Been slammed at work for the last week or so, and thus lots of Tony Alva outrage and analysis has gone undocumented. I’ve sort of refrained from lashing out about the bailout plan mainly because it’s a huge animal that just might, just maybe, just perhaps, 99% of us don’t know shit about. The fact that it’s occurring in an election year is making mining real facts even tougher. So here’s what I’ve learned in my meager attempt to get up to speed, and what fits with my own experience...
It’s been interesting watching the democrats sling blame at “Bush Policy” for what has happened. Actually, from what I’ve learned from diving into this thing it was pretty much a bi-partisan pile of poop. It all started with lending money in the way of mortgages to folks that previously could not qualify for a loan. Dems (and GOP'ers) were hot to provide under earners with a home of their own and were more than willing to sponsor any legislation that made the American dream possible. The primary impetus for my leaving New York ( a place I love) for Atlanta 17 years ago was to own my own home someday, something I felt was not going to be possible in NY. I can fully relate to those who share(d) the quest and would certainly have supported this legislation myself.
Lenders (okay, let’s just say that many were more than likely Republicans), were resistant to lowering the bar on loan criteria without two things: Some type of federal guarantee, and the ability to get PAID for their risk in the way of higher interest rates for these earning deficient borrowers. A compromise to both desires was drafted, passed, and signed by the president and off to the races we went.
What went wrong? Two things, the first being people are greedy and this situation was ripe for the picking. So much greed it’s hard to know where to start. Banks making the loans to marginal buyers, bundling them and selling them as ambiguous value at the macro level, something that has been done with auto loans forever. Crooked real estate agents partnered with equally crooked brokers ripping off uneducated buyers (this was the case for the buyers of our own house last year). House flippers out to game EVERY hole in the system (so simple anybody could do it, right?). Builders fired up their own mortgage businesses and anybody with a job, no matter what their annualized earnings or longevity in position, was now qualified to live in a Masters Collection Series 5 bd, 3 ½ bath home, with the stack stone/stucco frontage, granite everywhere, in a gated community. (My wife and I as newly weds were told that we qualified for close to $300K on a combined income of less than $60,000 back in 1995 for Christ sakes! No, we didn’t take that note).
I know there’s more in the details, but that’s what I’ve gathered as far as run away greed goes…
The second, many of these borrowers plain and simply were not ready, and perhaps will NEVER be capable of honoring a 30 year mortgage whether it be on account of the fact they don’t earn enough, can’t keep a job, have ZERO financial discipline, or a combination of all three and more. The no cost/no money down mortgage greatly DEVALUED the essence of homeownership in the American dream sense. Everything was fine for a while since soaring appreciation meant that flippers were there to pick up the foreclosures and re-sell them to a whole new set of unqualified buyers. Even with the foreclosures, lending was so liberal that the inventory beast needed continued feeding. Of course, when there are too many foreclosures, values drop and then flipping is no longer a lucrative business.
At the philosophical and political level, I am as torn by this situation as I am with payday/car title loan business. It angers me beyond words that these assholes prey on those in need to a degree that they do. Georgia has a HUGE problem with these evil institutions and I myself cannot see how anyone in their right mind would use the services of a payday/title loan shop. At the same time, from a liberty perspective, it’s not a whole lot different than casino gambling. People go in knowing the odds are against them, but they alone have the CHOICE to roll the dice or not. It is a pure freewill act to enter a casino or a payday loan shop. It boils down to this: Do people require the government to be protected from themselves? While I say no emphatically, my hatred for the piranhas and bottom feeders remain front and center. How does one reconcile this? I don’t know. I’m still trying to figure it out myself. I do think that, just like those who put their last dollar down on red and lost deserve nothing more than a "Sorry pal...", the same is true for the house when they make a bad bet, or the rare instance a patron hits a lucky streak. Along with most, I feel far less sorry for them for feeding on their fellow man's short comings.
So, from what I know at this moment the key things I want to see in any bailout plan is ZERO taxpayers dollars going to greedy shithead CEO’s and VP’s for golden parachutes. Any plan that involves my tax dollars must include a severe financial penalty to those who captained these ships. It should also include a rollback of federal pressure on banks to make loans to under earning and unqualified borrowers. Banks will no doubt be more conservative about who and what their loans fund on their own, but we need a return to reason with borrowing criteria. No more zero down mortgages or rolling required down payments into loans. Proof that one can save some money over a period of time is a great way for banks to gauge an individual’s ability to pay a loan back. It’s just a start, but that’s what I can cobble together as this point in my own education.
Anyone who is willing to straighten me out on anything I've got wrong feel free, but know I will ignore anything that wholly blames one party over the other.
Wouldn’t it be great if this fiasco turned out to be the greatest bi-partisan solution ever drafted by our government, especially in an election year?
Fat chance, right?
More importantly, did you hear that People Magazine is reporting that Clay Aiken has admitted to being a gay man? Holy shit! How could I have missed that?!