Where Have We Been ... And Where Are We Going???

Services for Real Estate Pros with Law Offices of Louis J. Esbin

Since about 1978 we have been running an economy on the back of the consumer.  During the last 30 years, real income has declined, as adjusted for inflation.  The difference between real income adjusted for inflation and spending has been filled by credit.  Credit was moved from a subjective decision by the local banker to a quantifiable objective standard measured by a credit score.  Net worth, living within one's means, being fiscally responsible, and saving for a rainy day, were all replaced by merely affording a monthly payment.  Price no longer mattered, as long as the monthly payment was tolerable.

First the auto companies took away car ownership with leases and refinancing negative equity into the next car purchase.  Home ownership was, in essence, taken away by the negative amortized loan, option arm, and interest only loan.  Equity was irrelevant, as was actual home ownership.  Washington and Wall Street were convincing every American that everyone should own a home, rather than every American should have adequate, safe and affordable housing, even if only renting.  The only difference between leasing a home and paying a mortgage was the tax benefit.  Wall Street developed an appetite, call it an addiction, for ever higher rates of return.  First found in the Volker years of high government security interest rates and returns, later found in junk bonds, derivatives, dot coms, and more recently (over the last 8 years) home mortgages, the result was predictable.

As a bankruptcy attorney, I have spent the last 24 years writing, lecturing, and talking to whoever would listen (I was often called a mere pessimist or too negative) about the dire consequences of an economy based upon debt and leverage, as well as upon diminishing the brick and mortar manufacturing economy and replacing it by services.  And, what happens when the manufacturing base has been closed, sold and shipped overseas and the services are outsourced?  You have an economy with no substance, no basis in anything other than spending!

But, what happens when the consumer realizes that the family's real income adjusted for inflation can no longer afford car payments, house payments, credit card payments, student loan payments, insurance payments, medical care copayments, and the list goes on????  You have the economy of today and probably the next 3 years, until prices adjusted for deflation are once again affordable as compared to real income adjusted for inflation and deflation.

Just some thoughts and ideas!!

Comments (5)

Connie Ragen Green
Small Business UnMarketing - Santa Barbara, CA
Online Marketing Strategist


Great to see you here! This is where I find many new clients, and market for several others as well. Keep on providing this type of great information and your phone will ring off the hook.

Dec 29, 2008 02:01 AM
Kirk Westervelt
Van West Realty - Greenville, SC Realtor -Short Sale Expert! - Greenville, SC
Kirk Westervelt, Broker In Charge, Van West Realty - CDPE - Short Sale Agent - Home for Sale - Greenville, Simpsonvil...

Hello and welcome to Active Rain! I encourage you to learn from others, share your knowledge and experiences with all of us, enjoy yourself, and try to log in and join us in the Active Rain community as frequently as possible. I look forward to your future blogs and comments! Take care, --Kirk.

Dec 29, 2008 01:25 PM
Lorena Westervelt
Van West Realty - Greenville, SC

Hello, welcome to Active Rain! This seems like a wonderful environment to network as well as learn from others. I hope you enjoy yourself and participate often in the Active Rain environment!

Dec 29, 2008 01:41 PM
Jean Terry
Keller Williams Realty Spartanburg, S.C. - Spartanburg, SC

Hi and welcome to Active Rain, a great site to network, share, learn, and have fun. Good Luck.

Dec 29, 2008 01:55 PM
Louis Esbin
Law Offices of Louis J. Esbin - Santa Clarita, CA

Thank you everyone for the good wishes.  I intend to use this site to further educate and share with all of you what I have and continue to experience through my career.  Please consider the following:


The credit industry has done a masterful job of convincing Congress and the public that the majority of bankruptcy filings and the number of foreclosure or payment defaults arise from people wanting to walk away from falling home values. Translated, the credit industry would want Congress and the public to believe that the majority of good intentioned hard working Americans are as greedy as the credit industry. Once the smoke and mirrors of the credit industry's capitalized profit and socialized losses are revealed, it is easy to understand why the credit industry would take such a position. The old saying "It takes one to know one" rings true!

And now, we find the federal government and many states, including California, warning that they will increase the gasoline tax to pay for the deficits arising from the recessing economy. Increasing taxes on those least likely able to afford more taxes. This would happen while the credit industry is basking in one of the largest corporate welfare programs ever enacted by Congress.

Not only have they already received a $350 billion handout, but they also received a rather hidden and unpublicized tax break. Yes, a tax break! Before the Bailout, if a bank paid $10 billion for another bank the extent of the tax benefit for bad debt would be $10 billion. But, with the Bailout came a tax benefit based upon the face amount of the bad debt. So, for example, when Chase bought WAMU for $10 billion (or whatever it was), it gets to right off not $10 billion (the amount paid), but $100 billion (or whatever amount of loan values are written off as bad debt). In other words, not only did Congress give them the $10 billion to buy WAMU, but another $100 billion tax benefit against corporate profits; amounting to billions more! In other words, raise the gas tax while the credit industry pays no taxes for years to come!

Congress should be taken to task to reverse this wholesale corporate welfare!

Now, who is greedy?!

Email your Congressman, Governor, and elected officials, and take them to task. No new taxes before the credit industry is required to account for every dime taken through the Bailout, and until all corporate welfare is reversed. Email your Congressman and demand that the Bankruptcy Code is amended to allow Bankruptcy Judges, and not lenders, to authorize the modification of loans and loan terms, based upon property values. This is how homeownership will be preserved, and to reverse the coming 5 year tsunami of adjustable ARMS.

Jan 04, 2009 01:17 PM