We are now heavily ensconced in the "betting season" with all of the collegiate bowls going into full swing. Even my beloved Bruins of UCLA are going to be playing. The casinos couldn't be happier as this is their "Holiday Season". And thanks to the status of Indian reservations and some knowledgeable Indian leaders, even the American Indians are celebrating the "Holiday Season" in their lavish casinos that dot the landscape across this nation. As I have said before I don't know of any casino with a mortgage, not casino and hotel, but just a plain old multi-million dollar state of the art gambling palace. And yet, we go like sheep to the slaughter as we head east, west, south or north to be part of the opulence of the gaming industry.
I go and watch. When I was a young man, I went with some friends to Las Vegas and lost all my money while they were getting the room ready for a very long two night stay. I was able to cash checks at a very expensive check cashing place, as I recall about 1/3 of the check was theirs to keep, and I was able to eat and pay for the room for the "vacation". That experience probably saved me thousands of dollars in my life time as I realized that the food was pretty inexpensive, the rooms weren't bad either, drinks were free and the hotels seemed to be sprouting up every where. How did they make their money?
The phrase that gets to me the most is when people tell me they only take the amount of money with them they can afford to lose. I cannot remember one day in my life that I awoke and after some thought said to myself, I think I can afford to lose X amount of money today so what can I do to accomplish this? Writers note: people only determine the amount of money they can afford to lose after they lost it. Ninety-nine percent of the time, it is always the exact amount of what they lost. Coincidence? What do you think?
I don't want to give the impression that this week is the only major week in gambling in the United States. Not even close. I believe I have been told that the Super Bowl in football is the winner for major betting in our Country and that the World Cup of Soccer is the overall champion in world sporting events when it comes to wagering. Like the stock market, we now have a chance to increase our bets in the derivative market. Guessing who will win the coin flip is a very popular bet. (You get it over with before the game even starts). I am sure there will soon be a bet, maybe it's already here, as to which team gets the most favorable results from the instant replay decided by three people we never see and the referee.
I bring all this up for a reason. Betting is fun to some, addictive to others, and ridiculous to still others. I have seen great betters, great losers and very addictive gamblers who have lost millions of dollars and one who actually lost his house. I am not against gambling, or gaming as it is called, but I believe it has a time and a place and that is really the core of what I wish to discuss.
Gambling was at it's worst in the run up to the "bubble" we had in the stock market in the late 1990's. People couldn't get enough money and too many risked it all, and lost, because they were caught in the frenzy of "easy profits". They knew nothing about the stock market, nor did they want to learn. They made lots of money and left even more on the table as they were sure this was going to go on for years longer than it did. Even the Federal Reserve Chairman, Alan Greenspan, talked about the new economy and the old economy and millions of investors(?) were spurred on further with this analysis.
Unfortunately, the piper had to be paid and many people coughed up the money for the payment. It was very painful for those who had bet their retirement and had to keep on working as the retirement income was gone. Most of those who lost their money have never returned to the stock market even though it is once again setting record highs. I think they have reacted as I did after the loss I took as a young man in Las Vegas. I didn't know, and they didn't understand, and we all paid dearly.
So what about housin: the latest phenomena. Again, we had people doing things because it was the thing to do to get rich quickly. Little understanding and a lot of courage and away they went. Housing hit a wall and is stagnant at best but hasn't and in my opinion won't suffer the huge declines we saw in the stock market. Does that mean I encourage people to speculate in housing? Absolutely not! Does that mean I don't think that housing will continue to be a money making venture? Absolutely not! What it does mean is the simple phrase that would have made a major difference in most stock market and even housing speculators lives's: do your homework before you venture a penny! That seems to be the number one missing ingredient that led to the tremendous losses.
While many people haven't ever figured out the difference between speculating and gambling it isn't my main concern in the housing market. Most people buy a house to live in, raise a family and eventually retire in, or at least use the equity to get themselves the perfect retirement place. It is the best thing most people can do for themselves and every year we set a record for home ownership in this Country. My only concern is that too many people are "betting" on their financing. I have cautioned, as have many people, that if it seems to good to be true it generally is yet thousands of borrowers are still taking Option Arms without any knowledge about the loan and with little concern about negative amortization.
I have written many columns on this loan and it's dangers, and I suggest you do everything you can to find out about this loan before you consider taking it for your property.
There is a time and place for those who enjoy gambling and investing in the financial world isn't the place. Use all the resources you have before you invest or simply purchase a house to understand the benefits and pit falls that can make the transaction a great one or a bad experience. Take your time and be sure of what you do and you hopefully you will never have to look back and wonder what you did.
Happy New Year!
Roger Schlesinger's Mortgage Minute is heard on hundreds of radio stations and daily on the Hugh Hewitt radio show and Michael Medved shows. Roger interacts with his hosts and explores the complicated financial markets in order to enlighten his listeners and direct them along their own unique road to financial freedom.