WHY THE SUBPRIME CRASH DOESN’T SUCK

Posted: February 3, 2008 by dillion in Uncategorized

I am not an asshole.  I’m not mean.  I’m not a knee-jerk anti-establishment liberal, either.  I’m not saying the recent economic crisis is good because venture capitalists can easily buy low, especially real estate foreclosures (but stocks, too), and later will almost certainly make money off these investments.  I’m not saying it’s good because the banks deserved to lose money.  But I am saying there’s an up side.

Hear me out.

I’m personally affected by all of it.  I may lose my house.  From that perspective, it sucks and I hate it.  But from a global perspective, it may be just what we need.  Under Reagan and Bush I, America and Americans were the most powerful people in the world.  Under Clinton, we started to use that power on a global level, going on peacekeeping missions, increasing aid to foreign countries, and moving our own industries abroad at a staggering pace.  We lowered trade barriers, too, believing that we were invincible and none of this would ever end.  And banks started seeking out homeless people and offering them homes at subprime rates.  I say sought out because that’s not an exaggeration.  Banks and loan mercenaries actively sought out clients for these loans, both as re-fis and to first time homebuyers (i.e., homeless people).  Many (most) of these subprime loans were provided without documentation.  These “no-doc” loans basically meant that the homeless person could say, “Yes!  I make $200k a year!  Trust me!”  They didn’t have to sign an affidavit, either.  Because the loaners didn’t want to know the truth.  The entire premise here was that the loaner remain ignorant, and then cut the debt into pieces and export it.  That’s right, financial institutions across the planet now all owned slivers of the U.S. home market.

Now that it has finally crashed, our country will have to learn to be humble again.  We may not even be the number one economic power in the world, for at least a time.  $holders who made a bad business decision will be hurt, although not as much as the folks who owed them money, but at least they’ve been hurt enough to stop offering these ridiculous loans.  And a few of these folks are actually able to allow the foreclosure to occur and walk away with cash in pocket.  Their credit ratings are crap for about 7 years, but at least maybe they’ve got a nest egg to ride out that storm.

Overall, of course the crash sucks for now.  But it’s also an AFGO.  A Fucking Growth Opportunity.  Those who borrow have to recognize that the purpose of a loan is to make money (so if the loan looks too good to be true, and if the house looks like more than you can afford, it probably is).  And  those who lend have to go back to the roots of their profession: Yes, you can make money.  But the idea behind homeloans is not to be a shark; it’s to help people get a place to live.  It’s a helping profession.

And the rest of the world can now see that the U.S.A. is not an unstoppable juggernaut.  We’ve done nothing but lose for the last eight years.  We now have the chance to come out not swinging but being humble, with the spirit of true global unity and change.

Is there any chance we’ll learn, or are we just going to wind up the same old punch?

Comments
  1. Rick says:

    Everything you said is spot on.
    I’ve seen it. Lucky for me, I had a brutally honest
    Father who said flat out that I didn’t make enough
    no matter what the mortgage brokers said.
    Thank God I listened.
    I hope you look into every available option.
    Good luck.
    To answer your last question, no, we’ll never learn.
    Sadly.

  2. rex mundial says:

    I stop by pretty regularly and generally appreciate your write-ups but I gotta say this is pretty juvenile. First of all, we’re not just talking about a healthy adjustment in real estate prices and a series of contained foreclosures. The sub-prime loan debacle is likely to lead to a full-blown national recession where tons of people lose their jobs. The gloomiest estimates coming out of Yale suggest that if not properly managed this situation could lead to unemployment rates not seen since the 1970s. And like the 1970s we could see the re-emergence of stagflation. So the situation could well be bleaker and more wide-ranging than you let on. Second point: what makes you think that a nice economic setback will encourage us (the US) to approach the external world in a more benign fashion? That is generally not how things work. Domestic economic turbulence is very often associated with belligerent foreign policies. Look at Germany in the 1930s. Economic problems make it easy and tempting to blame “the other.” Consider which Americans that are most anti-immigrant (or bigoted in some instances). Generally, it’s people who are economically threatened by immigrants, people that have lost their jobs to people who’ll work for cheaper. Anyway, your analysis would do well to consider some of this. If there is drastic change in American foreign policy, it won’t be because we’ve been economically spanked, it’ll be because we get a more enlightened administration in the White House and one that is more competent to manage the looming economic crisis.

  3. ekko says:

    Actually, it doesn’t sound like any of the things you comment on are exclusive of my position that it is still possible to find silk in this sow’s ears. After all, the Great Depression led to some of the most courageous and inventive social programs in history, including food stamps and social security. The only thing I disagree with in your comment is that all this will “lead to recession.” We’re already there, buddy.

  4. Elfin says:

    I disagree with you too Ekko. But because these “poor” people should have known better than to buy more house than they can afford. They deserve what they get. Tehre is no recesion–the stock market rebounded almost imediately. A few people (less then 2%) are losing their homes. That’s hardly a national crisis.

  5. Dan says:

    Now I have to respond. Elfin, stop watching Fox and listening to Larry Kudlow. There is a recession right now and it is going to get worse. The market dropped yesterday – a lot – and it is going to keep happening. The reason given for this dip is a slowdown in the service market, but that is just cause this housing/banking problem has just rippled out to the service market. People are spending less in retail and restaurants etc. cause money is tight and fears are high. And people “deserve what they get”? Don’t be a dick. It is a little more complicated than that (but getting these Ayn Randers to understand something complicated is … complicated).
    And one of the reasons it is complicated brings me to Rick. I bought my house in 2005. You would not believe what these mortgage guys were telling me. No money down, no-doc, interest only, etc. One guy told me “you tell me what kind of house you want and I will structure a mortgage to get you in”. It sounded to good to be true, so I went with a traditional 30 year fixed. So I should be OK, and yes, Rick, thank God you listened to your sensible dad.
    But just because I was timid, I can understand why people jumped at these bad loans. Why would a mortgage broker or bank sell you something that could go wrong? These guys are licensed, right? They’re regulated, right? You can’t sell milk past a certain date. I am sure that financial institutions have worked out these loans so that everything is on the up and up. Hey, home prices will only go up, so you can not lose. Don’t take one of these loans and you are a sucker. Don’t you see all the people buying houses twice the size of yours? They don’t make any more money that you do!

    I have to agree with Ekko though. The US will probably increase some safety nets, tighten regulations and loosen the bankruptcy rules as a result. I don’t think we will lash out against immigrants. We are smart enough to know that jobs are going overseas, not being lost on our turf.

  6. ekko says:

    Thanks, Dan. You’re my hero.

  7. Dan says:

    Hero is my middle name. It’s Greek. It means “sandwich”.

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