As has been pointed out before, it ain’t rocket science, and here’s an unusually succinct statement of the problem, and incisive commentary on the bailout.
The bursting of the housing bubble — which in turn precipitated the collapse of the financial and credit house of cards — is entirely government-made. Point fingers where you will, but I point mine at those congressmen and administrations that sought to win popular support by turning the Federal Reserve System, Fannie Mae, and Freddie Mac into public reservoirs of easy credit and home loans, available even to the riskiest and most credit-unworthy of borrowers. For years, the federales have artificially lowered interest rates and opened the loan spigots for institutional borrowers which — under inducements and even statutory pressures — opened their credit spigots, in turn, for just about any and every would-be homeowner. The usual tests of credit-worthiness that typically govern lending practices in a free, competitive marketplace were recklessly abandoned — sometimes under “moral” claim that rigorously screening prospective borrowers is “discriminatory.” So, lending has become increasingly indiscriminate, especially in the sub-prime, adjustable-rate-mortgage market.
Here’s a little more history, for those who need it, on the road up to the current problems.
Continue reading “Why the Bubble Burst: bumped, with refreshed links”
Once upon a time….
Be it myth, legend, tale or fable we all know these four words and understand them to be a preamble to the telling of a make-believe story (though possibly based on fact). Such stories serve many purposes, not the least of which is to teach an object lesson to the very young, a meaningful and memorable way to instruct children about great and noble virtues such as loyalty, honor, courage and truth.
Chicken Little is one such story. The diminuitive foul who determines Armageddon is at hand after being struck on the head by an acorn. The story proceeds with Chicken Little determining the best course of action is to tell the king whereupon a journey commences and various encounters with other creatures ensue. Depending on which version of the story is told, a final encounter with a deceitful fox who manipulates the circumstances brings about a close call or bad ending to the story.
I find several interesting parallels to current events.
Continue reading “The Sky Is Falling, The Sky Is Falling!”
From our earliest childhood we are confronted by the epic struggle between the forces of good and evil. We see it in literature, in sports, on stage and screen. It is a subject with apparently endless possibilities. This conflict between two opposing forces is frequently illustrated through fictitious characters who personify those forces and who engage in frequent battles for supremacy. Countless myths and stories are told of heroes vs villains, evil witches and fairy God-mothers, the cowboy in the white hat vs. the one with a black hat. For every Luke Skywalker there must be a Darth Vader, Batman has the Joker and the Dodgers have the Giants (sorry, bias exposed!). The object lesson is clear. These stories teach us to seek the good. Likewise we learn to shun the bad.
But what is so very clear and simple in a play, motion picture or novel, is almost never as clear in real life. But that doesn’t keep us from trying to disregard the complex in favor of the simple. We want to blame someone for their evil deeds and we want the hero to show up just in the nick of time and save us just like in some old serial Western.
Continue reading “Heroes & Villains”
I have had a home mortgage of some sort since 1980. In the 28 years since my first loan I have sold property and I have bought property. I have refinanced home loans more times than I can remember. I have made money in real estate and I have lost money (a lot of money), in real estate. I have had loans that were labeled as “creative financing”. (This formerly often-used term can be freely interpreted as “You-can’t-really-afford-it-but-we’ll-think-of-something financing”). I have taken risks with loans – betting (and hoping) that real estate values would continue to rise, knowing I would be in serious trouble if they did not. I have faced “balloon payments”. In short I have made decisions both good and bad and lived with the consequences of both. But never even once did I think it was someone else’s job to bail me out if I made what turned out to be a bad decision.
I have been to real estate sales offices, escrow company offices, and bank loan offices. But never even once did I witness a borrower forced at gunpoint to sign loan documents, or tortured until they signed a purchase agreement. In fact I have never seen anyone forced in any way to enter into any kind of financial agreement.
So here is my question: How in the world did we ever get to the point where we expect the government to step in and protect us from the consequences of bad decisions?
I’m sorry some people have lost their homes to foreclosure. I really am. Who knows, maybe it will happen to me. It happens every day in this country and has for many many years. People over-extend themselves, lose jobs, have unforeseen events changes their lives…and some are just deadbeats. Foreclosure is not new. So why does the government suddenly care about this? The answer lies in the unprecedented volume of foreclosures. OK I get that. But what do you say to someone who lost their home to foreclosure, say 10 years ago? “Gee, too bad there weren’t more of you at that time, then maybe we would have bailed you out too.”
Maybe I’m missing something here…
As an adult I understand that every decision I make carries consequences. It is a fact I have tried to instill in my kids as well. Understanding that is a part of growing up. But I make decisions knowing full well I will and should bear the consequences of those decisions – not my neighbor, not my co-workers, not my government – me!
I just don’t get it.
Larry Summers on the underlying problem of joint private/public companies, and how they led to the current housing market crunch.
Here is a really good creative capitalism idea. All Americans benefit from increases in home ownership because of the values like hard work, community, and respect for property that ownership instills. Families want desperately to own their own homes and accumulate equity. Yet it is very hard for conventional banks that borrow money over the short term to lend over the kind of 30-year horizons that best help families buy houses.
Continue reading “Privatized Profit, Socialized Risk: the problem of public/private companies”
Thomas Sowell continues his previous discussion of how the government is the primary cause of our current financial issues.
We don’t look to arsonists to help put out fires but we do look to politicians to help solve financial crises that they played a major role in creating.
How did the government help create the current financial mess? Let me count the ways.
Continue reading “When there’s a financial crisis, look to the government as the cause, part 2″