The Financial Mess
So everyone is calling what’s going on a “crisis” and I reiterate my stance that it can’t be a “crisis” if you had at least some inkling that it was coming. Maybe you didn’t know when, but you knew it was coming.
Hurricanes Katrina, Rita and Ike were “crises.” Advertising sub-prime mortgages to people on the television when you knew full well that the people you were selling them to weren’t exactly inclined to read the fine print on what happens to an adjustable-rate loan, and then saying “Oh, please help me” when suddenly these people cannot make their payments does NOT constitute a “crisis.” It is the chickens comin’ home to roost.
For example – I used to live and work just outside of Washington DC where housing prices were, are, frankly STILL are absolutely ridiculous. You drive down a road and see a sign “Rolling Acres – homes from the low $800’s.” I dunno what kind of middle-class these people are, but there ain’t NOTHIN “low” about $800,000.
So a few years ago I worked with a guy who lived in Gaithersburg or somewhere around there and he told me about the townhouse across the street from him that was for sale for something along the lines of $700k if I recall correctly. Do you know who bought that house? A couple with at least one child. A fairly young couple. And she was a public school teacher and he was a police officer.
Now I can’t begin to tell you a lot about the scale of pay that the state of MD pays its employees, but I’d bet all the money in my wallet that it’s not enough to afford a $700,000 town home. Which is exactly what I said at the time.
And I’m thinking, who is the mortgage officer (or better yet, the underwriter) who decided that this was a good idea? Who decided that these people were going to be able to make those payments and CONTINUE to make those payments for the next 30 years? Or 40 years – or whatever the terms were?
Ahhh…but see that was the problem. No one, not the buyers, not the lenders, NO ONE thought they would actually HAVE that mortgage for 30 years. Everyone figured they’d have it for a few years, the house would appreciate, then they would refinance something, somehow (or sell) before they rate adjusted upward too far and they couldn’t make the payments.
Well THAT’s a hell of a thing to bet on, isn’t it? That property values (that everyone already knew were inflated, even for an area as insulated from recession as DC is) would continue to increase at the same rate they had.
It is as if everyone in charge of the financial institutions had just fallen off the turnip truck. It was as if these people, who presumably had some kind of experience in finance, and who presumably had LIVED through the previous 30, 40 or 50 years had no idea that financial markets ebb and flow and go up and down and that when things go up really fast, they often come back down the same way.
Shocking. No?
No. And these folks are now standing around with their hands open, waiting for handouts, saying they had no idea this would happen.
And so now our financial markets are a mess because the real estate valuations held up the mortgage business, and the mortgage business held up the credit business, both here and abroad, and no one knows how to fix it. Homeowners who can’t make their payments are either just simply not paying, declaring bankruptcy, sending their keys to the bank, or working two and three jobs just to try to make the house payments.
So…what do we do? Does the federal government take over these debts with the hope that someday it will be worth something? Do we let the institutions fail?
This guy has an interesting point: http://www.cnn.com/2008/POLITICS/09/29/miron.bailout/index.html.
Read it to be sure I’m not summarizing badly, but the crux of his argument is that we should let these companies/institutions just go bankrupt. The feds argue that the $700B price-tag isn’t really that because the value of the assets they seize will go up at least some. Well if that’s true, then there’s an opportunity there for someone else to make money – if those assets aren’t really worthless, then some company/companies will come along and make the most of it.
I don’t know that I agree or disagree with it because frankly I don’t know enough about the interconnectedness of the global market to know entirely what the repercussions would be. But I have to say that he makes a good argument.
And this doesn’t take into account that the executive staffs and boards of directors for these companies make millions of dollars, both in salary and incentives, and those people are the ones who were supposed to be providing oversight for the business. But any of us who have worked for companies like this know that the employees know full well what the BODs want, even if it’s never stated. And the employees know full well the disparity between the guy in the corner office – or the guy on the board (who might also be the CEO of another company and making millions for that job too) and their own, paltry mid-range salary.
I have a friend who worked for Fannie Mae. He got laid off a year ago. After the reorganization (the previous year) that left him with more responsibility and work because they’d laid other people off. Also middle income wonks. Did the execs go anywhere? Well gosh no! Who would lead the company?
Clearly someone better at it than you. Too bad it wasn’t someone who understood that a couple who grosses $100k a year cannot possibly afford the payments on a $700,000 house. Not AND eat.
See the thing that bothers me is that I feel stupid for having used my common sense. I feel like I should have been able to take advantage of other people’s stupidity and willingness to loan me ludicrous sums of money to buy a house, so that I could later negotiate that down somehow (by saying that I can’t make my payments) and have gotten more for my money.
But no – I didn’t buy a “starter house.” And what the f**k is a “starter house” anyway? Don’t you buy a house to live in? Don’t you buy a house that suits your needs that provides shelter for you and your family? It’s not a bra. You don’t buy a house to try it out until you decide you want something else.
And then this whole mess is exacerbated by politics. Ooh – there it is again – politics. Politics: when a large group of people who fundamentally agree on a point cannot manage to agree on the details enough to actually make anything happen. Government Politics: when the group of disagreeing people make it appear as if they are on the moral high-ground with their disagreement.
Makes me sick.
And reinforces my opinion that anyone who wants to be President is not qualified for the job, because anyone who IS qualified for the job is too smart to actually want it.
I suppose that regardless of which side of this debate you come down on, if you are the average American citizen you are probably disgusted to the point of nausea with the whole mess. You are disgusted that this country is so full of people in responsible positions (either private or public) who are either unable to do their jobs or uninterested in doing it well.
Maybe they should spend some time working for the relative pittance that the rest of us do. Maybe they should spend some time with the constant paranoia that they could be fired, at any time, for any reason, because someone with the “vision of the company” decided to “make a change.”
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