Sunday, May 11, 2008

Market Value

I have been looking for a used SUV for a while and have made a couple of fair offers. These offers were made on the value of the SUV, which has fallen about 20% in the past 3 months due to the gas price "crisis". Each time though I was told the seller can't sell it for anything under $X since that is what the loan is. I tried explaining that the value of the loan has absolutely no bearing on the value of the SUV. It was like talking to a wall. So no deal and the seller will get a visit from the repo man soon enough.

Dealers are a little more reasonable. They know what's going on with the price of SUVs. They have no illusions. But they are playing the same games. Can't sell it to you for $15K, I put $17K into it. Like I give a fuck what you put into it. Same mentality. I guess by that logic if I trade in a car on which I have a $50K note, you'll give me $50K? Didn't think so Mr. Dealer Man.

As a society we have been programmed to ignore true market value of anything. Look at any car commercial and you will never see what the thing actually costs. It's only how much a month or what interest rate can you get. And it's not just cars. When people discuss taxes, it's never about how much do they actually pay in taxes. The discussion is usually about how big the refund will be, as if getting a refund means you pay no taxes or something. Someone will send the IRS $30K, get back $1,500 and think 'sweet, I'm getting money back, taxes aren't so bad'.

And this brings me to the subprime mortgage "crisis". Is it any wonder people made such idiotic decisions regarding their homes? Is it any wonder 50% of mortgage holders don't know if their mortgage is an ARM or a fixed rate? Not in this society of how-much-a-month-is-it mentality it isn't.

1 comment:

David said...

Dude here -

Traders are well aware of this phenomenon - call anchoring...psychologically just saying "if i can only get back to even" or whatever anchor the mind has attached to. Nevermind that the anchored value currently has nothing to do with the value of the asset at hand.