Monday, October 18, 2010

Where Housing Went Wrong

There’s a warning of an oncoming ‘tsunami’ of housing foreclosures. Banks are currently holding on to enormous numbers of ‘bad assets’ – namely foreclosed properties they confiscated when families couldn’t pay their mortgages. If and when the housing market turns the corner, and sales start to improve, the banks are expected to flood the market with hundreds of thousands of properties – glutting the market and sending housing prices spiraling downwards.

Much has been made and said (here as elsewhere) regarding the Community Investment Act. This boneheaded move by President Carter, advanced by Clinton, and spearheaded by Barney Frank placed the government in a fascist position of forcing banks to loan to unqualified buyers. The banks knew darn well the buyers couldn’t afford the houses they were buying, but were threatened with the wrath of the federal government if they (the banks) didn’t make the unsecured and unwise loans.

The argument then, and now, is that the Community Investment Act opened opportunities to lower income families and made the American Dream attainable to millions of Americans stuck in the dead-end of renting.

BUT there is a key aspect to this scenario that has been totally ignored. There WAS a program designed to do the very same thing… on that worked very well even BEFORE the Community Investment Act. HUD homes served the exact same purpose and worked very well. The way HUD homes used to work was this:

Let’s say someone bought a house for $200,000 but stopped making payments after $80,000. The bank foreclosed and turned the house over to HUD. HUD then put the house on the market for $120,000. The bank was happy; it made $80K. HUD was happy; it made $120K. The new buyer was happy; they got a $200K house for only $120K. A lower-income buyer was able to get a good house for an amount they could reasonably take on.

BUT THEN the government got greedy. (Aren't you shocked!!) They switched from trying to help citizens to trying to collect money. They decided, “Why make only $120K on a house worth $200K? Lets make as much money as we can!” So they switched from turning around houses and giving lower-income folks a chance at home ownership to soaking more cash from the citizens. They instituted a bidding format by which those wanting to buy HUD homes had to present sealed bids which would then be compared by a HUD board… the highest bid would win the house. WHEN THE GOVERNMENT ENDED THE OLD WAY OF GRANTING HUD HOMES, they created a “crises” - a ‘crisis’ they could then fly in and fix through more government intrusion by way of the Community Investment Act. There’s a part of me that thinks, “If they had just left things alone, then we wouldn’t have the problem in the first place.”

But then my Libertarian/Founding principles side kicks in and I ask, “Why does the government need to be involved in the first place?” Couldn’t banks just… on their own… decide to sell that house for the $120K that’s still owed? It would be like a transfer of a car when the owner just wants someone to assume the payments. The bank hasn’t lost any money, again someone has grasped the American Dream, and the bank isn’t holding a ‘bad asset.’ Best of all, the government doesn’t have its greedy paws on a private transaction.

It’s examples like this that show just how LITTLE we need the government, and furthermore how getting the fed involved will screw things up even worse than they were to begin with. When individuals (especially liberals and Progressives) say that Capitalism doesn’t work they don’t recognize that we haven’t had Capitalism in the United States since FDR and the New Deal! The fed has gotten its grubby paws on the free market and caused problems that weren’t there to begin with! The majority of banks and bankers in America are true Americans - like George Bailey (Jimmy Stewart) in It’s A Wonderful Life. It’s the GOVERNMENT that has more in common with Mr. Potter (Lionel Barrymore)! Do I think we should go back to a Capitalist free-for-all with limited rules and regulations? ABSOLUTELY! Contingent upon a return of morals, ethics, faith, and standards! We must reinstitute the number one regulator of free markets – the golden rule; treating others as you would have them treat you. Respect, shame, self-restraint, and yes – Christian attitudes – are the only thing that will make it work!

But it CAN work! It HAS worked! Before the Progressive Era of the early 20th Century, these were the ideals considered ‘commonplace’ throughout the country. ‘Progress’, ‘Change’, and ‘moving forward’ ARE NOT always a good thing – if that change and forward progressiveness takes you in the wrong direction!

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