They Said It Better Than I Ever Could...

These words that I write, they keep me from total insanity. -Charles Bukowski

Who is the happier man, he who has braved the storm of life and lived, or he who has stayed securely on shore and merely existed? -Dr. Hunter S. Thompson

Nov 29, 2009

Lets Talk About Loans...

So in my continuing effort to be topical in what I write I've been reading a lot of the news lately. Which is depressing. But I ignored most, if not all of it for so long while I was overseas I think its something that I need to do.

Here is what I read today GROWING FORECLOSURE CRISIS

Okay, so let's take stock of this whole thing. Basically, it comes down to what I would call shoddy loan officers giving money to people who had no business borrowing it in the first place.

Now, I'm not an economist and I don't claim to know a whole helluva lot about mortgages and loans and the monetary system. I know very little. Really, the only thing I know is that you work, you earn, you save, you buy. That's all I've got.

But the shit that these loan companies came up with seem to have removed those middle two steps. I mean there were actually loans out there that didn't require verification of your income! Who the fuck actually thought that was okay? And who the fuck thinks that something like that should be legal?

Taking out a loan without having to cough up your last two pay stubs would be a bit of a red flag to me. I don't know why people thought this was acceptable.

But it does increase the pool of potential buyers, which increases competition for housing, which given that housing and land (God isn't making any more of it) is a fairly stable (supply wise) commodity, prices are driven up. Well, its an artificial driving up of prices because a good percentage of these assholes can't afford the properties they are bidding on anyway.

I am by nature a simple person. Not intellectually, but my way of thinking says that the more complicated something is, the less likely it is to work. Mortgages and loans are no exception. You find out how much money a person makes. You find out how much they owe to other people. You subtract that from their income. You come up with a number. From that number you subtract the normal monthly living expenses for a family of their size. You come up with the amount of money they are making per month after all expenses. You decide, based on that number if they can afford the loan you are thinking of giving them.

But thinking like that would not have kept the pool of potential buyers large enough for the monolith mortgage banks that were operating at the time. Can't let that happen, if those banks fail who will make all those huge political campaign contributions?

Its very simple to figure out. When I was in college I worked as a bartender in an American Legion. Great job, being a combat vet in that place pretty much put me on par with a buxom, 22-year old blond as far as tips go. So while I was working there and this whole housing crash was going on, we got to talking about it. I asked a few of these guys who are for the most part older gentlemen. Most of whom bought their first homes around the late 1960's and early 1970's.

So I asked a few of them how much their houses cost at the time. The standard or average answer was somewhere around $35,000. At the time that was the going price for a starter home around here. I mean some guys bought places that cost around $50,000 some guys went as low as $19,000. But the average was around $35,000. So then the next question I asked was how much money did they make at the time. The usual answer was about $17-20K per year.

Or then there's the case of my mother and father who bought the house I grew up in for $47,500. And between the two of them at the time they were making $45,000 per year and put $20,000 down.

Why am I throwing all these numbers at you? To show you that everyone, lenders and borrowers alike were more responsible at the time. Its a simple matter of ratios. On average in the very scientific study of real estate at the time. You had to make around 50% of what your house was worth back then in order to qualify for a loan. Maybe that's not true, but from those people that I was able to talk to they made roughly 50% of what their houses were worth in a year. Which, if you did the math would make for a very manageable mortgage payment. It would make for a family that would have little to no trouble living comfortably in a home for 40-50 years. Having a paid off home and 20 or so years of continuous saving so that when mommy and daddy kicked off they were able to leave a little something behind so that junior could get a jump on his life, or he could get a nice shot in the arm on the life he was already in.

Lenders must have made sure that people could afford the loans they were taking out. And borrowers must have made sure that they were on good financial footing in order to take out the loans. Honesty, from both ends. Recipe for success if you ask me, for the lenders and the borrowers. The lenders make money with the borrowers paying their mortgages on time every month. Then the borrowers make money as their homes GRADUALLY rise in value and the principal on the loans is slowly paid off over the course of 30 years.

It was a perfect example of what a particularly gruff E-7 once called the "grind it out" system. He told me that anything, anything at all that comes quickly isn't going to last and probably isn't worth shit. If you lose weight fast, you'll gain it back faster. If your money comes fast and easy, you'll spend it faster and easier. Any woman that comes fast and easy, isn't worth the time or the expense. Everything, marriage, work, money, fitness it all has to be grinded out. It takes time. In the case of what we're talking about 30 years.

Well, that's not good enough for the American lending system anymore. They want it fast. They want a large pool of potential buyers. They want money to flow like a river. They want housing prices to soar. They want it all, and they want it now. (Ode de Queen)

And now we see where that got us.

Second half of this. My critique of the government bailout of the mortgage industry.

Here is the first point. READ THIS

Government bailouts already total enough money to pay off 90% of mortgages in the United States. So you knock out the mortgages of the top 10% of the wealthiest people in the US and you've got who you should pay.

Now, admittedly, I haven't thought this completely through. But wouldn't it be better for the government to pay off all the loans of the bottom 90% of wage earners in the US.

Okay, so the bailouts secured jobs and kept companies afloat so they could keep paying their employees and all that. But wouldn't 90% of the American public being free of mortgage payments stimulate the living shit out of the economy?

I always hear on the news that consumer spending is the engine that drives the economy. When people have money, they spend it, which creates jobs. Okay, so the government pays off all those mortgages. Next thing you know the US economy is flush with cash because no one has to pay a mortgage anymore. Now they can buy new cars, put up a fence, put in a pool, buy some new toys, put in new carpet, finish the basement, and la di da di da.

Its a thought. One that will never come true because it is just too damn simple. Pay off the nations mortgages and the people will have money to spend...and they will. Spending by consumers generates new jobs. New jobs generate more employed workers spending money. Which equals more tax revenue for the government. It all works out in the big circle of life I think.

Why wouldn't they do something like that? Its too simple, too transparent, and if something is simple and transparent the government's corporate masters can't steal all of it as its filtering through the mountain of government bureaucracy that it will inevitably have to go through.

They would never do something like that because a plan like that would be good for all. Not only good for them.



I love you Mom...


  1. MP,

    I would say you hit the nail on the head with that post.


  2. I'm no economist, but my son and husband are - I try to follow their talk. Didn't Congress pass some sort of bill back in Clinton's day to encourage loan companies to give loans - even to people who hardly qualify for them? And then the banks got greedy trading paper/loans and making money off their trades? All of this created the bubble that burst. Yep, it is depressing, but there are those things worth working/fighting for. Although may time time to aquire, we continue the pursuit of life, liberty and happiness. Thanks for your part in that.

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