They say history repeats itself about once every 20 years. By gosh I've lived long enough to experience how, at least in some areas, this is true. Had there been blogs 20 years ago we would have been blogging about the Savings & Loan Debacle and using essentially some of the same positions for discussion we're using today. So why are we in this position yet again? Is it because Alan Greenspan did not remember the S&L implosion which cost you and I (at least those of you who actually pay taxes) roughly $125,000,000,000? Now as I wax political I will remind you that in the preceeding years we were under the leadership of one of the most liberal and social minded presidents of recent history, Jimmy Carter. There had been a real estate boom and riskier loans were desired and called for to facilitate the applications being received. Sound familiar?
What we, that would be you and I, Mr. and Mrs. John Q. Public, did not take away as evidenced by this repeat performance, is that lenders who make the decision to offer mortgage financing to weak borrowers are not repaid according to the commitment. Same song, different day.
Economics 101 teaches that your income should always be greater than your total expenses by a ratio of 2.25 to 1. Personally I prefer 3 to 1 but then I am a capitalist and that my plan would not be socially acceptable in the least. Some people cannot even believe that I think everyone should be responsible for their own retirement plan! Gosh, what evil I must have in my heart, eh? But don't you think that if we actually taught our government educated school children the basics of life management it would help many of them? Ah, but then again it's the ones who didn't pay attention in school who also don't pay attention to life ... and the finances it takes to run it.
I have heard it said that if you repeat a saying enough times it doesn't have to be true for people to believe it. Evidently this is true because there are some songs being sung by the media every hour or so that remind me of that radio station that played Ina Gadda Davida for 30 days straight. So let's go back to Economics 101 for just a few minutes. Forget you ever had to take Sociology or American Literature and think business and common sense. The one thing we rarely hear is that the borrowers overleveraged and did not have the ability to meet their obligation. All we hear is that the evil lenders stole the poor sap's equity by putting them into a mortgage they weren't sophisticated enough to understand.
Okay, so that makes the borrower feel better because they are defended by a claim of ignorance? Try using that for a defense in a criminal proceeding. Ignorance is no excuse. And believe me many lenders who may have at first found a need and a way to fill it were soon followed by many other lenders who got in for greed, rode high for 24 months and then bailed out when the buy backs became too expensive. I'm not so thick that I don't believe there was not any greed on the part of the lenders and their investors.
To see the cure, which is what I am constantly writing about, you must look at the originating factor which was, is and always will be that there was a need: people with risk could not purchase a home. The media blasted regularly about the "disenfranchisement of the disadvantaged" which ultimately lead to a few noteable changes to the quasi-government underwriting and lending policies followed by a handful of sub-prime lenders who knew it was risky and were willing to take that risk while limiting their exposure in the market. The American Dream Home Ownesrhip Program was working. Then came in the new kids, the "gangsta playas", with a hot marketing program and crazy, wild loans.
Once again, education and people accepting personal responsibility would have cured this in a New York second. I'm not going to throw the lenders and their investors under the greed bus all alone. No, most of the borrowers who took advantage of these crazy offers should have known they could not afford to meet these obligations with some very simple 2nd grade math. No, they too, my blog buddies, had greed in their hearts.
Notwithstanding that there is a saturation point to viable home ownership it is possible to maintain numbers of 75% to 80% home ownership but not without educating the borrowers. Even the simplest education such as "divide the amount of your house payment by the total amount of your income and if the resulting number is less than 25% do not take that loan". Even in the lack of this education it is still incumbent upon the borrower to meet their obligations even if they did not understand what they were agreeing to pay!
It's the socialist, entitlement mindset that gives the undeserving the idea that they are being oppressed by the system and deserve the same opportunity under some umbrella of grace that must be funded out of my pocket and your pocket that created this mess ... again. Why be responsible if Ken and Brian, Teri and Leigh, Bryant and Mikey and TLW, are going to be forced to bail you out of every bit of trouble that comes your way? After all, you are entitled to own a home so if you don't make the payments, so what?
Let's see. What is the socialist agenda? "Everyone deserves equality." The agenda does away with personal responsibility and personal qualification based on your history of risk or the lack thereof. If you've been around long enough it does not take a lightening bolt through your ears to hear how the media would love to see "the replacement of capitalist rule by a genuine workers' democracy that will guarantee full economic, social, political, and legal equality" - excpet where it directly affects their own capitalistic endeavours. It's not a secret that the majority of journalists have hearts that bleed a blood that resembles the arrows of Robin Hood.
I blame that socialist idealogy for allowing people to believe that everyone deserves equality which results in the constant drumbeat of "the rich own property and the poor are cheated out of their 'right' to do so". This ultimately led to governmental and quasi-governmental agencies funding or sponsoring the funding of loans to people who had not proven themselves to be good risks. The capitalists did what capitalists do: they capitulated and capitalized on the model put forth by the government. What they failed to take into consideration was that the government programs are subsidized by taking money from the middle class and re-assiging it to the undeserving (IN MOST CASES) recipients of the government allotments.
Harp on, if you will, that education for the public and freedom for the enterprise is not the answer and you'll see a repeat of this in some other area in some other day. As for now the undeserving have destroyed the opportunity for themselves. Because a few did not, would not or could not meet the obligations they agreed to it's gone for everyone. As for the lenders? Stupid business. As for the investors in the lender's and REIT's? Investment is a risky game and I doubt many direct investors into these stocks weren't fueled by greed (with the exception of investments funded from pools where the pool participants were blind to the final use of their funds). They, too, need not walk away from this without a painful lesson which also reduces the likelihood of a repeat performance.
There are a couple of you who evidently will never fully understand how education is the answer to avoiding the problem in the future and handling the problem today can and must include a bailout by taxpayers. Throwing another few billion dollars onto the existing deficit will certainly bring higher taxes, less re-investment, and another recession. Let the lenders, the borrowers and the investors eat the losses.
PERSONAL RESPONSIBILITY: Go ahead, you can say it. Personal responsibility.
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