Larry Winget on the Housing Crisis – An Interview

Of all the “gurus” in the world, Larry Winget has become one of my favorites. Why? Because he tells it like it is. He doesn’t sugar coat anything and he’s always cosistent. I like that.

Larry’s been a busy guy lately making appearances on various TV shows and doing all the things that gurus do. He took some time out to answer some questions I sent to him regarding the housing crisis. Below is our email exchange. If you would like to hear or read more from Larry, check out the video vault on his website, or check out his latest book, You’re Broke Because You Want to Be (Affiliate Link). I spent some time watching quite a few of the videos recently. Good stuff.

If after reading the Q&A below you have questions for Larry, leave a comment and I’ll see if I can talk Larry into stopping by to reply.

1. What’s your take on the housing crisis? What caused it?

Well, the subprime lenders are taking the blame for the crisis but I think there is much more to it than that. The lenders are the scapegoat for the most part. There were a FEW bad guys but not enough to cause a problem of this size. I think the primary cause of the crisis is that people were irresponsible and bought more house than they could afford. Money was easy to get and they took it and didn’t give much thought to the FACTS. And the facts were that their mortgage was going to go up at some point. “But no one told me that!” Bull. It was in the paperwork. If you didn’t read it or understand it, that is your own fault.

Besides, what made people think that they could at some point afford both the principal and the interest when they could barely afford the interest only loan they took out on their house? But instead of blaming themselves, they blame the mortgage company for loaning them the money to begin with. That is wrong. Some people took interest only loans or ARMs and took that entry time to save and earn so when their mortgage adjusted they would be ready. Those were responsible people and are to be admired. Not everyone got screwed by the mortgage companies – most people were greedy, irresponsible and caught up in “keeping up with the Joneses.”

2. You live in Arizona. How has the housing crisis affected your area?

I just read today that Arizona has experienced a 21% drop in housing values in the past twelve months. Arizona is one of the hardest hit locations in the country. It hit us hard. It hit ME hard as I have lots of property.

Interesting fact though: High priced houses (2 million and up) are still being built and still being sold. Why is that? Some will say it is because the people who buy those houses are rich. Right. But look deeper than that simple answer. Why are they rich? What do rich people do with their money? What do rich people do with their time? What do rich people that allows them to be able to afford to build and buy and invest that other people don’t do? A rich person buying a 5 million dollar house is no different than a regular guy who earns $40K a year buying a $150,000 house. It isn’t about how many zeroes represent your income – it’s about how you use your money, your time, your energy.

3. Is now a good time to buy a house?

Now is an EXCELLENT time to buy a house. In fact, if you can afford it, it is an excellent time to buy a dozen houses and rent them out. Face it, housing prices have been inflated for the past 5 years. (We rarely mention that fact!) Now prices are re-adjusting. Prices are down now and still dropping. It is an excellent time for first time buyers. It’s a great time for people who have been responsible with their money and have some savings to upgrade their house and get a bigger one. It is a great time to invest in real estate because there are going to be a lot of people needing to rent houses. You can invest while the market is low, rent to people who need a house and someday the market will go up again and you will have made some money. And the new legislation proposed that will allow people a $7K tax credit when they buy a foreclosed house is a real opportunity for some buyers.

4. You work with lots of people who are having problems with debt. Are any of them having problems due to the housing crisis?

People are blaming the housing crisis because housing effects lots of different areas of life: construction, furniture sales, bedding, carpet, and lots of areas of manufacturing and retail. So everyone is affected at some level by housing issues. But housing is not to blame for most people’s problems. Overspending is the culprit. Four dollar a gallon gasoline isn’t as much of a problem for middle America as a four dollar a cup coffee. People are not willing to modify their lifestyle in order to live on what they earn – that is the real problem.

5. What’s your opinion of the various bailout programs being thrown around? Is a bailout necessary?

I am anti-bailout on any level and every level. Consequences are a good thing. They teach us lessons. Any lesson, not learned will be repeated. I know that foreclosure is hard – I’m not a total jerk and my heart goes out to some people who are in real trouble. But if you have been irresponsible and get bailed out you haven’t learned any lesson. Therefore you will probably repeat the mistake again at some point. Bankruptcy is a prime example. More than half of people who file bankruptcy end up doing it again within ten years. The bail out they got didn’t teach them a dern thing.

A good parent lets their kid experience the pain of their mistakes knowing it will make their child stronger and better. The government should let its’ children learn their lesson this time too. IF we force people to tough it out and learn for their mistakes on this one, we will make a better society down the road. Bail people out and they will do the same thing over again.

And don’t forget this: only 2% of homes are in foreclosure. That means 98% of homeowners are paying their mortgages.. Even though it might be tough, they still figure out a way to do it. Why should those people pay for the mistakes of the two percent? I am not willing to have my tax dollars bail out people who made an error in judgement.

6. Finally, where does personal responsibility fall into the equation?

I like this question. It always , always, always comes down to personal responsibility. You entered into an agreement. You signed a contract. You gave your word. Keep it. Period. It is a matter of self-respect and integrity. The fact that you don’t like the deal you made, the contract you signed, or you didn’t understand it……. none of that matters. You still did it. Live with it. Knuckle down, face the music, get tough and fight your way through it and out of it. Like your parents and grandparents would have done. Go to the mirror, take responsibility, feel remorse and fix your problem.

29 thoughts on “Larry Winget on the Housing Crisis – An Interview”

  1. Interesting interview. I especially like number 3. I’m looking at buying a couple of houses for the sole purpose of renting them. With mortgages how they are, many families that might be able to afford a house payment cannot qualify for a loan. They rent a house instead of an apartment. It’s a great rental market!

  2. JLP,
    Good choice of an interview to post. Larry has been quite an inspiration to me, personally. He’s a real guy who’s had debt problems of his own and has come out of them swinging. He is honest, up front and in your face. I think everyone should have to watch his show and read his books while in high school and/or college. Maybe then most people would ‘wake up’ before they get into real trouble.

  3. Thanks for sharing. I just found out about Larry when I saw his newest book “You’re Broke Because You Want to Be” in a bookstore; I read some of it there at the store, then got one of his previous books second hand, and I LOVE him too.

    You’re right, he doesn’t sugar coat one bit, which is exactly what people need.

  4. This interview should be sent to every &$^%@ pandering politician. They all want to raise our taxes, but none want to tell people to suck it up and live within their means.

    We have become a nation of consumers – we live to buy. Get the latest and greatest now – pay later and forever. And if you screw up? Oh well – just get your neighbors to pay your debts for you.

  5. I’ve heard of Larry Winget but never read any of his stuff. After this interview though, I’m stopping by my library website to reserve something. This sounds so much like my wife and I’s conversation at dinner the other night.

    What did happen to personal repsonsibility. Why do people expect the government to always fix thing for them when they screw something up?

    “Ask not what your country can do for you, ask what you can do for your country.”

  6. Great review! I have to agree with Larry on all his points. People who take advantage of an interest only program have to know that they will end up paying more money down the road. This is pretty simple unless you do something to change your situation you have to live with the consequences of your actions.

    I wish I wasn’t clawing my way out of debt because I would be investing heavily in the market right now. Now is a great time to invest in real estate.

  7. This is the best quote ever:

    “People are not willing to modify their lifestyle in order to live on what they earn – that is the real problem.”

    BINGO. For the past few decades, we’ve been spoiled with cheap gas. We’ve been spoiled with easy access to money. We’ve been spoiled with being able to drive fancy cars. We’ve been spoiled by simply having convenience products all around us. Now the gravy train has slowed or stopped.

    But instead of people making adjustments to their lifestyle to fit with the times, they bitch and moan about everything else and demand that everyone else should change and help them out so they can go back to this lifestyle.

    Sure, who doesn’t like 30% returns on your investments every year, who wouldn’t buy a $250,000 house and sell it a year later for $600,000, who doesn’t like eating out at fancy restaurants while arriving in that $60,000 car… Yeah, that stuff is all great, but it can never last. This type of lifestyle was that of the upper class for so long, but greed on all accounts let the working class get a taste of this lifestyle. Now, nobody wants to make changes to go back to the type of lifestyle that is appropriate for their level of income, so they pitch a fit and blame anyone but themselves.

  8. A very refreshing interview. Thank you!!

    It’s nice to see someone of Larry’s level saying that it all came down to the consumer making poor decisions.

  9. (cough)Bear Stearns(cough)

    I’m sorry, what lesson were we talking about learning?

  10. I don’t have much to say about the interview content per se but have to say great job getting Larry to do an interview. I am a huge fan of his books. In fact, I would say “It’s Called Work for a Reason” is one of my favorite “self-help” type books of all time.

  11. #9 — I think the fact that you have these multiple corporate bailouts to reference illustrates Winget’s point. We bailed out Chrysler in the 1980’s, and corporate America learned, and kept engaging in risky behavior. We bailed out the S&L’s in the 1990’s, and corporate America learned, and kept engaging in risky behavior. We bailed out Bear Stearns in the 2000’s…

    Certainly the political class doesn’t seem to be learning any lessons here. Keep doing the same things and you’ll keep getting the same results.

  12. Interesting. I like answers in general, but I question #3. I think we are far from the bottom, at least in some areas. I am not an expert. Also, I only know about prices in my area.

    There are two reasons I think this. One – it is still cheaper to rent than to buy a comparable property, even when tax deductions are factored in – and I live in NY, which is high tax state. This means it is simply not worth it to buy a property as an investment. It also means that if you are selling, renting out isn’t an attractive option, which means more people are selling. The cost of renting vs buying equivalent properties should be similar, at least after the tax deduction is factored in.

    Two – I remember the mini-bubble in the 80s, the large drop in the 90s. Percentage-wise the drop was a lot bigger than it is today. It also took almost 10 years for prices to just get to the 80s pick level. I don’t see why the crisis that caused the prices to drop in the 90s was larger than current one. Also, the real estate prices don’t drop or go up as fast as stocks. It is a whole lot easier to buy almost-at-the-bottom of a real estate market since when the real estate market doesn’t change overnight.

    Again, I am no expert. Also, I base my totally uninformed opinion on prices where I live – Westchester county, NY. Maybe we are different because of our proximity to NYC. But the prices here dropped a lot in the 90s. Now, however, they are still very high.

  13. Right on the mark. When my wife and I refinanced in 2006 our CountryWide Lender said we could “Cash Out” for over $100,000 more that what we were refinancing. She said “everyone” is doing it. I told her that the house was not worth that much and asked why would I want to do it just because I can. She said, go buy a new car, take your wife on the vacation of a life time. I laughed and said houses are way over priced now and there will be a correction and I don’t want to get caught. We would be at least $50K behind now. I disagree with any government bailout, lessons must be learned. When I’ve made stupid choices in the past I didn’t go to my politian and ask them to help me. I paid my debt, smiled, made another bad decision, paid my debt, smiled and I’m sure I’ll make future bad choices, then pay my debt and keep going. Hats off to you Mr. Winget. I’m heading to your video vault right now.

  14. The media should be talking about these types of things when reporting about the massive increase of foreclosures. For a while I was believing what the media was saying; that it was the big lenders fault for the situation we are in. After reading this great post it’s turned my view back to where it should have been in the first place.

  15. Some good points. But keep in mind, the Fed BAILED OUT BEAR STEARNS. Also, people got the impression that houses were going to keep going up – and if they didn’t buy now then they would never get a place on the ladder and achieve the often advertised “American Dream”. The high cost of housing, two income families (i.e. higher risk of a layoff), not being covered by health care in many cases, much higher cost for education than in the past coupled with mostly stagnant wages mean that people were (and are) AT MORE RISK of financial trouble. Society as a whole must shoulder some of the blame, not all maybe, but some.

  16. #6 is being a little extreme. Sure, some people were stupid borrowers. But I’m sure some banks were predatory lenders. There is a fine line between ‘not understanding’ and ‘being duped,’ and we shouldn’t be quick to lump everything on one side or the other.

    That said, yeah, it’s really hard to implement a bailout only for people who got duped, and not for folks who were just playing fast and loose with their money.

  17. Oh this article’s complete lack of context, a.k.a. the bigger picture, makes it utter bullcrap.

    Dismissing the incredibly powerful marketing (propaganda) machine which specifically researches how to manipulate human minds toward consumption is outrageous. A society which places its children in front televisions numerous hours a day at which time they are cleverly fed, every few minutes, a batch of consumption instigators (commercials) which are then repeated is not a society that will have the mental clarity to transcend that deeply entrenched consumption propaganda.

    Instinctively, you know that what I’m describing is true.

    This is what unchecked capitalism, whose primary modus operandi is selfish greed, does. It creates, purposefully, irrational desire for more and more stuff. All other balancing healthy realistic considerations have very little power to distract from that irrational desire to consume.

    The problem is NOT individual irresponsiblity with money. The problem is gross systemic cancerous processes inherent to a capitalist system out of control, fed by marketing brainwashers and protected by the false idea that democracy is only compatible with capitalism and that socialism is unpatriotic.

    When our leaders in government and business do their business based on sound principles which take into account long-term sustainability which also takes into account the environment’s long-term sustainability which would naturally include a green sustainable energy policy, the people will follow naturally.

  18. Seamus said:

    “This is what unchecked capitalism, whose primary modus operandi is selfish greed, does. It creates, purposefully, irrational desire for more and more stuff.”

    I disagree. It’s people’s lack of self-control that creates these problems, not unchecked capitalism.

    Besides, where do we draw the line? What about the 400 lb guy who goes to McDonalds every day of his life and then develops diabetes or cancer? Is it McDonald’s fault for feeding him every day? Should they have turned him away?

    I know my example is a litte extreme but it does illustrate the point that PEOPLE NEED TO START THINKING for themselves and make decisions accordingly.

    I know all about marketing and the things companies will try to do to get people to spend their money. I use those examples to teach my kids that NOBODY is going to look out for them but themselves!

  19. Why make assumptions about people’s spending habbits (now vs 1970’s) when you can get the facts?

    Skip the 1st six minutes of this video and be prepared to be amazed by facts. A Harvard law professor shows lots of surprising numbers comparing today’s double-income family with 2 kids vs 1970’s single-income family with 2 kids.

    I wouldn’t have guessed today’s family spends 35% less on clothing compared with 1970 (adjusted for inflation) and etc. Watch the video if you want to know where the money actually goes.

  20. A smelly mess of self-rightous horse manure methinks. So where is the ‘responsibility’ of the corporations and CEO’s that made million upon millions of dollars out of this debacle? Nope, they don’t have any because a corporation is just an artificial person that can be extinguished.

    Don’t listen to this crock of recycled WASP neocon smoke and mirrors. Default and get out while you can. Take as many of your baubles bought during the good times as you can. Throwing good money after bad is bullshit.

  21. Larry, thanks so much for calling it like it is … people overextended, and got caught short. But I don’t think it’s fair to blame just them. For every real estate transaction we’ve ever made, the lenders were always the gatekeepers … no, you can’t have whatever you want, THIS is the most you get, no negotiation and no games. Sure, they were protecting themselves, but they also protected us. Now, through a combination of deregulation and lender/borrower greed, people have placed themselves in a nasty crack. Sad, but one does reap what one sows, eh?

  22. Blame the victim. Great job, Larry! Let’s skip the “Larry is stupid” pargraph and dive straight into some points:

    1. What’s your take on the housing crisis? What caused it?
    Deregulation, and the greed of the financial companies. There used to be a time where companies served made money by serving the interest of their customers. Now, their #1 priority is simply making money (often to please shareholders). They knew they were making crappy loans, and they waved a financial magic want to resell them as high quality investments. While I agree with the personal responsibility aspect of individuals, where was the responsibility of these big financial corporations who did this to America?

    3. Is now a good time to buy a house?

    A tip of financial advice for you: never try to catch a falling knife. Buying a house right now is speculating and calling a bottom to a falling market. Great time to sell your house and upgrade to something bigger? Do you also want to blame people who follow your advice and get burned?

    4. You work with lots of people who are having problems with debt. Are any of them having problems due to the housing crisis? “Overspending is the culprit.”

    You appear to be mixing together the cause and the effect to some degree. People are in debt because… they are spending too much! Okay, let’s get to the actual cause. Why are people spending too much?

    5. What’s your opinion of the various bailout programs being thrown around? Is a bailout necessary? “I am not willing to have my tax dollars bail out people who made an error in judgement.”

    But you just got through promoting some proposed legislation to rescue the banks by giving a $7k tax credit to people who buy foreclosed homes. Sounds like someone is all for individual personal responsibility, and not helping out people, but is more than willing to open up the wallets to protect businesses that acted without such responsibility.

    6. Finally, where does personal responsibility fall into the equation?

    More important, where does corporate responsibility fall into the equation?

  23. Re: corporate responsibility – the last I heard, those ‘greedy’ corporations just lost a boatload of money, and aren’t doing too well.

    Bear didn’t get bailed out; Bear is dead (though Citi did effectively get a subsidy they really didn’t deserve); they were sold for almost a 90% loss from the year before. True, it should have been a 97% loss (as per the original deal at $2/share), it’s still better than the bailout I’d feared.

    I’m not asking you to weep for the lenders; they wrote themselves into this mess, but the point is they’re already paying the price for it. I think people railing at the banks aren’t getting the fact that when you lend out 500k for a 400k house, which is then auctioned off 300k after default, the bank just posted a 40% loss.

    All of this, though, is on the shaky assumption that there is no bailout – which is Winget’s original point. Let everyone – borrowers and lenders alike – eat their own losses and move on. Let the people & companies that didn’t lose their minds profit off their prudence.

  24. Mantari,

    I’m getting really tired of this “blame the victim” hogwash. If anything people are victims of their own greed and stupidity. This victim mentality stuff has got to stop.

    As Independent George mentions in comment #25, corporations are facing the music. They were stupid and now they are paying the price for that stupidity.

  25. I applaud the call to personal responsibility.

    I do tend to side with Mantari on point #3. The falling knife analogy is apt. I still think we’ve not hit the point where it’s an excellent time to buy a house. The tide is still falling.

    Also, if Mr. Winget is anti-bailout, it would seem that he’d also be against the proposed $7k incentive to buy foreclosed property. That’s a bailout, too. It’s just not bailing out the people being foreclosed on. It’s indrectly bailing out local governments and banks so that they can get the REO off of their books more easily. This incentive also has the effect of boosting the prices for such properties because there will be more bidding competition.

  26. Lots of response to the interview with me I see. I am always amazed at the number of people who hold on to the whole “blame the government” routine. The government is a huge engine that is hard to slow down – as is the housing market – you can gripe about the market, the “crisis”, the government and the big corporations and at the end, the only thing you have direct control over is yourself.

    And, in response to the “falling knife” analogy. I actually don’t disagree. However, when do you know when the knife has landed? How long do you wait? There is NO WAY to ever predict prices with stocks or with real estate. You can wait for the PERFECT time to buy or you can analize your own personal situation and make an informed decision on where you are right now with your local market and your finances. If YOUR timing is right to buy, then buy. Or you can wait and wait and wait and miss some amazing opportunities. I seize opportunities as I find them. I have missed amazing opporunities by waiting too long.

    And for all who want to play their own little personal victim hand, that is fine. No book, author, financial guru, or blog is going to change that for you. That is a mindset you took years to develop and it is your pattern. Cling to it if you must. Wallow in blame if it makes you feel better. But doing so, won’t change your situation. My suggestion is to take control of your life, become powerful by assessing your situation, and taking action on it to improve it.

    Thanks for the feedback from all. Happy to throw my two cents worth in.

    Larry Winget

    New York Times/ #1 Wall Street Journal Bestseller, You’re Broke Because You Want To Be
    New York Times/ Wall Street Journal Bestseller, It’s Called Work For A Reason
    #1 Wall Street Journal Bestseller, Shut Up, Stop Whining & Get A Life!

  27. I don’t think you can blame someone loosing their income, not being able to make payments and not filing bankrupcy as the problem. Too many banks did not move quickly enough to allow borrowers to modify or sell at early on in the game. This is what caused the foreclosures. I am a realtor and everyperson that has come to me for help wanted to keep their home, they wanted to work out something with the lender. Too many lenders let properties go into foreclosure, shooting the home values to spiral downwards. This effected the economy in a bigger way than the borrowers that couldn’t keep the high payments for many reasons, not just bad loans. However I do agree that greed is the main reason for the housing crisis. Greed on all parts.

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