By Jim Donahue
The real problem with the housing bubble bursting back in ’08 was not necessarily because of people who did not qualify for a home loan in the “traditional manner” before they changed the rules for home loan qualification during the Clinton Administration. In my opinion, it was because of the unscrupulous lenders offering low teaser rates, which at some point become variable rates and consequently forced people who had gotten a home loan, when they really didn’t qualify, into paying double or triple or even more of what their mortgages were to start with. These lenders cannot hide behind the statement, “We didn’t know this would happen.” Road apples. They knew exactly what would happen. And then they bundled up these shaky mortgages with some good mortgages as first trust deeds and sold them off to companies like AIG. And they all knew what would happen eventually: the collapse of the housing market and their companies.
But they had no fear of the inevitable as these businessmen knew that our government had allowed them to get so big that their companies would be deemed “too big to be allowed to fail” by the government and would be bailed out at some point. And this did happen, but I think that the collapse was by design from the beginning. I will tell you why later on in this missive. I believe the $787 billion dollar stimulus plan shouldn’t have been given to those businesses in the manner it was.
But that is water under the bridge now. However, something similar can still be done to help people in need of foreclosure relief. First of all, change the home loan qualifying rules back to the Clinton era rules. Then modify them like this: Don’t let the mortgage lenders allow people who wouldn’t qualify under the traditional rules to have an adjustable rate mortgage. Make them take a fixed rate mortgage, and you’ll have to tweak those numbers to make them work. Then, all the people who have held on up until now will create some sort of a program that allows these people to refinance their home loans so that they can stay in their homes. This should stimulate home sales and move things along.
My other idea is a little easier to implement. If you notice, the stock market is back to its pre-recession numbers, but the economy hasn’t followed suit. “Why?” you ask. Consumer confidence, that’s why. But you know that already. Here’s why consumer confidence is low. Lots of people stay up on the goings on in Washington. We don’t have to worry about their confidence level although they are only a small portion of the populace. Then there are the two other groups of people in this country. Low income people who may be “ignorant” to the goings on of the politicians in Washington, and the very hardworking people in this country, who are too busy trying to raise their families properly — maybe working two jobs, etc.– and they have no free time to apprise themselves of the efforts of the elected officials in Washington.
These two groups of people, which make up 60 to 70 percent of the populace, have a somewhat blind allegiance to their politicians. Because they either have no time to pay attention, don’t understand or don’t want to understand the way things get accomplished in our government, they just say, for instance, “Well, we elected these people to govern us, and they were the best available people for the job, so they must know what they’re doing. If they can’t get it right, there must really be a problem.” That forces people into a very basic response. DON’T SPEND MONEY BECAUSE THERE MIGHT BE A BIGGER PROBLEM COMING DOWN THE ROAD. And this feeling is brought on by all the politicians in Washington playing partisan politics.
This type of behavior from our elected officials is very damaging to the overall psyche of the general public, and needs to stop immediately. When they see such blatant dissension in the ranks, they move on to that very basic response I spoke of. Let me give you an analogy. When you are a child (the populace) and every day when you come home from school (the economy), your parents (politicians) are fighting about the rent, the bills, the food budget (consumer confidence), and so on, it is very disheartening. As a result, it is very hard for a child to do well in school (the economy) if they have to worry about where they are going to sleep or eat that night. That forces them into that basic response I spoke of. But if the parents, for better or for worse, put up a united front and don’t argue in front of the kids, then the children do much better in school (the economy), and everything will hopefully get better (consumer confidence).
Republicans continually quote their hero, President Ronald Reagan, yet they don’t emulate him. He was a master at the art of compromise as he felt half a basket was better than no basket at all. So quit the partisan bickering, compromise a little, quit arguing in front of the kids, so to speak, and let’s get things back to normal. Or is that too simplistic? Remember, President Reagan stimulated the economy out of a recession in 1981 by giving everyone a 25 percent tax cut over 3 years. Give the people who spend the biggest percentage of their income every week more money to spend, and they will spend it. Quit trying to give millionaires more money, through tax breaks, that they may never spend. And then this country can get back to doing what it does best: being the best role model for freedom and democracy on the planet.
Or am I being too innocent and simplistic again?
I think not.