Greetings, Gentle Reader,

Our financial situation in this country has become downright dangerous for some of our people. Though we almost (but not quite) understand where we are now, how did we get there? It seems to have happened this way: Politicians in very high places got involved in some things they did not understand and started a destructive ball rolling down a pretty steep hill. As it rolled, it pick up a little bit of financial this and a little bit of financial that. By the time it hit the bottom, it had become wrapped up in a staggering percentage of most of the world’s economy.

Let’s begin at the beginning, a very good place to start, to quote a delightful song: During the Clinton presidency, there arose a tremendous political outcry against mortgage lenders who seemingly discriminated against minorities. Minorities were denied loans more often that whites. Instead of analyzing the data to find the reason for the denials, newspapers trumpeted their own interpretations of the problem: racial discrimination. When I say trumpeted, I really mean trumpeted. They raised a stink that rose to the skies. They continually abused lenders, never letting up.

In 1992 the Federal Reserve Bank of Boston did some statistical analysis, which turned out to be based on data that was ridiculously inaccurate. It’s not that they could not have done a better job of getting the data; it’s just that for some weird reason they did not. (It almost seems as though they didn’t want to get the real facts.) The result was a declaration of verifiable racial discrimination. When challenged, the bank refused to accept the factual data, which showed it’s declaration was in error.

Then the same Boston bank produced new standards for lenders. They said special care should be taken to insure that standards were such that "urban, lower-income, and non-traditional consumers" could buy houses. That started the ball rolling that turned Fannie Mae and Freddie Mac into buyers of loans made to people who either could not or would not pay their mortgage. That was just the first step. It goes down hill from here.

The Clinton White House wanted everyone to own their own homes, then Bush followed suit. The ownership society became all the rage, even though too many of those buyers should never have been given mortgages.

Then just to sweeten the pot, "prime borrowers" began buying and selling houses as a business. It became known as "flipping." They were buying them with as little down as possible and with the lowest adjustable rate mortgages they could get.

House values were being inflated so rapidly by the tremendous increase in demand caused by the easier-to-get mortgages, that builders were putting up new houses at an incredible pace and in huge volumes, creating a monstrous housing bubble. The more houses were sold, the higher the prices climbed. Then the housing bubble popped, and values began to come down. Now those who had bought and sold houses as a business couldn’t sell at those inflated prices. They had to pay mortgages on houses that were hugely overpriced, and then to make it worse, the interest rates began to reset.

Let’s say a person had bought ten monster houses with low down payments and with mortgages that reset to an interest rate that made the monthly payments out of sight. Then with the crash in home sales, these buyers were stuck with them. Those were actually prime mortgages, not subprime, but they began going into default in large numbers. Actually their numbers were 69% for prime mortgages, as opposed to 39% for subprime mortgages going into default.

This all came about because banks were pressured into making loans to buyers who could not pay them. It started with subprime and moved to prime. I guess it was a case of "what’s good for the goose is good for the gander." Unfortunately, it also seems to have been a case of "what goes up must come down." That’s a natural law, and should never be ignored.

Much of this came about because politicians stuck their noses into something they didn’t understand, and at least some of them did it for political gain. That is a common and incurable disease afflicting politicians, but the public should always be on guard against such political stupidity, refusing to be roped into the destructive messes politicians create.

Now we are being told this all came about because of subprime mortgages, sold by greedy lenders to make a quick buck. Wrong. The subprime mortgages came about because of idiot politicians pretending, not believing, just pretending, the denials of mortgages were all caused by racial discrimination.

Now the whole world is taking a financial hit as a result. This is going to get nasty.

Do you suppose it is too much to ask that we get a president and some senators and congressmen who are not phonies? How about just a garden-variety person with no hidden agendas? Do they make those anymore?

In the meantime, we had better do all we can to get the most honest, straightforward politicians out there. And, yes, some are more honest than others. We just have to look at their past actions and companions, so we can make a good guess about their future actions and companions.

Now the buck has stopped at our door. Let’s try our best to pick it up and behave with honor and integrity. That is not only our privilege, it is our responsibility as Americans.

Until next time,
Muriel Sluyter

Return to the Neighborhood.


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1 comments:

    Anne Bradshaw said...

    I've been reading your messages for a while now, Muriel, and find them invigorating and informative. Thank you for taking time to do all this. Wish I could vote for you as the next President :-)

  1. ... on October 24, 2008 at 10:06 AM