Matters of Interest

The scapegoat, with some culpability of course, continues to be “sub-prime mortgages”.

As usual, The Truth is more complex.

In 1991, our economy was just bouncing back from a slow down and record high foreclosure rates. This is a foggy memory for most of us. Great times ensued.

Post 9/11, the financial markets were rocked and cash flooded the ever reliable real estate market. Over development and rising prices didn’t dissuade anyone. More product, buy more. Prices rise, flip and buy more. Anyone can play, no experience necessary.

Wall Street seized this opportunity to restore its capital appeal with Real Estate Investment Trusts (REITs) and mortgage-backed securities. Their ever-growing appetite required “new” mortgage instruments to accommodate more buyers- now securities analysts were authoring guidelines for mortgages, not just mortgage bankers.

The frenzy drove prices higher creating a large gap of affordability for the homeowner. More accommodations to draw more buyers and investors. More development; more rising prices.

Rising property values translated into higher tax revenues. Short-sighted politicians planned budgets as if the trend would continue spending the tax windfall on long term spending projects and new jobs.

Insurers raise rates. (Despite fewer storms in Florida for two years). Higher home values- more risk, more return.

Higher home prices, taxes and insurances costs translate into higher wages to attract and keep employees near business centers.

And we should have seen it coming.

Home appreciation rates were unsustainable. We know real estate is cyclical, and yet politicians chose to ignore this. Then when faced with cuts into programs launched during the euphoria, they have the unconscionable gall to use fear tactics, claiming cuts would have to come in Essential Services. Were we so under-protected in 2001? How could politicians budget for new arenas and levy taxes to pay for projects that prudent private sector investor would not touch with a 20-foot pole?

Greed and a lack of restraint have brought us to this place, not simply “sub-prime mortgages”. We live in larger homes than we need; we speculate in areas outside of our expertise; we choose to use the facts that support our arguments and special interests; we seek to profit in the moment and ignore the consequences.

The cure is not a bail-out that transfers the burden back to tax payers (tacit socialism). Unfortunately the cure is for us to fail. To rebound and rebuild. To take the losses, and pay the cost. The market will correct at a large cost to us all as we absorb the ripples that Greed has created, and Fairness will not preside over the process.

Now is the time to consider preventative measures without a doubt, but the market will purge the obvious perpetrators; we need to look at the factors outside of market forces that allow this situation to manifest. Incompetence in government has exacerbated this problem with irresponsible spending and lack of restraint. Many a homeowner would be far more able to afford the adjustment in their loan payment if taxes and insurance had not doubled over this period.

Ultimately the public needs to understand the responsibility that give to elected officials and hold them accountable. We must ask the questions and not be satisfied until we understand the answer. If they can’t give a clear explanation, they are not qualified to serve.