Dr. Greenspanstein's Monster & Gambler Mae

By
Real Estate Agent with 1st Action Real Estate

Well, here's hoping you're safely through the holidays, and that Santa, in his munificence, deposited more than the richly deserved lumps of coal in your moth eaten stockings. With that cheery greeting,  let's start the year with a slap in the yap from the housing market. I know I told you about the light at the end of the tunnel last month but we're not out of the tunnel yet - so keep slogging.

I keep getting asked about the various ‘bail-out' packages being proposed by every sop from Sacramento to DC. So I'll just ask you - do you think WE, meaning you and I who have behaved in a reasonably responsible manner, should bail out the mortgage institutions who lent money to folks who provably could never pay it back? Should you and I foot the bill to bail out the folks who borrowed the money knowing they couldn't pay it back unless prices continued appreciating 25% every year and/or lied on their application to begin with? Why not just take it back from the loan officers who pocketed $500,000 or more foisting specious loans on gullible buyers the past couple years or from the heads of those lending companies who took homes $10's of millions in bonuses?

Is it really desirable to provide easier money and extended terms to people and companies who got in trouble by abusing their access to money in the first place? It's like the government equivalent to the old ‘hair of the dog' hangover cure. So we learn no responsibility - we'll continue to borrow more money than we should, we'll keep building homes in floodplains and hurricane paths because instead of Fannie Mae, the government has implemented ‘Gambler Mae' (courtesy of Bill Fleckenstein's Contrarian Chronicles). Next step? Put your life savings in a hot stock tip, take the mortgage money and buy lotto tickets or go to Vegas and put all your money on black. If it doesn't work out, don't worry about it. The government will bail you out forcing solvent taxpayers to foot the bill for our less responsible siblings and neighbors.

That's not right.

Admittedly I may be less sympathetic that some. I lost a house to foreclosure last time around in the early ‘90's. Mine was from a job loss, not overextension, and I wasn't alone. Unlike the current pandemonium caused largely by greed and fraud, job loss was the big culprit back then. Hell I even put 20% down and still lost it. But nobody came running to my aid, no government bail-out, no hand-wringing liberals, and when the IRS billed me over $30,000 for ‘forgiven debt', I paid it. But I learned something from the experience and that's the lesson being lost on today's casualties.

 Dennis Gartman, Publisher of The Gartman Letter, further asks "We wonder who it shall be who will make the decisions as to which mortgagee shall be helped out and which shall be left behind. What shall become of those mortgagees who have paid their mortgage, accepted the newer, higher rates and have been consistent in meeting their obligations. Are contracts no longer to be viewed as law, but rather to be viewed as mere whim. If we allow mortgagees who are in trouble to stand down and have their problems taken up by taxpayers, what then of contracts anywhere?"

Precisely!

Now before we part, I have to take a shot at another culprit in this fiasco, none other than the great and powerful Oz, Alan Greenspan. In a recent speech in Oslo, Greenspan noted that "Markets are becoming aware of the fact that the decline in housing is not stopping... I have no particular regrets. The housing bubble is not so much a reflection of what we did as it is a global phenomenon."

There are so many things wrong with just that brief statement. This is the same Greenspan who appears to have Alzheimer'd the fact that he encouraged the use of adjustable rate loans early in 2004 and endorsed sub-prime loans the following year, the man who dismissed calls for greater regulation of the mortgage industry and argued that housing could not experience a ‘bubble' because all housing was local. This is the same micro-manager who oversteered the behemoth that is our national economy by dropping interest rates 14 consecutive times from 6 ½%  in mid-2000 to a low of 1% in 2003. 1%! I remember a lot of us shaking our heads at the time thinking this was not good policy - but he was Greenspan - he obviously was much smarter than any of us mere mortals.

Of course this headlong rush into shallow water lead to the subsequent run-up and further oversteerage of 17 consecutive rate hikes through August of this year. Now we're dropping again and by the time you read this we'll probably be ½ point lower than we are as I wrote this, down around 4%. Makes you wonder - what might have happened if the rate had just been dropped to 3 1/2% or 4% from it's peak in May 2000, and left alone? Would our growth have been slower, more sustainable? Would we have experienced that rocket ride from 2001 to 2006 and would the market be crashing around our ears today? We should ask Greenspan - he's remarkably prescient in hindsight. (Hindsight = the view from where your head is buried).

Oh well, I'm still bullish on real estate and plan on buying more this year. It's still the American Dream and the most reliable builder of wealth for the average family. But we're going through a lot of pain right now that I don't think was necessary and which will probably fester more before it gets better. Just a note of caution - be real careful what you ask the government for, you just might get it. Our private lives are rarely enriched by the intervention of government, our costs are not reduced by more government spending and our freedoms are not expanded through additional government encroachment. Happy New Year.

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Show All Comments
Rainmaker
18,002
Jim Gainer
Howard Hanna Real Estate Services - Hershey, PA

Hi Gene,

Good recap.  I agree meddling only begets the need for more meddling, like an episode of 'I Love Lucy', the harder she tries to get into Ricky's show the crazier the scheme has to get in order to work.

In my simplistic and humble opinion we need two things to happen;

1) news media and economic pundents shut up about housing driving us into a recession - it is a self fulfilling prophecy.

2) Government, stop bailing us out you're just making it worse.

Anyway, enough doom and gloom for tonight...

Let's all go out tomorrow and make some money, that'll show'em.

Jan 17, 2008 08:40 PM #1
Rainmaker
225,023
Gene Wunderlich
1st Action Real Estate - Murrieta, CA
Realtor & Legislative Liaison
Absolutely correct - if we could just get the media to balance their stories and keep the government out of our business... naw, that'd never work. You're right - making money is the best revenge.
Jan 17, 2008 08:50 PM #2
Rainmaker
271,173
Ken Cook
Digital Content Creator - Marietta, GA
Writer For Hire
"Oh well, I'm still bullish on real estate and plan on buying more this year." Evidently so are my clients. I don't know who woke them up on Tuesday but we have 8 new deals in the books in the last 2 days! Then again I'm so quiet around this sleeping giant ... NOT!
Jan 17, 2008 11:58 PM #3
Ambassador
498,316
Mirela Monte
Buyers' Choice Realty - North Myrtle Beach, SC
Myrtle Beach Real Estat

BRAVO, GENE!!!  I give you a standing ovation, my man!  A well deserved star I would put on your blog, but someone else beat me to the punch! 

Hilarious, informational, candid and oh, so true!  Gene, how I love your point of view! 

...And now, to quote another illustrious gaff (Brittney Spears) : "Give me more!"

 

Jan 18, 2008 12:05 AM #4
Ambassador
498,316
Mirela Monte
Buyers' Choice Realty - North Myrtle Beach, SC
Myrtle Beach Real Estat

By the way, Gene, I am now a subscriber to your blog.

Check out my blog for an adulatory endorsement of your post.  Hope you don't mind.

 

Jan 18, 2008 12:19 AM #5
Ambassador
498,316
Mirela Monte
Buyers' Choice Realty - North Myrtle Beach, SC
Myrtle Beach Real Estat

By the way, Gene, I am now a subscriber to your blog.

Check out my blog for an adulatory endorsement of your post.  Hope you don't mind.

 

Jan 18, 2008 12:20 AM #6
Rainmaker
225,023
Gene Wunderlich
1st Action Real Estate - Murrieta, CA
Realtor & Legislative Liaison

Thank you for those kind comments. I'll check out your blog posthaste Monte. Always happy if somebody reads and/or enjoys my rants. You have demonstrated remarkable good taste.

Ken - I recognize you from MySpace. My handle there is BUY LAND... They're not making anymore. I post most of this stuff there too since it generally finds quite different audiences. Glad your Buyers have woken up. Ours are still somewhat comatose but they'll wake up sooner or later. Our area currently ranks #1 in California for foreclosures with prices down 30% and sales down 70% so I guess a little caution is to be expected.

Thanks for stopping by.

Jan 18, 2008 12:31 AM #7
Rainer
199,912
Richard Lecinski
Long Realty Company - Oro Valley, AZ
I don't think Greenspan has helped over the last few months. He is retired and should keep quiet these days. Too many people still listen to him.
Jan 18, 2008 08:38 AM #8
Rainmaker
187,191
Roberta Murphy
San Diego Previews * Previews Luxury Real Estate - San Diego, CA
Carlsbad Real Estate and Homes
By the time the news media starts talking about a real estate turnaround, smart buyers will have already made their moves. Follow the media? NOT!
Jan 18, 2008 09:33 AM #9
Rainmaker
182,152
Janet Guilbault
RPM Mortgage, Alamo Home Office - Walnut Creek, CA
San Francisco Bay Area Direct Mortgage Lender

Why not just take it back from the loan officers who pocketed $500,000 or more foisting specious loans on gullible buyers the past couple years

Why not just take it back from the real estate agents who convinced "gullible" buyers that appreciation would never end?

Jan 18, 2008 09:38 AM #10
Rainmaker
261,111
Chuck Willman
Gentry Realty - Mesa, AZ
Realtor - Arizona - 480.292.0600
There are many things about the economy that can be handled within the economy. Some bailouts simply prolong the situation.
Jan 18, 2008 10:08 AM #11
Rainmaker
314,070
Michael Russell
Keller Williams Realty Partners, Inc. - Overland Park, KS
Overland Park Kansas Real Estate

The Fed needs to stop bowing to the whims of Wall Street. I want to know why a Hedge Fund manager can make 150 million one year because of good results and still get paid when it is in the tank. They should be paying this bailout.

Jan 18, 2008 10:48 AM #12
Rainmaker
259,160
Pam Graham
All Real Estate Options - Jacksonville, FL
Jacksonville, Clay & St Johns Counties

I agree! I am not a fan of the government getting involved. It's hard to say what would have happened if the rates weren't lowered so much, but I do tend to believe if they weren't, then we wouldn't have experienced the boom that we did (perhaps a slower rise) and perhaps the fall wouldn't be hurting as much.

 

Jan 18, 2008 10:52 AM #13
Ambassador
243,953
Jesse & Kathy Clifton
Jesse Clifton & Associates, REALTORS® - Fairbanks, AK
Fairbanks Alaska Real Estate Specialists, 907-328-9328
Very well said, Gene.  Bailing out lenders is a no-win situation for the country, no matter how you slice it.  I don't' think Greenspan has taken enough of a hit for the reckless policy he instituted and pushed, which is what ultimately led us to where we are today. Thanks so much, Mr. Wizard.
Jan 18, 2008 11:20 AM #14
Rainer
122,017
Christy Powers
Keller Williams Coastal Area Partners - Pooler, GA
Pooler, Savannah Real Estate Agent
I agree. It's sad that the foreclosures are happening. But not all those people are as innocent as people make them out. It's a crazy situation we are in.
Jan 19, 2008 04:27 PM #15
Show All Comments
Rainmaker
225,023

Gene Wunderlich

Realtor & Legislative Liaison
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