Thursday, September 25, 2008

Economic Meltdowns and the Real Story


This post will really rattle some cages.

Boortz, the author of the piece below, makes a lot of sense. He doesn't address larger issues such as American consumerism and coorporate irresponsibility. But in the narrow focus of it intent, the article is right on target.

The Rest of the Meltdown Story by Neal Boortz

What in the world is going on here?

You’ve seen the headlines, and you heard of the failures and buyouts. Lehman Brothers, Bear Stearns, Merrill Lynch, AIG; all big names and all in big trouble. Then those mysterious quasi-government agencies with names like Freddie and Fannie become wards of the state and you learn that you and your fellow taxpayers are potentially on the hook for tens of billions of dollars. At the end of the week Washington Mutual is looking for a buyer, and you start to wonder about the security of your own bank and your own savings account. Let’s change that ad copy to WaMu -- boo hoo.

Somewhere in the back of your mind you understand that this is all tied somehow to bad mortgages. If you start reading a bit further to enhance your understanding you run into terms like Mortgage Backed Securities (MBS) and credit-default swaps, whatever in the world those are. Read further and you find out that a combination of falling home prices and mortgage defaults have put many investment banks and other financial institutions in deep puddin’. All this reading, all this watching the talking heads on TV, and you still don’t really know what in the world is going on here.

Fear not. I’m here to help. I know … I’m just another talk show host; but the fact is that when the stage was being set for the problems we’re seeing today I was making most of my money as a real estate lawyer .. closing loans for some of the very institutions that are the tank today. This rather unique combination – closing lawyer and radio talk show host – gave me a front row seat to the politicization of mortgage loans that led us to today’s headlines.

OK .. so we all know that a lot of really bad real estate loans were made. The political class would sure love for us to believe that the blame here rests squarely on “greedy” (try to define that word) mortgage brokers and lenders. The truth is that most of the blame rests on political meddling in the credit decisions of these mortgage lenders.

Twenty years ago the buzz-word in the media was “redlining.” Newspapers across the country were filled with hard-hitting investigative reports about evil and racist mortgage lenders refusing to make real estate loans to various minorities and to applicants who lived in lower-income neighborhoods. There I was closing these loans in the afternoons, and in the mornings offering a counter-argument on the radio to these absurd “redlining” claims. Frankly, the claims that evil mortgage lenders were systematically denying loans to blacks and other minorities were a lot sexier on the radio than my claims that when credit histories, job stability, loan-to-value ratios and income levels were considered there was no evident racial discrimination.

Political correctness won the day. Washington made it clear to banks and other lending institutions that if they did not do something .. and fast .. to bring more minorities and low-income Americans into the world of home ownership there would be a heavy price to pay. Congress set up processes (Research the Community Redevelopment Act) whereby community activist groups and organizers could effectively stop a bank’s efforts to grow if that bank didn’t make loans to unqualified borrowers. Enter, stage left, the “subprime” mortgage. These lenders knew that a very high percentage of these loans would turn to garbage – but it was a price that had to be paid if the bank was to expand and grow. We should note that among the community groups browbeating banks into making these bad loans was an outfit called ACORN. There is one certain presidential candidate that did a lot of community organizing for ACORN. I won’t mention his name so as to avoid politicizing this column.

These garbage loans to unqualified borrowers were then bundled up and sold. The expectation was that the loans would be eventually paid off when rising home values led some borrowers to access their equity through re-financing and others to sell and move on up the ladder. Oops.

Right now this crisis is being sold to the American public by the left as evidence the failure of the free market and capitalism. Not so. What we’re seeing is the inevitable result of political interference in free market economics. Acme bank didn’t want to loan money to Joe Homebuyer because Joe had a spotty job history, owed too much money on his credit cards, and wasn’t all that good at making payments on time. The politicians told Acme Bank to figure out a way to make that loan, because, after all, Joe is a bona-fide minority-American, or forget about opening that new branch office on the Southside. The loan was made under politicial pressure; the loan, with millions like it, failed – and now we are left to enjoy today’s headlines. 

So … why aren’t you reading the whole story in the mainstream media? Come on, are you kidding me? Do you really expect the media to blame this mess on deadbeat borrowers and political interference in the free market when it is so easy to put the blame on greedy lenders and evil capitalists? Remember … there’s an election going on. One candidate is decidedly anti-capitalist. Do the math. 

About the author: 

Neal Boortz is a talk show host and columnist for Townhall.com as well as co-author of The FairTax Book. .  

7 comments:

clc said...

hmmm. are these really the only people defaulting on their loans? looking around my neck of the woods, it appears to be the white collar person who was promised a loan 7 times their salary to buy a mc mansion and then found that they couldn't pay it off. the foreclosures in upper-middle class neighborhoods is astounding. ed mcmahon had his house foreclosed upon for goodness sake! and i'm sure he wasn't part of the incentive for low-income americans.

i was alarmed when we were house hunting and were offered loans we clearly couldn't afford. my sister and her husband who have nearly 6 figure student loans were also offered $750K. they could only afford a house that was one third of that.

all that to say that this article seemed pretty narrow in scope and insight.

ChosenRebel said...

Don't forget my opening paragraph. I pointed out exactly what you did. The article doesn't address larger issues like American consumerism and corporate irresponsibility, but within the narrow confines of what Boortz is observing, there is good insight here. I hope your sister and her husband were wise enough to see through the irresponsibility of those larger loans. That is par tof the larger picture. So is the greed of the real-estate agent who wanted the larger commission on the pricier house.

This kind of irresposnibility is everywhere. Last year one of my son's buisness profs, (a business prof!) tried to talk him into the (sic) "wisdom" of taking out a student loan to buy a used car! So I guess I agree with half of what you said.

ChosenRebel said...

P.S. to the last comment. The McMansions that you referred to are one of the gross distortions of what it means to live biblically. They are monumnets to pride, excess, and gluttany.

Warriorrob said...

I am absolutely appalled by this man's statements and find it difficult to understand why such blatant hate based dialog would be a part of a Blog that I hold in such high esteem. This kind of ideology feeds the paranoid sense in the back of my mind that Minorities are thought of differently than WASPs no matter where you go and who you are talking to. I am an African American that has purchased three homes in my lifetime and has never missed a payment. I know numerous Minorities that are prosperous, credible, have integrity and did not need a hand up to obtain what they have. This crisis is the result of greed and the perpetrators were color blind. They would make a loan to anyone who had a heart beat. Instead of pointing to race or associating Obama's social work with the crisis, we need to make it plain. Everyone that had money was making money. All of the polititions and those that are suppose to be the guardians of our democracy knew that it was not right but they looked the other way. Now the Bird that they allowed to mature has returned to it's nest and layed an explosive egg. We need men and women of courage in public office that will truly live up to the high standards and morals that are expected of them. We need Christians that will not fall in to the traps of ignorant dialog like this gentlemen's and ask themselves..... How would Jesus respond to what I have just heard.

ChosenRebel said...

Rob,

Good to hear from you brother. Wow. That was a lot of heat!

You know me Rob and I hope you will give me the benefit of the doubt. I have said in previous blogs that I don’t always agree with the spirit or tenor of all the people I quote, but that at times I will post things from my reading that I think have some merit because they add to the dialogue something that I have not heard in the general warp and woof of daily news coverage.

It is unfortunate that in the sentence that Boortz talks about redlining and what happened 20 years ago he uses the phrase “blacks and other minorities.” If he had said “poorer black and white communities” perhaps his [I think] major point would not have gotten lost. I too know numerous minorities that are prosperous, credible, high integrity people (much greater integrity than the ‘guardians of our democracy’) who have worked hard to earn everything they have.

You are right, the politicians for the most part, the greed of the whole pipeline of people who wanted to make quick money, from buyers, to real-estate agents, to bankers, insurance companies, regulators and politicians, are all to blame for the current financial crisis. The consumer mentality, that more is better and the “got-to-have” drive for bigger and newer that drives the American consumer of every color, all have their part in the current crisis. And so do Christians, for failing to live sacrificial lives that demonstrate living not just within, but below their means, and preachers for failing to preach on greed and integrity.

All I wanted to added with the inclusion of Boortz voice was that the picture is far more complicated then the finger pointing I see going on in Washington and the national media right now. I recently heard Cookie Roberts say that she wishes all the guys on Wall Street should be paraded “up and down Wall Street in sack-cloth and ashes.” That’s not a bad idea. But the reality is that the whole nation should be so clothed and so chastened by the lack of blessing from God on our country in this time. We all ought to be, black and white, immigrant and native born, rich and poor, in the parade of sack-cloth and then on our knees in repentance to a God who cannot be pleased with our avarice and irresponsibility. It real amounts to idolatry.

Praying for you brother, in all of your ministry endeavors. May the peace of Christ be with you. I hope I have not permanently lost your high respect.

Warriorrob said...

Marty,

You will always have my respect and admiration. Through your ministry and knowing your heart has changed my life and left an indelible stain in my spirit. As with all information that we receive we must eat the meat and spit out the bone. He had a good point but he laced his message with his own personal bias. We cannot make an assumption that helping the poor led to this fiasco. If anything not helping the could have caused what we are experiencing.

Kimberly said...

I'll just tag on my personal experience about mortgage loans that one cannot afford... About 8 years ago when my husband and I were looking to buy a home, our mortgage broker (a Christian, mind you) assured us that we could afford a home twice as expensive as the one we finally purchased! In retrospect, the Good Lord is the one who saved us from a huge financial fiasco, because try as we might, we couldn't find a home in that price range because at that time they were flying off the market as fast as we could look at them. I am SO THANKFUL that we were spared that burden, and I am also SO THANKFUL that we will be able to keep our home because we can still make the payments. I can't imagine what kind of mess we'd be in if we had "taken the bait."