Tuesday Voice

Today's voice belongs to
Guest Columnist
Ed Rogers

The housing crash:
The secret everybody knew

In 1990—well, maybe a little before that—G.H. Bush was seen to be unbeatable. There wasn’t any big-name Democrat who would dare run against him. Then out of the backwoods of Arkansas came a little-known man by the name of Bill Clinton. No one gave him a chance, but he knew one thing that Bush with all his family money didn’t know; the American people were tried of doing without. We fell into a hole after Vietnam ended. There were not that many jobs and they didn’t pay worth a shit. And, we were not turned on by war Presidents. Then came the phrase: “It’s the economy stupid.” And, the colored girls went—hell yell!
    Moving ahead. It’s one thing to win the job—it’s a whole other thing to keep it. Clinton had run on the economy and now he had to put up. Along came Greenspan (head of The Fed and life-long Republican) and while it is unsure who came up with the plan (when it was working, everybody wanted credit—now the train is off the track, no one saw it coming) it was decided that the best way to bring the economy back was to follow the plan that had worked so well after WWII.
    After the war, the GI Bill came about; it allowed the soldiers to buy homes, with the government providing low-interest loans on the down payment. We today know this as a H.U.D. loan.
    People were put to work building all these homes and we became a Great Nation.
    As Greenspan and Clinton hatched this plan in the White House, they forgot that in 1945 the banks were controlled by strong laws which stopped them from being as stupid as they had been in 1929.
    Under Reagan these controls began to be removed. First came the Savings and Loan crash. These banks were set up to make low-interest loans on homes, and nothing else. They did a good job and after their fall, Freddie and Fanny replaced them. G.H. Bush’s eldest son helped take the controls off the S&L banks. This allowed them to play the stock market. They invested heavily in penny stocks, until they went bankrupt. Freddy and Fanny came about because there was no longer a place for the working people to go for a loan. However, the controls were never replaced. The Republicans hate controls—even now after all we have gone through—they still say that the market will take care of itself.
    Companies and businesses have controls on them because they cannot be trusted, it’s that simple. If this were not true; the controls would never have been placed on them to begin with. Anyone who looked at the S&L situation should have seen trouble coming for Freddy and Fanny.
    Backtracking a little, the one big thing that started the snowball rolling down the hill was when Greenspan lowered the interest rate to 6%. It had not been that low since the 50s. Under Bush we had, at one time, 19%, and just before Greenspan made it 6%, two days before it had been 8.5%. This started the race to the bottom.

In 1995 I noticed that there were no cheap homes being built, everything was selling for $150k and up. Young couples qualified to buy these homes because both were working and overtime was allowed to be counted. It didn’t take a genius to see they were one pay check away from losing their home, and that was before they even moved into it. The really bad loans had not started yet; there was one more door to open. The Republicans along with some Democrats passed a bill that allowed banks to cross state lines. Before, if you owned a bank in Tennessee, you had to get special approval from the government before you could open or buy another bank in Mississippi or any other state. This regulation also barred them from sharing debt. In other words, if you wanted to get into the Mississippi market you had to have a bank in Mississippi. And the debt of that bank stayed in Mississippi.
    After the bill passed, the larger banks began to buy up all the small banks, but only those with a lot of mortgage paper. I remember, out of the blue, some bank that had been doing very little business would suddenly start buying mortgages from brokers right and left. It was a sign they were wanting to sell out to a larger bank. I kept telling everybody back then that it was crazy to let the debt pile up in five or six banks. Even I could see that if one failed, they would all go down. We also talked about how there were people getting home loans who would never be able to afford to pay them off. But the mortgage brokers, the appraisers, the builders, the lawyers, and many others (like me) were making damn good money from these bad loans.
    Starting in 1990, I owned a carrier company and got in on the ground floor of moving mortgage papers from the banks, to the lawyers, to the brokers and mortgage companies, and back to the banks. When the rate dropped to 6% everybody refinanced, business boomed.
    The realtors and mortgage brokers (not all of them; I ran paper for a few—one mortgage broker and two realtors) who would tell people out-and-out lies to get their name on a piece of paper. They wouldn’t have done this if the banks were not buying up everything they could get their hands, no questions asked.
    We are living with the result of all that greed. At the time I didn’t—nor did anyone in the business—think it would last as long as it did. I know of no law that made these banks give those loans. There was never a need for a law; they were giving bonuses for the most paper that could be bought. Clinton and a lot of the Democrats drank the kool-aid and became free-market believers. Most of the big bills, which passed during his time in office, were bills the Republicans had been trying to get though for years. With the help of the Republicans and going against his own party, Bill Clinton gave us the World Trade Organization and NAFTA (North American Free Trade Agreement). He said the safeguards the Democrats wanted in those bills would be added later. They never were.
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Copyright © 2013 by Ed Rogers

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