy, slicing off a taste of Maytag Blue Cheese, said it was worth it. “We have decent water and refrigeration for the first time,” he said. “The old building was disintegrating.”

We wandered away through the throng=2 0looking at the hand-made sausages and produce,and I wondered, briefly, whether one of the vendors had decide d to sell the contents of the old market to the insurance company, betting on something better to come.

Harvard, the young Spook who is off for Baghdad, walked over to meet us later at Tunnicliff’s Tavern for a delightful mid-day beer. It was a dark crisp Juengling for us and Sam’s Summer Ale for Ivy League. He told us about the training that had to be endured before he was on station in the Green Zone in mid-September. He said he hoped that they knew he was coming, and Mac chuckled. In his experience with war, it didn’t matter. There is always plenty of work to be done in chaos and confusion. When we parted, I told Harvard to keep his head down, and we would do this a year hence when he got back from The Show.

Mac and I drove back via 8th Street, past the Marine Barracks, which back in the day, had been smack in the middle of a combat zone of its own. The formal entrance to the Commandant’s House used to front on a slum, where it was dangerous to walk without an armed escort.

“They always served a good martini there,” he said, and marveled that peace and order had apparently returned to the neighborhood.

Accordingly, I was a little late for the pool, but you could not ask for bet ter conditions at Big Pink. There were many rookies on the pool deck, some of whom clearly had no idea that there were pre-ordained positions for optimal sun, and it took a maneuvering to get the deck chairs properly placed.

With things so disorganized, there were strangers around Ms Hamilton and Sarah One, and entirely new topics of conversation. I had to wonder how many of them had purchased at the top of the Arlington Condo market, like I did.

I was talking to a crisp young man named David who was in the financial software game. I discovered to my surprise that we had been competitors in the bidding for the end-unit on the fifth floor that looked over the pool on the one side, and the lights of Ballston on the other.

I knew exactly what he had paid, and it was a lot. That is why I wished that Paul Krugman had been with us to explain things like he does in the New York Times OpEd pages. Home prices are down about 16 percent over the past year, and my sense was that Condos, the weakest edge of t he home market, were down more than that.
I could have paid what David did without blinking, and was lucky enough to get my unit on the fourth floor for about $35 grand less than what he did. That was pure dumb luck on my part, since signing the papers was the equiv alent of throwing a bundle of cash off the balcony to disappear in the pool below.

The prices held steady for a couple months, and then began to plummet over the next year. It is hard to make direct comparisons, since some units in Big Pink have been extensively upgraded, like David’s and mine, and others have been disintegrating for years, still locked as they were when completed in 1964.

Still, when you see a concrete box the same size as yours priced a hundred grand less, you have to wonder.

I think we are better off in Arlington than people are elsewhere. We have the Government, God bless it’s pointy little head, and there will be a lot of new people coming to town after the election who will need places to live. Elsewhere in this great nation, though, there is no sign that prices are stabilizing.

Unemployment is up,20not to a degree that would be alarming in terms of the historical percentage, but painfully high in terms of what is going on in the workplace. The number of people forced to take cuts in paid hours and wages has risen much more dramatically, and there appears to be no end in sight.

This is putting pressure on the next wave to people who will have to give up their houses. Most of the sub-prime defaults are behind us. The people who made up the information on their loan accounts, hoping to hold on the properties only long enough to make a profit are long gone. Some of them couldn’t evenmake the first payment on their new homes.

What is coming next are a new category of borrowers, better equipped back in the day, and most intending to pay as agreed.

These were people with generally good credit, and were placed in a category above the subprimes, or what the trade called “alternative-A” mortgages made to people with good credit scores without proof of their income or assets.

These people- maybe like David, I don’t know- were pretty good risks while the bubble was still expanding. Now that it has burst, things are not looking so pretty.

There was a lot of creativity at the time. I recall how helpful the lenders were to get me past the requirement to have the full 20% to put down on the new unit. I think there was a second loan on the first loan to get to the necessary amount. It did not seem to make a lot of sense at the time, but I did what I had to do. I think part of it was an interest-only provision or something.
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I got out of it and restructured to a fixed 30-year loan as soon as I could. I don’t know what David did, since he wandered off to get his cardio-workout in the pool.
What I do know is that the other factors in the economy, rising fuel costs, fewer paid hours and all the rest, is going to cause another wave of foreclosures. They say that borrowers could see their payments jump 50 percent or more. People can’t afford to do that, particularly if they started out right on the edge.

Since they will not be able to sell their properties for as much as they owe, the only way out is going to be bankruptcy. I think David is young enough that it could be a viable option, but for old coots like me, that is not the case. There20is not enough time left in the world to make up the difference.

It might be OK here at Big Pink, so long as the capital of the Free World is just down the road. I mean, that is not going to change, is it?

But there is going to be another wave of trouble, and some of the folks that are going to go bankrupt will look a lot like people you know.

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