Contemplations of the Last Mortgage Broker Standing

OUCH!  The bottom was a lot harder than I thought.  I'm still looking down at that crevass not sure we are even really there yet.  My husband and life partner for the last 32 years has also been my business partner for the last 16.  His MBA in Finance & Business opinion?  "We just need to ride it out.  If we go down, everybody else will be there too, so it won't matter."

That man is an optimist, isn't he?  Still he's got a very valid point.  What is done... is done.  We will all survive in some fashion, even if it is not the one we would prefer.

It is obvious there was limited adult supervision in the last twenty years and none in the last eight.  That leaves us with a very uncomfortable concensus.  The people who have raided and exploited our good will, our national and state treasuries, speculated to inflate prices beyond any discernable value, started wars that could not be won and generally ruined our economy will now jump ship to parts unknown. 

Oh, but don't worry about them.  Some will write their memoirs like Alan Greenspan, but few will ever take any responsibility for what happened and none will be punished.  That is the American way. 

Why?  Because what really happened over this last twenty years - exascerbated and accelerated during the last eight - was a sleight of hand so complex that not even those who created and promoted it really understood its complexity.  In the mortgage industry it was very plain early on that many products offered to us - so that we could qualify anyone with a pulse - were strictly for those with the risk tolerance of a wild west poker player. 

Oh, it was tempting to promote products that would triple our business, but I grew up Roman Catholic and a New Englander, a blended combination of guilt and fiscal conservatism that used to serve me well.  I originated exactly one wild west mortgage.  It was to another mortgage broker with the permission of his mother.  That's right, she was my competitor and a mortgage broker who referred her son to me to avoid any conflict of interest.

In fairness to me, I was very uncomfortable writing that loan.  The two of them insisted he had sufficient understanding of the risk and assets to compensate if the worst occurred.  It was also about four years ago.  I remember him confidently telling me - all 27 years of him - that in two years his house would double in value and he could refinance.  He was not a stupid man, he was just naive about how markets cycle.  His house did almost double in two years.

The house is now worth about 14% more than he paid for it.  As his loan had required payments based on 1.5% while he accrued interest at 8%, that means he also added 6.5% interest to his principal loan balance each year.  In other words, he owes about 25% more than he originally borrowed and his house is worth only 14% more.  He still made out okay with regard to net equity but only because he had a 20% down payment.  Had he leveraged with 100% or even 90% financing, he would be upside down now and the one person in ten who were either late on their mortgage or in foreclosure by July.

We would all like to know how this actually happened.  I want to blame the Bush/Cheney administration and do.  Unfortunately, it is not that simple as they were not solely to blame for what has happened.  They had help from some very clever people in the financial world.   Many of these aiders and abetters have the amazing ability to grasp really complex concepts like the definition of a 'derivative.' Never heard of it?  I would try to describe what it is, but it might take me twenty pages and I am not sure I have a good grasp of what one is anyway. 

However, these instruments were traded, sold, bundled, labeled, re-labeled, resold and traded until they were completely unrecognizable and certainly not in their original form.  Sort of like the anti-freeze from China that ended up in toothpaste that was sold worldwide, including here in the United States, and managed to kill quite a few people in Panama before the fraud was discovered.  Now there is the Chinese baby formula and milk scandal, and I am sure that we'll eventually hear that some of that made its way here.

Hence, even with oversight, how could a regulator - hopelessly pressured, overworked, misled, confused, distracted and perhaps even disoriented by these investment products - admit he or she had no clue whether it was a sound investment product or not.  It was easier to go along with what the 'experts' told them.  Ask too many questions and you are considered either a trouble maker or a crank in the corporate world, but  a high level bureaucratic career won't be in your future if you are either.  Obviously enlightened self-interest ruled even the low level bureaucrats.

Of course, this kind of complex instrument is not new, but these 'derivatives' are ever more sophisticated.   The only people who really know what has been created are often people who have the brains to be in that 'post calculus/post physics/post doctoral' category.  Add in our inept educational system, which 'socially promotes' and dumbs down even basic reading and math curricula - so that no kid feels 'dumb' when they don't understand something - and our current financial implosion is no surprise.  

We now understand that sophistication was not the only weapon used to confuse even highly educated and intelligent watchdogs.  The corporate tricks of transferring, blending and relabeling investment instruments and then doing this multiple times until nobody knew what to call them other than 'derivatives' has been in heavy play and a winning strategy. 

Beyond that, the corporate secrecy, set-ups of shell corporations under the home corporation umbrella, hiding of losses and a general desire to produce one set of books for the IRS and another for Wall Street encouraged misrepresentations, lies and deceit.  Hell, it made it imperative just to remain competitive and survive.  That, my friends, is where the real damage has been done,  to our collective, national integrity.  Not only can our enemies not trust us, but neither can our friends or our own citizens.  How sorry is that?

Okay, so these manipulators are guilty, guilty, guilty as charged and now all those profits that were privatized have flown to offshore bank accounts.   The  American taxpayer is going to be the recipient of the 'nationalized' aka socialized losses.  Funny how some of the other countries that we call our 'enemies' do it differently.  What they nationalize are the assets, national resources and the profits.   Hmmmmm... and we call them third world countries.  What exactly does that mean anyway?  Oh, right, if I am politically correct, I will call them developing countries.  I should probably be more sensitive as we may soon be categorized along with them if Americans don't take this seriously.  It only took England two world wars and 35 years to go from top global empire to second rate country.

So what was my own part in this as an American citizen?  I was not that different from anyone else, although I never did vote my pocketbook.  I have always believed that somebody has to pay the bills.  Perhaps it was that great tax revolt in California known simply as "Proposition 13" that kept me on the straight and narrow.  That one piece of voter-approved legislation put the brakes on every good public work we had while I lived there.   I did not own real estate at the time when the law passed, but I watched as my older, richer friends squealed with delight as their real estate taxes were pushed back to the late 1970's values and were restricted to a 1% increase as long as they (or a member their immediate family) owned the property. 
This resulted in a great inequity among taxpayers, of course.  Years later my neighbor would laughingly tell me that she paid only $257 a year in real estate taxes, while I paid $2800 for an equivalent home - only because I was a late arrival.  There is nothing like this type of extreme unfairness that makes a person want to revolt against the system, and that legislation was what many states emulated.  This blended into an ever-expanding negative view and resentment of paying medicare, social security and income taxes as well, as W-2 employees had no way to shelter their income although they were well aware of all the tax dodges the rich investors utilized and manipulated.

Many of us are in the position where our tax bite is high, even though many of us now have lower incomes barely able to survive, even in two-earner households.  This is a disgrace, actually, as the conservatives' assault on labor has been incredibly successful.  Unions are suspect, labor is intimidated with overseas workers being brought in (legally and illegally) or jobs exported, true inflation has eroded the average worker's disposable income to the point where most people in the US live a good portion of every year on credit.   Many of us have also let our safety nets go.  More and more people don't have health insurance, and life and even homeowners' insurance have become luxury items.

The cat has long been out of the bag but now the rest of us need to pull it together and stop panicking.  Register to vote and convince everyone you know to register to vote.  Work for the candidate you believe has the intelligence and strategies to return our country to middleclass values and control.  Let's find those S.O.B.s who stole from our pensions, federal treasury and our very own pockets and get some of that money back.  There has obviously been so much fraud that half the Wall Street and banking communities' head people should end up in court if not in jail.

It is not impossible for Americans to have great educational opportunities, adequate health care and access to it, strong infrastructure including bridges, planes and trains, government-sponsored safety nets and a reasonable tax burden to pay for it.  One no longer has to wonder where this particular group of "No Taxes" people originated.

These types of financial crises don't just happen.  They are the result of conniving, evil, greedy people who put their own investment needs and life portfolios way ahead of the rest of us.  If we want to know who really caused this we will get more than a hint by looking at a before-and-after-the-crash analysis of some of those Big Wigs' financial statements.  Being stupid is one thing, but being morally corrupt and using insider information to profit at the expense of others is another. 

In the meantime, we need to buck up and give it up.  Nobody in our generation will be able to retire until the markets recover and perhaps we almost deserve that.  We were stupid and greedy and put people into office who lied, cheated and stole from us.  Now we have to pay the piper too - even those of us who may have voted for Gore and Kerry but did not work hard enough to get them elected. 

I hope we don't make that same mistake again.  This time around, voting is not enough. 

  Here is a wonderful link to a Daily Kos article from September 21st, 2008: 

www.dailykos.com/storyonly/2008/9/21/9322/74248/245/602838