Ozzy Osbourne, What's the "Subprime Solution"?

♠ Posted by Emmanuel in , at 10/07/2008 07:17:00 PM
[WARNING: This is a rather morbid post. However, events recounted here are symptomatic of larger troubles. Those seeking uplifting tales amidst financial meltdown are advised to skip it.]

A few days ago, the Wall Street Journal suggested that Metallica's new album Death Magnetic may serve as the soundtrack to the subprime mess. Of course, I beg to differ: Megadeth's "Foreclosure of a Dream" is a far better soundtrack to this symphony of destruction. Now, two separate incidences have pointed me in the direction of yet another on-topic heavy metal evergreen, Ozzy Osbourne's "Suicide Solution." It seems downscaling the American dream of home ownership is hard for some, even if its affordability becomes out of the question due to past excesses. Note that the financial distress suffered by both parties aren't necessarily due to taking out subprime loans, but are related to the subprime crisis nonetheless.

With apologies to Robert Shiller, there is something darkly American about these displays of self-destructive behavior. First is the widely reported story of a 90-year old woman attempting to take her life after being threatened with foreclosure. She has since been allowed to keep her home:
Fannie Mae said it will set aside the loan of a woman who shot herself as sheriff's deputies tried to evict her from her foreclosed home. Addie Polk, 90, of Akron, Ohio, became a symbol of the nation's home mortgage crisis when she was hospitalized after shooting herself at least twice in the upper body Wednesday afternoon.

On Friday, Fannie Mae spokesman Brian Faith said the mortgage association had decided to halt action against Polk and sign the property "outright" to her. "We're going to forgive whatever outstanding balance she had on the loan and give her the house," Faith said. "Given the circumstances, we think it's appropriate..."

Neighbor Robert Dillon, 62, used a ladder to enter a second-story bathroom window of Polk's home after he and the deputies heard loud noises inside, Dillon said. "I was calling her name as I went in, and she wasn't responding," he said. He found her lying on a bed, and he could see she was breathing. He also noticed a long-barreled handgun on the bed, but thought she just had it there for protection. He touched her on the shoulder. "Then she kind of moved toward me a little and I saw that blood, and I said, 'Oh, no. Miss Polk musta done shot herself,' " Dillon said...

In 2004, Polk took out a 30-year, 6.375 percent mortgage for $45,620 with a Countrywide Home Loan office in Cuyahoga Falls, Ohio. The same day, she also took out an $11,380 line of credit. Over the next couple of years, Polk missed payments on the 101-year-old home that she and her late husband purchased in 1970. In 2007, Fannie Mae assumed the mortgage and later filed for foreclosure.
This unfortunate incident has been followed up by a UCLA MBA taking his life along with those of his wife, three kids, and mother-in-law. From the LA Times:
The 45-year-old Porter Ranch financial manager [Karthik Rajaran] who once made more than $1.2 million in a London-based venture fund had lost his job. His luck playing the stock market ran out. On Sept. 16, he bought a gun. He wrote two suicide notes and a last will and testament. And then, sometime between Saturday night and Monday morning, he killed his wife, mother-in-law and three sons, and took his own life.

"This is a perfect American family behind me that has absolutely been destroyed, apparently because of a man who just got stuck in a rabbit hole, if you will, of absolute despair, somehow working his way into believing this to be an acceptable exit," said LAPD Deputy Chief Michel Moore. "It is critical to step up and recognize we are in some pretty troubled times."

In a letter addressed to police, Rajaram blamed his actions on economic hardships. A second letter, labeled "personal and confidential," was addressed to family friends; the third contained a last will and testament, Moore said. The letter to police voiced two options: taking his own life, or killing himself and his entire family. "He talked himself into the second strategy," Moore said. "That that would be the honorable thing to do..."

When police entered the home in the gated, Spanish-style community, they first found the gunman's mother-in-law, Indra Ramasesham, 69, dead in a downstairs bedroom. His wife and three sons -- Krishna, 19, a sophomore at UCLA majoring in business economics; Ganesha, 12; and Arjuna, 7, all named after Indian gods and warriors -- were discovered in various upstairs bedrooms, all shot in the head, some with multiple gunshot wounds...

He also sold his house in 2006, a calculated decision even though his wife, a bookkeeper at a pharmacy, did not want to move, their former neighbors said. He sold the house for $750,000, making a sizable profit on a home the couple purchased in 1997 for $274,000.

"The market was going down and he wanted to get out before the bottom dropped out," Karns said. "I talked to him last December and he said, 'I feel I did a good thing by selling when I did.' "
Commentators (like me) often decry those taking out HELOCs and flipping homes as symptomatic of the housing bubble's excesses. What I gather is that the 90-year old woman took out a home equity loan while the LA businessman flipped his house. Something we need to figure out is the extent to which these folks are victims of the times or harbingers of them. If you look at the pictures on the LA Times site, also parked in the LA home are two hulking SUVs. As economists and others have suggested, the subprime crisis is likely to permanently alter the suburban (GMC Suburban?) way of life. Worse, events have demonstrated that Uncle Sam is in no position to help those who, like himself, have taken on excess debt. Some are not coping as well as hoped for, but the downsizing of America for past debt-fueled excesses is well underway.