I know one of the things that makes capitalism work, market economies, in the Grand old land of opportunity is the profit motive.
I am ok with people speculating, flipping, and causing chaos in downtown markets, in areas like Hawaii, San Diego, NYC etc. I draw the line with profiteering single family homes in the suburbs, where the thankless workers who fuel the whole system of wealth for others, are forced to reside in the few hours they have away from the ball and chain they call their job.
In the most recent article in Barrons, an article gets into detail about the workings of Fannie Mae and Freddie Mac, well, how they used to work anyway, before the US government took them over in conservatorship.
Well, apparently in an effort to realize huge gains for shareholders, and increase their market share, they took on a lot of crappy paper that they shouldn't have. This means loans that wouldn't be paid back.
Fannie and Freddie buy mortgages to take them off the banks books so they can make new loans, and sold some of them away as securities - apparently guaranteeing them against default at least part of the time.
The article makes an interesting comparison. Utility companies are regulated, and I happen to know, from reading Security Analysis by the father of value investing, Benjamin Graham, that the oversight (ie Corporation Commission) sets limits on rate increases, and generally limits the companies/investor return to what is deemed reasonable - typically around 6% return on investment.
Why should scalpers be let loose in residential real estate, in the suburbs, to inflate home values to 2-3-4 times what median incomes can support? Why should our State, City governments depend upon nothing but the continual increase of housing values and employment from housing related acitivities for income?
This country needs Economic leadership - we need a national vision - we need to have a common goal. I think it could be something like a united effort to lead the way in curing diseases and alleviating human suffering. Something, for God's sake, more meaningfull than ever-expanding suburbs, with ever increasing values (not really), needing cheap, exploitable immigrant labor (funny how the immigrant labor managed to swarm in when it was needed, even in this post 9/11 world - can you say border security?)
Stop playing roulette with housing, you political jerks. Get a vision.
Sunday, September 14, 2008
Sunday, September 07, 2008
The Housing Bubble
Reviewing some real estate listings recently, I was surprised at just how many were short sale or lender owned properties. Then again, I usually had a hunch that they were when looking through the pictures you see pictures of a fully-furnished home, often with little chairs, toys and obvious miscellania showing that young children live(d) there.
We are a country of hard workers, there can be no doubt about that. The American work ethic is legendary. Most of us don't want handouts, we work for what we get.
When the stock market went crazy back in 2000 and then finally collapsed, some investors lost money. When Greenspan and the US government brought interest rates down near zero and spurred the housing bubble to inflate, they planted the seed for much chaos and suffering down the road.
Without so much as even giving an eye to the consequences, for who among us did not realize that prices were way out of hand? Does anyone actually smoke enough dope to think that prices can be maintained at a level 2-3 times more than average monthly incomes? Guess what, when the rate resets from the teaser rate, people get screwed every time.
The list goes on and on. Stated income loans.
What has been allowed to happen - the huge rise and fall in housing prices, has dealt a serious blow to many American households. As far as I know, there has been no scrambling efforts by the government to take care of the citizens who have been disenfranchised by this debacle. The scrambling efforts to save companies, Bear Sterns, Fannie Mae and Freddie Mac, continues.
The sheer stupidity, I mean, to even think that the US government and regulators did not see this coming...well that sheer stupidity has caused some people to think the government has let this happen on purpose for some secret reason.
My point is, they have fouled the American Dream, have dealt an unwelcome blow, a slap in the face to the middle class. People who do nothing but go to work every day and try to scratch out a living and a better life for themselves and their children. Now they're taking away their homes. Disrupting lives. Causing divorces, suicides, murders, abuse, mental breakdowns.
We are a country of hard workers, there can be no doubt about that. The American work ethic is legendary. Most of us don't want handouts, we work for what we get.
When the stock market went crazy back in 2000 and then finally collapsed, some investors lost money. When Greenspan and the US government brought interest rates down near zero and spurred the housing bubble to inflate, they planted the seed for much chaos and suffering down the road.
Without so much as even giving an eye to the consequences, for who among us did not realize that prices were way out of hand? Does anyone actually smoke enough dope to think that prices can be maintained at a level 2-3 times more than average monthly incomes? Guess what, when the rate resets from the teaser rate, people get screwed every time.
The list goes on and on. Stated income loans.
What has been allowed to happen - the huge rise and fall in housing prices, has dealt a serious blow to many American households. As far as I know, there has been no scrambling efforts by the government to take care of the citizens who have been disenfranchised by this debacle. The scrambling efforts to save companies, Bear Sterns, Fannie Mae and Freddie Mac, continues.
The sheer stupidity, I mean, to even think that the US government and regulators did not see this coming...well that sheer stupidity has caused some people to think the government has let this happen on purpose for some secret reason.
My point is, they have fouled the American Dream, have dealt an unwelcome blow, a slap in the face to the middle class. People who do nothing but go to work every day and try to scratch out a living and a better life for themselves and their children. Now they're taking away their homes. Disrupting lives. Causing divorces, suicides, murders, abuse, mental breakdowns.
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