Social Pressure and its financial impact

One of the causes of the current subprime mortgage meltdown and wider credit crunch that is never talked about may be the social pressure put on people to appear as if they are better off than they actually are. Wealth is quite interesting - you cannot fundamentally tell how wealthy someone is by looking at them except if they are homeless in which case (Howard Hughes notwithstanding being the one exception) you can tell that they have little if anything. So after a certain amount of wealth there is not much of an ability to tell how much money someone has to their name if they do not spend very much of it.

Traditionally the way of telling how wealthy someone is without examining their financial statements would be to see how nice their possessions are - but the paradox is that anyone can have nice things, or at least they could during the last few years. How - by using subprime loans to make up for what financial resources they lacked so that they would appear wealthier than they actually are. The irony of the situation is of course that their desire to appear wealthy prevented them from achieving that goal - if indeed it was a goal.

Its almost like people save to "make that down payment on a house" as an article of faith - just like they get married and spend a lot of money on a wedding or a honeymoon or an engagement ring. When they get a raise the first thing that they do is go out and increase their standard of living - or go take a vacation which fundamentally only decreases wealth. When their house needs repairs they go and take out a home equity loan and convince themselves that getting back 85 percent of the value of the repairs - despite paying 100 percent in cost - is somehow an "investment" despite all financial evidence to the contrary. You can make money in real estate - but your residence is not, in my mind, an investment, or even really an asset so much as its something neutral - both an asset and a liability. Its the other real estate that someone owns in which they can make a profit if they know what they are doing - but they should not let emotions cloud their judgment and convince themselves to buy more house than they can afford.

Let me finish by stating that I am not an expert on all this its just something that's been on my mind for quite a while.

An interesting situation

What is the situation going into the 2008 election campaign? The "fundamentals" or underlying factors that are describing the race or that at least describe most races are confusing and its difficult to tell what is ultimately going to happen in November.

President Bush approval rating (RCP Average): 33 approve, 63 disapprove
Right/Wrong direction: 19 right direction, 75 wrong direction (according to CBS)

These things would seem to indicate that the Democratic candidate would have a significant advantage. However, look at the congressional job approval ratings:

Congress approval rating: 24.7 approve, 66.7 disapprove

Congress is, it turns out, even more unpopular than the President is, so the future is decidedly cloudy this year, although my sense is that the Democratic nominee goes into this campaign with an advantage although it remains to be seen if its going to hold throughout the year.