July 31, 2008

Housing Woe Echoes

In September 2006, I wrote about why the housing bubble was such a bad deal for America. My conclusions seem more than apt today.

So how did it happen that so many Americans are at risk of losing their homes? It turns out that under Bush’s watch financial regulators changed the rules of what was considered acceptable business practice. Government regulations were rewritten to say it was okay for financial lenders to claim as revenue the amount of the highest payment option for the option ARMS even if the homeowner paid the lowest amount. The changes allowed mortgage holders to record huge profits on revenue that might never be realized. James Grant of Grant’s Interest Rate Observer wrote that the negative-amortization accounting is “frankly a fraudulent gambit. But what it lacks in morality, it compensates for in ingenuity.”

Because these loans were lucrative for the financial industry, mortgage brokers were commissioned to encourage them. And many, many people who would never have been eligible based on their income and credit-risk were given loans guaranteed to turn their dream home into a nightmarish debt trap.

The financial industry isn’t too worried about the bad loans, because they’ve already built into their calculations some hedges to cover for the riskiness of the loans. In fact, they believe the only ones left holding the bag will be the people who were not smart enough to read the fine print on their loans. And who cares about them?

This administration has been very upfront in saying that individuals should be responsible for their own lives and that it is not the job of the government to regulate industry to prevent these types of problems. They’ve also been very helpful in writing the rules so the financial industry can rake in profits while helping a great many Americans to put their homes at risk through these creative financial gimmicks.

When the Bush administration is long gone, the financial situation for many Americans will be dramatically poorer. Thus proving once again, ordinary Americans do not fare well under Republican administrations.

Two years ago, I really didn't understand how extensive or how bad things might get, but I was starting to see where real problems could start. Today, we are definitely experiencing the destructive forces set off by the naive belief that greed is good and we only have to watch out for ourselves. Perhaps in the visible failure of conservative ideology in action, we can regain a sense that we are in this boat together and if we work together, we can find solutions to our problems that work for more than just the lucky few.

Posted by Mary at July 31, 2008 02:29 AM | Economy | Technorati links |