Our Toppling House of Cards

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• Reader Comments (7)

  Page 1 of 1 pages

  The obsession with home ownership is a large part of the problem.

  Too many have become comfortable with the idea o deserving what they want. Advertising has played on this for some time: “Get the car you deserve!” “Plan for the retirement you deserve.” it may have started with only “You deserve a break today,” but we’re way past that now.

  The PURSUIT of happiness is what you deserve, not the “gift” of happiness.

  Government intervention, pre-bubble with eliminating restrictions and post-bubble with “protecting” the home buyers is no different from a parent picking up the pieces when an unruly child goes berserk.

  The government, my friends, is you and me and all the others who have only bought what we could afford, when we could afford it.

  The policy of paying lending agents a percentage of the loan, banks buying mortgages in a “grab bag,” insurers and appraisers glossing over details and granting higher values are all ways of making unwarranted financial gains and yet they are nearly universally being protected too.

  Many articles were written about how easy it was to “flip” houses and the no money down, interest only loans now allow both those who could not afford a house and those who were playing Russian Roulette to simply walk away.

  There is plenty of blame to go around from individuals overreaching their ability to pay, all the way up to the congressional oversight committees, but the voter pacifying ‘solutions” are at least as bad as the problem.

  Shut down the two Fannies!  Let the market absorb the overstock. Let those who gambled suck it up. AND prosecute those who have committed the world’s biggest fraud —ever!

  As it is now — no one will have learned to take responsibility for their actions, In fact, just the opposite — they will all have learned what they can get away with and do it again.

  Posted by whattheheck on Aug 21, 2008 at 12:39 PM

  WTH,

  Owning a home is a good thing in the long run and any family should naturally desire stable long term living conditions. The obsession wasn’t home ownership, but using a house as an investment opportunity. And yes, this was advertised relentlessly by industry and the federal government supported the practices of the industry.

  Long before the sub prime bust there were some political voices trying to put in some control over finance companies, protections. In several states efforts were made to regulate, but along came the lobbyists to thwart those efforts.

  But you and I know that even Wall Street had its role to play. Creating these derivatives trading in mortgages was nothing but Ponzi Schemes to make money for those at the top or the beginning of the scheme. Wall Street has in fact become obsessed with making money off of money. And to do that they’ve had to create financial instruments that never existed before. This is surely a sign of an industry that has overgrown itself.

  Shutting down Fannie and Freddie isn’t going to solve anything, they hold zillions of mortgages (good and bad ones). That would plunge us into something worse than the S&L;fiasco of the 1980s. But the answer to them isn’t going to be simple, I haven’t seen a good answer yet.

  The deeper problem is that the overall American economy combined with a Wall Street and federal government indifference to that economy has become lost. Having government involved with home loans has worked before (remember the masses after WWII and the GI Bill), so the Fannie/Freddie problem may indeed need the government to take over them…IF…its NOT done in some alignment with corporations. In time, the problem will work itself out. Unfortunately the problem can’t be truly addressed and assessed until the housing market has fully readjusted to reality, home prices having reached bottom. When that will be, who knows? Certainly not those “experts” who have incorrectly predicted bottoms countless times in the past year or so.

  Posted by Jon B on Aug 25, 2008 at 11:54 PM

  Jon B,

  I must agree that there are advantages to home ownership, some of which you have mentioned. But the problem for ordinary people (excluding those who were playing the real estate market for fun and profit) is many who bought could simply not afford them.

  Our schools have been criticized for many things. Comparisons with other countries show a lot f shortcomings, but to me their main purpose should be to prepare a student to deal with the issues of everyday life.

  Prior generations graduated people who were generally more able to do the tasks at hand — prepare healthy meals, qualify for productive work, balance a checkbook, etc. Now a lot of school energy is devoted to avoiding lawsuits (racial prejudice, sexual harassment, injuries), security (police in the halls) — things which in my time we never dreamed of.

  The alternative is to learn from experience. Poeople need to take responsibility for their own mistakes. I was self emplooyed for all my working life except three years in a corpporation and my military service — I soon learned when I was getting a snow job.

  Those who took advantage of people’s naive business approach are learning once again they can get away with it and pass the cost on through our government to the taxpayer. Long Term Capital Management was the last previous “too big to let fail” and here we go once more — setting a new record.

  Those who signed up for ARMs should be allowed to learn it is a stupid idea.

  We had regulations which were systematically erased. We had agencies assigned to prevent these kinds of business practices. They ignored and in some cases encouraged this to happen. Alan Greenspan is a prime example of those who condoned instead of constrained.

  The limits on the two Fannies were raised to outrageous heights. A person buying a $400,000 house should get NO HELP from the government!  Like most government backed situations there are those who quickly see the opportunity to exploit. No one and no program is essential — including Fannie and Freddie. If a lender won’t lend it is for a reason — usually because it is a bad business plan. Backing loans by the government purse removed all cautionary factors ( for both sides as it tuned out).

  Both were originally under direct government control and spun off to dodge responsibility. Congress is once again dodging responsibility. (See Money Magazine’s SEP 2008, pg 98) Senator Barney Frank says, “Back in 1994, Congress gave the Federal Reserve the authority to ban irresponsible mortgages.” He goes on to say Alan Greenspan refused to use that authority and…“Congress can give people authority; we can’t compel them to use it.”  BULL!  Congress is elected to do just that!

  Why haven’t we heard anything about the conflicts of interest in this whole mortgage mess? Greenspan and now Paulson are long time Wall Street figures who are now protecting Wall Street, pure and simple. The rating agencies gave AAA labels to crap! The head of Fannie mae, just like the heads of brokerage firms made big bucks as they ran things into the ground — they get to keep the money. With the de facto national ization of Fannies and the acceptance of junk rated collateral, the Fed is writing a blank check to save those who did this.

  What we need is an obsession with protecting the American citizen from those who are profiteering through the government’s laxness.

  Posted by whattheheck on Aug 27, 2008 at 12:34 PM

  WTH,

  Can’t find much to disagree with you.

  I do think the whole mortgage boom was nothing but a Ponzi Scheme. Intelligent people created the structure of finance and lack of government oversight during the boom. The rules changed and people that shouldn’t have gotten homes, did. But those rule changes were designed by those intelligent people who understood that they were going to both make a ton of money (or their friends were) and that good mortgage practices of the past were to be eliminated.

  They must have known that the new people that became eligible to buy these new type of mortgages, were in low income levels (who by the way are the least educated….poor and uneducated are related as lack of education leads to less income) or were on fixed incomes. Other candidates for these mortgages included the younger workers wanting a quick start as investment and living arrangements but who are also prone to job layoffs (least seniority) or simply bad spending habits, and people who are in change such as the newly divorced, recent bankruptcies, jobs of less than one year, etc.

  The above paragraph can be described with one word (but of course I’ll use many words, I can’t help myself). That word is “risky.” Those intelligent people believe in a mantra, you can’t make a lot of money without taking a risk. But they also believe in hedging their risk, and they did by rigging the rules in their favor. They also got that bankruptcy bill passed, isn’t that an interesting coincidence, just before the mortgage meltdown. Who could predict that? Intelligent people with money and power could accurately predict it.

  Anyway, they passed the laws and cut the rules to allow risky home buyers into the market, make their millions, then protect themselves a little better with a bankruptcy change, and of course walk away from the whole mess they created scott free. Oh, sure,,,they are charging some of the middle men of the scam but they are nothing but the sacrificial lambs of the rich and/or powerful who rarely get jailed. The middling men going to jail were never in the “club” anyway.

  Meanwhile, those risky people with the crap mortgages are losing their dreams. And why not have dreams? They were advertised relentlessly to live the American Dream. In lieu of the meltdown, I’d call it The American Propaganda, brought to you by the rich. 

  Of course once the scam was set in motion, many others jumped in to take advantage themselves. It becomes a wave of greed, lies, and euphoria. The wave has crashed upon the shore.

  Yes, people playing the mortgage game like Monopoly shouldn’t be much sympathized with, but those who had an American Dream need empathy. Like the lower income fixed income retiree, confused by the come-ons, refinances to maybe fix up their long term home, but then gets nailed by interest jump after a few years. Or the guy who just divorced and took a new job and had to relocate, and then maybe the new company goes bust. Hundreds of thousands of people with honest dreams, not the fake American Dream, tried to use the opportunity of the new mortgage environment to try for those honest dreams.

  Posted by Jon B on Aug 27, 2008 at 2:06 PM

  WTH,

  To add to above…I can’t help but express that for people that wanted an honest and reasonable dream come true, they were really smashed over the head with advertising, advice, promotion, enticement, etc. It was “buy a house” sloganing from all angles. An onslaught of info that made dreams come true, if only for a few years. You couldn’t turn on a TV for more than a few hours without someone telling us, “home ownership was great” in some form. It came from cable news, finance shows, cable home decorating shows, and of course all that advertising between the shows and channels. Rock the Di Tech in the Countryside.

  You know, I tried to take advantage of the boom. I thought the home crash was going to happen in 1998 or so. At that time my house leaped in value in just five years and I couldn’t help wonder when the bust would come. I thought Long Term Cap. would have slammed our economy (it should have under free market capitalism, but the government had to step in and bail them out to save the system). I sold my home at a decent profit and expected in a year or two, that I would be buying in a somewhat falling market. But,I was wrong. It took almost another decade for the bust. I mean I did expect it to happen, just too early a prediction. I’m like that, the impatient seer. I see something I expect to happen, but predict it happening sooner than it actually does.

  The housing boom had been building for over 15 years. And it wasn’t a gradual upturn, it was up, up, and away. It certainly is classified as a classic euphoric bubble.

  Posted by Jon B on Aug 27, 2008 at 2:42 PM

  Jon B,

  Either you are just much kinder hearted and compassionate than I, or a whole lot younger (both?)

  When I was in school grades were based on percentage — 94 to 100 was an A, etc. (no curve). By the time my kids were in school a bad grade would injure a person for life, everyone was a winner and when my youngest went into fourth grade he said he didn’t like his new teacher — “She won’t let us talk to each other in class.”

  Now we no longer expel anyone, we mix the brightest with the ones who don’t get it. There is no dress code. And instead of gum chewing being a cause for disciplinary action, we have drug deals, gang problems and city police at each school.

  Real life deals in results, not good intentions. A tough lesson is a lesson less often repeated.

  This is the long way around to if we are more concerned about making people feel good than in establishing high standards we can expect some new version of taxpayer ball-out once again. Each new one will be a bit more outrageous and costly.

  I’m for holding congress responsible, regulatory agencies and insurers, brokerages, banks and loan companies, Fed chairmen and Treasury Secretaries.

  Those who ended up with the junk mortgages bought them as a grab bag. Individuals who buy what they cannot afford and bet houses would never lose value did the same.

  In the long run it will be better for everyone. As it is now, our country is on a very steep slope toward second rate power — or lower.

  Posted by whattheheck on Aug 27, 2008 at 5:37 PM

  Can’t say I’m more compassionate, maybe younger…

  I do know a few things that never seem to change…one, that every generation considers following generations to have it easier or that the school system is worse or kids are dumber, etc.

  What I also see is that our society creates the people. Today’s youth are a result of their parents generation (the generation that is now the major consumer) who came from the boomers (that now dominate our society). Those last two generations have been influenced by, as well as creators of, a consumer culture. School kids of today will emerge in an even deeper consumer culture.

  I’m a boomer. I now realize that who I am was certainly influenced by the culture, probably more so than by my parents (no matter how hard they tried). I’ve been advertised to near death over my lifetime. As much as I recognize this, I’m still a part of the culture and unless I run off to a commune I will be influenced by that culture whether I like it or not.

  It’s hard to look at how our society has come to influence, change, deceive us if we are within that society. It’s easy to pretend to ignore the endless advertisements, but the entire weight of them has a profound effect on all of us. When we’ve seen decades of repeated commercials showing the family eating at a fast food joint, is it any wonder that we consider that normal today? The only ads we see showing families eating at home are now about making quick meals, presumably so that everyone can run off and do their own thing.

  Our society has become sped up, distracted, multitasked. Our kids begin on the TV at any early age and soon comes the computer. We are teaching them through these devices to not think. The imagines come too fast to allow for consideration. I don’t know if there is evidence, but I suspect that attention deficit disorder is caused by TV.

  And thus, as adults, the boomers and on, have become the society they create. And the predominant message is to consume. That has become our societal goal, consumption. Whether it’s the latest fad in clothing, a cereal, a car….and yes even buying a house…it is what we are taught to do by the consumer culture. We create it, we believe it, we participate in it.

  So, I suppose I have a point of view that the housing mess is less the fault of the consumer as most don’t even realize they have been talked into their choice. Society tells them to buy a house, whether they should or shouldn’t, just as much as we are nearly beaten to death to buy a car. Endless advertising leaves a subconscious feeling of being left out if one doesn’t consume. Ultimately owning a home is the pinnacle of consumption as it allows somewhere to put all those things we buy. A house means the need for Ikea and Sony TV, Home Depot and Scott’s Turf Builder. Of course people were pushed to buy houses and people desired them because of it. And the real estate ads were quite forthcoming to explain that they would “do whatever it takes” to get you into that home.

  Posted by Jon B on Aug 31, 2008 at 2:01 PM

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