Posted by: As I See It by Arnie | August 19, 2007

The mortgage meltdowns. personal debt, and government debt.

The subprime mortgage mess of late has provided the democratic contenders, and republicans too, something to speak out about, expressing their opinions and solutions.   They see the problem lying at the feet of the broker.   A politician readily sees an opportunity to legislate and regulate when it comes along.

Sen. Barack Obama has introduced legislation targeting fraud and predatory lending. John Edwards, the former senator from North Carolina, has said he wants to ban certain fees, establish uniform broker licensing standards and start a national database for disciplinary infractions. Last week, Sen. Hillary Clinton came out with a plan to address lending abuses. One of its main policy planks was to “crack down on unscrupulous brokers.”

“The entire mortgage system needs to be examined from stem to stern,” the NAMB said in a statement, “from the home shopping phase, bankers, brokers, and lenders, all the way to Wall Street and the rating agencies.”

But can you blame the broker for wanting to increase his earnings, to take advantage of a flexible market, to offer to cash strapped consumers the opportunity to buy a home in the upbeat market.   Can you?   Can you blame the wannabe homeowner for desiring to move into that nice new home in the nice neighborhood, even though it could put the homeowner a bit over his/her head, as the economic conditions have been great for some time now, so the risk is considered relatively low?   Good job.  Good economic conditions.  Great opportunities.  It will not end.

Hey, I’m just an average American with limited understanding of the deeper economic implications this meltdown has caused, the why’s and the wherefores, so bear with me, as I try to shed light on a pattern that perhaps has been the model that American citizens have followed.   It’s as I see it now.

A Washington Post column back in 2004 estimated the consumer debt at just over $2 trillion, and this figure excludes real estate loans. “It’s a huge problem,” warns Howard S. Dvorkin, president and founder of Consolidated Credit Counseling Services Inc., a nonprofit debt-management organization. “You cannot be the wealthiest country in the world and have all your countrymen be up to their neck in debt.”

There is no doubt about it, on the whole Americans are spending more than they take in. but that’s really not a new thing.

There is also no doubt about the fact that Congress is spending more than it takes in. And that is not a new thing either.

“According to http://www.federalbudget.com/ , the national debt is now a staggering $8.9 trillion. In fiscal year 2006, the federal government spent a whopping $406 billion of taxpayer dollars on interest payments to the holders of the national debt.”

“President George W. Bush noted that the $22 billion difference between the spending proposed by the White House and by Congressional Democrats is not, as House Speaker Nancy Pelosi maintains, a “very small difference.” Nathan Tabor column, “Tax Funded Spendaholics”.

Congress thinks that 22 billion is a small difference, it’s just pocket change. Consumers think another $__________ (fill in your own figure) in debt is just a small difference, more than just pocket change. We are supposed to look to Washington as our leaders and they have lead the country into a huge near 9 trillion dollar debt. They are operating off of other peoples money, ours the taxpayers money, and the politicians have the ability to confiscate more of it just by their agreeing together. Washington will also pay back this debt with our money. What a sweet deal that is.

As consumers we are operating off our money and our ability to earn it.   Consumers will have to pay back their debt out of their own pockets and their ability to earn enough to pay it back and to pay the current bills all at the same time.   So far, there are no hand outs from Washington to pay off individual consumer debt.   So far.

Our leaders, by their reckless spending practices of monies that is not theirs, have been rather poor examples to the consumers that they represent.   And then the politicians want to impose additional regulations and taxes upon citizens for the  actions of Congress,  which have been irresponsibly for the purpose of achieving a short term next election goal of more votes.   Consumers think that is would be OK to spend above and beyond their means to achieve a short term goal of more things.   In this age of consumerism, it is rather easy to see the “need” to spend above and beyond our means.   It is also much easier for congress to see a “need” to spend above and beyond their means.

But, what kind of leadership is this?

As I see It.

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Responses

  1. Nope, you missed the call on this issue, Arnie: you suggest that we great Unwashed watched Uncle Sam spend like there is no tomorrow (which is true), and followed this lead, and now we all are in the straights we are in, considering this mortgage meltdown that is affecting markets worldwide.

    Nope, nope, nope.

    The simple, simple reason that we are going through this major downward adjustment is that in years gone by, one had to have 20% down payment on a house, and good credit, to boot.

    Once housing prices started to rise, mortgage lenders decided that they could tolerate a certain amount of defaults by lending to folks with less than stellar credit, since real estate was booming, and had been for 20 years. In the beginning of the end, these subprime lenders started giving money to borrowers with not only questionable credit, but NO money down. This would work, only if real estate values continued to increase, as these iffy lenders could always count on covering their loans by the increase in their equity by constantly increasing housing prices.

    Lenders and borrowers got suckered into thinking that this would last forever.

    POP GOES THE WEASEL! All of a sudden, the market gets saturated with homes for sale, spec houses on the market, and folks trying to “flip” real estate.

    Prices started inching down, and those folks who were counting on increasing prices (which includes everybody in this mess, lenders, borrowers, and particularly those brokerage firms who securitized these risky loans) lost out.

    When you lend money to deadbeats, what do you expect to happen when things go south? Deadbeats walk, and when they have no “dog in the fight”, i.e. no down payment, it’s no skin off of their noses. That’s why they are called deadbeats, that’s what deadbeats do. To expect deadbeats to act differently now than they have in their deadbeat past is sheer lunacy.

    Should it surprise anyone that an economy based on loans to deadbeats should collapse when money gets tight? Duh.

    You missed the call on this one, Arnie.

  2. Doc,
    Hey, I understand that the deadbeats got the loans in these times, whereas in times past the banks and mortgage lenders would not have approved the loans.

    The deadbeats would not have tried, but if they really wanted a loan, they would have saved and waited, but nowadays the atmosphere is now, now, now. It was a market ready for the taking.

    Washington has done the same. Spend it now, now, now. Pop goes the weasel! Our trillions of dollar debt and all of those interest payments would make for a real nice tax rollback for everyone.

  3. Well, we are not exactly on the same page, I guess. Arnie, you are not alone in your premise on the cause of our current mini-collapse:

    Dr. Thomas Sowell also says much the same thing as you do, you are in good company. I disagree with him as well.


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