I just learned that the woman who bought my last house and defaulted on the mortgage walked away from a short sale with NO DEBT, zero point zero zero, free as a bird.

When she bought the house, she had no job. She had not held a job for three or four years. A lender actually gave her a $206,000 loan with $5,000 down. This was before the bubble.

Instantly she buys my house and I take the money to pay off the mortgage on my new shack, the bubble starts to expand. Before long, both houses are “worth” $150,000 more than either of us paid for them.

Still unemployed, she now goes out and borrows ANOTHER $100,000 against the make-believe equity in the house. So now she owes $316,000 on a house she’d paid $211,000 for a few months before. Absent the bubble, the house’s real value would probably be around $225,000, at most.

She makes no effort to get a job. We — her former friends and colleagues — watch as she passes up an opportunity for a position as a translator paying significantly more than she used to earn as a tenured university faculty member. It becomes clear she has no intention of working. Ever. She starts to draw down her 403c. Yesh. She’s LIVING ON HER 403c PLAN! And she is not 59 1/2 or anywhere near it. She junkets to Mexico; she junkets to Central America; she tours India; she hangs out with her relatives in the Caribbean. She moves in with friends in northern California, where the weather’s nicer than it is here. The house stands vacant.

She finally gets a pseudo-job in an alternative school in the forests of northern California, where she’s teaching eight kids and living rent-free in a commune.

The bank threatens to repossess the house, so she declares bankruptcy. She hires a smart lawyer.

The upshot of it is that the house is sold at a fire-sale price — pushing down property values for everyone in the neighborhood — and she walks away scot-free.

Sorry, but it’s hard for me to work up much sympathy. I can’t feel any for the buyer, who never had any intention of earning enough to make payments on a $316,000 debt. And all I can feel for lenders who would make any such loan to an unemployed deadbeat is rage and disdain.

A pox on all their houses, residential and banking alike!

Now, how is 180 billion dollars for “counseling” will help the economy? I am not much of a gambler, but I’d bet my own $100 that if the government had kept the same programs, the same taxes, but just reduced waste such as this money for “counseling”, it would substantially reduce the deficit.

Lily, this is my sentiments too. It seems a lot of debt problems – be it overspending with credit cards or buying a house one cannot afford comes from a failure to learn one simple rule: if you borrow money you have to pay it back. This isn’t even “financial education” the lack of which so many people lament, this is honesty and morality. Everything else follows from this rule: that borrowed money aren’t really yours and you shouldn’t borrow more than you can repay, or spend more than you can afford.

Here they are 17 years later with real estate and stock prices substantially below the peak. Government intervention made things worse causing serious deflation of asset prices.

What was that song from the 80s – “I think I’m Turning Japanese.” However, the message behind that song was drastically different than what I am implying.