Many years ago, a recorded message took on a life of its own. Earl Knightingale recorded "The Strangest Secret" and it is the only "message" to have earned Gold Record status.
What was the strangest secret? According to Earl, it was neither strange, nor a secret. Simply put: "We Become What We Think About." He alluded to the fact that this concept could be found throughout the Bible and that many famous men had paraphrased it before. I was reading the Wall Street Journal's Marketplace and Money & Investing sections this week, when all this came back to me. Scott Patterson wrote a razor sharp piece titled, "Housing Cycle Is Caught In Vicious Circle." He said that we are in a "negative feedback loop" in the housing market, where one day's problems create a broad set of behaviors that only make things worse.
Consider this: As home prices fall, more families see their mortgage situation go "upside down." They want to walk away and leave the home empty, which further depresses prices... and more join the negative loop. Then consumers, in general, pull back (fewer cars, movies, vacations, TVs, dinners out, etc., are purchased)... Ooops, more negativity. Banks get worried and tighten credit and guess what? More downward pressure on home prices. "Negative feedback loops can be pernicious," he says, "when an economy relys heavily on borrowed money." Ever take a second mortgage? Checked your credit card balances lately? Not good for many.
Also in the Journal this week was a "Small Business" piece about all of the "Foreclosure Niche Industries" cashing in on the tough times... I'm not against these - they have their place - sort of like the loveable tow truck industry. When reading about a woman who is doing appraisals for the banks (as part of the foreclosure process) my compassion meter hit a 10. "From outside, the small white house appeared to be in good condition, but as Ms. Norris unlocked the door, she braced for what might be inside. At worst, squatters or drug dealers she'd have to sweet talk her way around, or mold so thick her throat would close up. At best, she'd probably find debris and tattered possessions, a snapshot of despair faced by the vacating homeowners." Wow... This reminds me of the stories told by the generation before me... stories about The Great Depression.
Back to that negativity thing? The trick for policy makers, they say, is to break through this adverse feedback loop. The psychology of risk aversion behind these negative loops, says Patterson, is hard to alter once it sets in. "We become," you see, "what we think about." That's why breaking the chain this time could be harder than anyone expected.
