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POOF! MONEY'S GOING AWAY AS FAST AS IT CAME...BY DALLAS REALTOR BILL CHERRY

By
Real Estate Agent with Bill Cherry, Realtor 0124242

It is all so curious.  It is all so curious where we are now.  Abusive relaxed credit underwriting sold many homes, and now those lenders are getting the opportunity to own them.  It was all so predictable.  The train was coming and no one wanted to believe it wouldn't stop in time.

Before the great depression of 1929, little attention was paid to the amount banks had as working capital.  A lot of what they loaned depended on payments and loan settlements being made by other borrowers.

And they made their banks sound really sound.  Many of them had United States and United States of America built in to their names.  One owned by Frost Banks still remains.  It is the United States National Bank.  That practice is illegal today.

When it all crashed and burned before Americans' very eyes, everyone was seriously hurt as the direct result of a small percentage of those who had abused the credit markets.

Some good and solid rules came out of that.  Banks were no longer able to operate but in one state. Savings and loan associations were invented to take over from commercial banks the making of long term home loans.  No more lending long, borrowing short.

The new idea was for lenders to take care of providing an orderly capital market for the area where their depositors lived and worked.  The Fed and correspondent banking were invented to keep the money supply flowing where it was needed and to restrain the overbearing practice of arbitrage.

It was great while it lasted, and then savings and loan associations decided they wanted to be involved in other businesses - businesses that had not been previously allowed by their charters.  Banks wanted to compete with banks that were not only not in their town, but not even in their states.  They started collapsing again.

Now we have reduced that control even further by allowing mortgage companies to sell their paper, collateralized by Americans' home loans, to investors world-wide.

Like the financial institutions of the ‘20s, they thought the money supply would never run out; they thought that their delinquency ratio would be so low when compared to the influx of capital, that it would make no difference, in the scheme of things.

Well now they are all learning the same lesson in banking economics as their forefathers learned.  Money and capital supply require a delicate balance.  A bunch of kids with MBAs and five years of experience in the capital markets are hardly candidates to be making these decisions for themselves, much less the rest of us.

Mr. Greenspan was not our friend.

Comments (6)

Christopher Benedict
BIG Realty - Collegeville, PA
AskTheBigGuy
Whoa Whoa Whoa....why blame Greenspan?  All he did was lower interest rates.  It was the banks that relaxed their lending criteria.  Let's point the finger at the right people here.
Aug 25, 2007 08:39 AM
Jim Little
Ken Meade Realty - Sun City, AZ
Your Sun City Arizona Realtor
Worse than MBA's, they are MBA's who have no knowledge of history. That and laws that allow bank holding companies
Aug 25, 2007 08:51 AM
Fran Gaspari
Patriot Land Transfer, Inc. - Limerick, PA
"The Title Man" - Title Insurance - PA & NJ

Bill,

Nice thought provoking post. Fat cats eat fat rats. We in the U.S. are victims of our own affluence. The American Dream is for every family to own their own home. Life was not intended to be a Monopoly game where each player tries to acquire as much as possible. Greed at every level has begun to reap its rewards. Thanks,   Fran

Aug 25, 2007 08:57 AM
BILL CHERRY
Bill Cherry, Realtor - Dallas, TX
Broker & Wealth Coach

Christopher, I don't know much, but I know a great deal about banking, money and international economics.  A nice bank in St. Louis where I worked paid for that doctorate for me a long time ago. 

None of this is to say that Mr. Greenspan didn't know where we were going.  That is no doubt the very reason he "retired." 

Fran and Jim, you're as right as rain.  Thanks for commenting and thanks for your support.  I'm as mad as a hornet about all of this.  There is going to be a great deal of needless suffering as a result.

Aug 25, 2007 11:32 AM
Joan Mirantz
Homequest Real Estate - Concord, NH
Realtor, GRI, CBR, SRES - Concord New Hampshire
Bill...I totally respect your knowledge and insight. Experience is the best Barometer for what is happening...I am really feeling my lack of  experience!
Aug 25, 2007 02:55 PM
BILL CHERRY
Bill Cherry, Realtor - Dallas, TX
Broker & Wealth Coach

Miss Joan, don't pay much attention to me.  I rant and rave a lot because I'm entirely too educated for my own good (or anyone elses, for that matter).  Can you imagine what poor Patty my wife goes through?

Real estate agents and lenders need to stick to conventional, tried and true methods of selling and borrowing.  This exotic stuff never works.

What logic would bring anyone to the conclusion that making a 100% loan to a couple, and then fixing their payments so they can swing them for a year or two, then fixing them so they will drown thereafter, is a good thing to do? 

And why is anyone surprised that those lenders are finding themselves in the real estate product business?

So why did agents sell stuff that required these kinds of loans, and why did lenders loan those people? 

The organ grinder at the zoo and his pal, the squirrel monkey, could have told them this wasn't going to work out, and that the repercussions could drown us all.

It's so tragic.

Aug 25, 2007 03:21 PM