We seem to have, at least in the USA, an epidemic not so much of stupidity, but of reluctance to ask for help. Many people in the US are having trouble making ends meet, and may spend less on Christmas presents this year. These two facts are related.
The problem with money apparently comes as a surprise to financial analysts and forecasters, who must be in the upper percent that's growing in prosperity. There seems to be a puzzled shock in the Wall Street Journal that Wal-mart sales are down, bankruptcies are up, and even mortgage payments are falling behind at a record rate.
Meanwhile, the sale price of homes is declining, depending on what you read. Government figures show prices increasing 1 percent, but New York Times investigation in the same regions show prices declining at 15-25% from last year. Hmm. (See "Economix - What Statistics on Home Sales aren't Saying", NY Times Dec 6 2006).
As, one analyst put it, people seem to have turned their houses upside down like piggy banks, shaken all the money out, and spent it already, and now there's nothing left to use to pay the new bills. To top that off, the monthly mortgage payment magical 3 year grace period has expired, and the minimum payment they're demanding just doubled. How can that be?
And interest rates, whatever those are keep on rising, though maybe that's over now. Actually, that's highly doubtful, as the government keeps pushing to "let the dollar fall." The math is complex, but the outcome is predictable - foreigners, who now own over half of the IOU's the government prints, want a certain amout of value each year for holding onto those IOU's. If each dollar they get in interest payments has less value, they're going to want more of them to end up with the same international purchasing power. Voila, the interest rates will be pushed up.
How far up? The dollar is estimated to be easily 30% overvalued. So, the dollar could fall 30%. If that happens "gracefully", say over 6 years, that will add 5% to the interest rate the government is paying - well, actually, that you are paying with your taxes.
So, an interest rate now at, say 6% could rise to an annual rate of say 12%, just to cover the dollar's fall. So, here's a fast quiz.
If you have an interest-only mortage at 6%, paying $1000 a month (for easy numbers),
and the rate goes up 6% to 12%, will your new payment be:
a) $1006
b) $1012
c) $ 2000
The right answer is (c) - your payment will double.
(here's a handy calculator if you don't have one.)
From everything I can read, I think that many people, maybe most people, but easily millions of recent home-buyers, believe the answer to that quiz would be (b), and they are now getting a huge surprise they were totally unprepared for.
Some young people might think interest rates couldn't possible go "that high", and if you look in Yahoo or other sites, you can only see charts that go back a few years and you'd think that would be true. Older people remember how bad it can be, and here's a table with the history they remember.
Between August 1979 and September 1982 the "prime" (best) interest rate never got below 15%, and it hit a high of 21.5% in December 1980.
I spend a lot of time analyzing high-end, sophisticated accidents or incidents where experts messed up, trying to figure out how, say, two professional pilots and a professional air traffic controller could still send a plane down the wrong runway to its death. (See Comair Flight 5191, August 2006). I read about "safety cultures" and "High-reliability organizations" what what it takes to avoid disasters and "oopsies" in the hospital operating room.
I read books like Why Smart People Do Dumb Things by Feinberg and Tarrant, looking for clues.
But all those papers and studies miss the much larger problem, with huge effect on people's pocketbooks and health - the average or below average person and how they end up making terrible mistakes, and how to prevent that from happening. Problems picking bad boyfriends or bad clothes are harder to study, but a problem picking a bad mortgage can teach us a lot and is relatively easy to define.
Every day we read about how high government official seem to have messed up something or other, from Katrina to Iraq. We can ask how, with a hundred thousand specialists working for the government on such topics, can top officials appear to not know the first thing about what they're doing? Maybe the don't ask.
Do we? Bring that question down a few levels. How is it, in a wired country with a huge amount of information on line, known, published, and available for asking, that some people, many people apparently, still make terrible mistakes that could have been avoided if they'd just asked someone for helpful advice first?
We seem to have, at least in the USA, an epidemic not so much of stupidity, but of reluctance to ask for help.
We laugh about stories of guys who will drive for hours in the wrong direction rather than stopping to ask someone where they are. That's just annoying. Losing the house and becoming broke and homeless is not just annoying, and it takes the children with it.
Recent studies by Robert Putnam in Bowling Alone, and researchers at Duke have shown a significant decline in the number of friends people have. One in five adults in the USA now has zero, zip, no close friends at all they can go to for advice or help on something personal.
The cult of "rugged individualism" seems to have gotten out of control here, somehow worshiping individuals with huge IQ's or Rambo-like muscles, and forgetting the African wisdom that "it takes a village" and people were never designed or evolved (pick one) to survive alone.
At the high end, in cockpits or nuclear power plants or operating rooms, the findings are clear - it is simply not possible to "perfect" individuals. If you want to avoid errors, you need a team of people who look out for each other. That's the only thing that works, and there is very solid, credible evidence that it works. Aircraft pilots are now trained as teams, not as individuals, using techiques of "Threat and Error Management".
We have to wonder, however, if top officials in the government, or business, or our own workpalce who don't ask for or listen to advice are not all part of the same culture of those who will drive forever before asking for directions.
This is one of those remote causality issues this weblog talks about. A seemingly small cultural issue that, when multipled 10 billion times a day, results in huge costs in misguided policies and actions on every level, from personal to national.
It is also an intervention point, a leverage point, a place were we can fix something. We could take some of those same people who figure out how to sell us cars and pills, and put them to work selling us on the simple idea that it's ok to ask for help, and it's ok to not know everything, and it's ok to need each other to get by.
I think that would be a better investment than many others we're currently doing trying to clean up the messes that avoidable bad decisions have created.
There are some initiatives underway. One example is the Baha'i faith's emphasis on the process of local "consultation" among regular people trying to figure out how to make hard decisions in an increasingly complex world. In my mind we need a lot more energy put into such initiatives by many more groups, more collaboration, more social networking.
In it's own way, that attention will produce an "emergent" solution to many problems that formal analysis and huge government programs would never address.
(photo by crowbert )
technorati tags:homelessness, interest, mortgages, policy, helping, collaboration, decisions, decisionmaking, advice, takingadvice, bahai, listening
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