Home Ownership: Those who are sinking and those who aren’t

We purchased our first home in 1993. We sold it nine years later and purchased the house we’re in now. We were lucky (thank goodness) to have purchased-sold-purchased at the right times. We were also cautious about what we believed we could afford.

All during these times, I was amazed at the houses other people where purchasing.  Huge houses- “McMansions”, if you will.  Houses in many cases that were way beyond the ability for people to afford.

And now that the bubble has popped, now that the housing market has crashed, many people are of a mindset of, “Well, that’s the bed they made.  Let them sleep in it.”

That’s an overly simple and I daresay selfish way to view it.  It ignores ignores the collateral damage of what happened.  It’s a small step away from a “Let’s punish them!” mentality.

Always a heartbreak

The issue isn’t only a matter of personal responsibility. Neither is it just an issue of business ethics where loan officers were transformed, thanks to the repeal of many Glass-Steagall provisions, into the mindset of the lowliest caricature of a car salesman, pushing loans on people who did or didn’t don’t know better.

The problem is, when such things happen, we are *all* damaged. When banks run amok, and people act irresponsibly, their actions aren’t confined to their circles.   The ruin spreads to people who haven’t done anything inappropriate. It spreads to the children of those families who purchased homes much too big for them. It spreads to a general collapse in land values that affect jobs and the economy as a whole. People who were cautious and frugal get swept up in the tidal wave of the collapse.

It’s hard to believe for some, but the “9/11” crises that seared and traumatized the Great Depression generation was the banking collapse caused by rampant market speculation. Speculators didn’t just hurt themselves in those days, they damaged everybody. People don’t know it as much today, but when FDR uttered his famous, “the only thing we have to fear is fear itself” line, people weren’t listening that much to him. Rather, they were anxiously watching to see what was happening with the banking collapse- to their money. This was a time when Hoover placed machine gun emplacements on top of federal buildings -and ringed some of them in barbed wire!- for fear of the populace rushing the capital in their desperation.

We can say, today, of people who irresponsibly went way over the heads in real estate, and with perhaps a bit of self-satisfaction, “Screw’em. They got themselves into this mess. Let them wait until it fixes itself.”  The emotions that bring on those statements may be valid.   But is it true for the children who lose their homes? Is it true for the innocents who were swept up in this, unfairly losing their homes, too, or losing their livelihoods?

The problem with confining oneself to that attitude is that it throws the baby out with the bathwater. It forces the innocents who were caught in this wave (to mix metaphors) to endure the deprivations of the mess. It ignores that we live in communities that seek to raise and protect all of us.  As members of  our community, we *must* act to protect the innocents, if we can. Otherwise, we are turning our backs on what it means to be human.

The present housing crises is the worst ever. Worse, even, than the housing crises of the Great Depression.

FDR faced not identical, but not dissimilar issues with a real estate collapse.   He and others responded with healing, not punishment.  During the Great Depression, people were losing their homes in droves. Home ownership was down to about 40% of the population (I believe it’s hovered around 60% in recent decades). Back then, lenders could call in the full amounts of their loans arbitrarily- and because of the economy and their shortage of cash, they did! Lenders could suddenly up their rates arbitrarily- and they did!   Banks could suddenly demand half the value of the home in cash, or they’ll foreclose- and they did!  Like I said, the banking collapse was that generation’s 9/11.  It’s not remembered as much because a dozen or so years later Peal Harbor came along, blocking out the memory of the earlier national trauma.

The first step that balanced such rampant issues was 1932’s Glass-Steagall Act. Among other things, it created a “wall of separation” between investment banking and commercial, deposit-taking banks. Depositors’ monies were insulated from rampant speculation. It kept banks from getting too complex, from making them “too big to fail”, from making investments/speculations and deposited monies from being too intermixed and tangled.  And it worked.  It worked, that is, until Phil Gramm pushed through the repeal of these provisions in 1999.

FDR’s second step was the establishment of the Federal Housing Authority in 1934. No more could lenders arbitrarily and immediately call in the balance of their loans.  For the first time, really, people could transact 30 year fixed mortgages, which in many cases could be more expensive than ARMS, but lent a huge stability to the market.   The FHA operated solely on self-generated income via mandatory mortgage insurance- not a penny of taxpayer monies were spent on this agency.   The last 30 year mortgage offered to people who were part of the original FHA program was paid off in the mid 1960s. The result: A huge pillar supporting middle class wealth via land ownership.

That pillar that so much of our common wealth depends on is cracking thanks to the largest bust of a real estate bubble in history. Shall we simply say, “Well they brought it on themselves!”, while their damage continues to spread to innocents?      Shall we sacrifice our future so that we can stand up with stiff necks, cross our arms, hold up our heads, and say to those whose profligacy wounded us all, “See, I told you so!”

If that’s what you think, that to punish the foolish we must ignore the harm to the innocent, nonexistent readers who never read my invisible blog, I suggest you read God’s conversation with Lot at Genesis 18: 22-33.

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About zghortaman
Attempting to navigate the modern day with every tool available

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