I Kid

I’m reading about today’s Wall Street mess. I can’t believe it. Can someone help me understand how top investment professionals were stupid enough, en masse, to believe a housing bubble could go on forever, and how they could compound their stupidity by lending money to people who could not repay them?

I can’t figure it out. One thing no one seems to mention is the minority angle. The government pressured lenders to give money to minority borrowers, and lenders agreed, turning a blind eye to credit reports, and look what happened. Another victory for socialism. What a wonderful equal outcome. Minority members with low-paying jobs finally got houses just as nice as everyone else’s. And now they’re being thrown out of them, just in time to see Barack Obama lose the election. What a crappy year for them.

People say adjustable rates are the problem. That’s the PC thing to say. The reality is, a lot of borrowers never had a prayer in hell of paying, regardless of the interest rate.

Regarding the bubble thing, when are human beings going to learn that Ponzi schemes don’t work? That’s what this was. You buy a house. In six months, you sell it for 120% of what you paid. Six months later, the buyer sells it for 120% of what he paid. And so on. And so on. Eventually, somebody can’t pay! That’s just how math is. At the end of the day, houses are things people have to be able to afford. You can’t charge infinity for a house, no matter how long the mortgage runs.

A few years back, nice houses in this area sold for $250,000. At the peak of the bubble, they sold for maybe 900. What kind of fool could think that was going to last? A long time ago, my mother–a realtor–sold a house in this area to a firefighter. Can firefighters afford $900,000 houses? I don’t think so. The supply of expensive houses has expanded dramatically, and the supply of affordable houses has shriveled. And the supply of people who can buy expensive houses has declined. That is not a system at equilibrium.

Now even responsible people have to scramble. Got money in investment or savings accounts? Better make sure it’s insured. If not, you could lose a bunch of it. Got $200,000 in one bank? Only half of it is safe. Make sure you don’t lose it, because if Wall Street continues to falter, in a year, you might be able to buy four nice homes with it.

When I was in law school, I traded stocks. I knew there was a tech bubble. When the collapse started in earnest, I sold. I didn’t quite catch the peak. Other people laughed at me and said I should hold on. But I knew my stocks were overvalued, and I needed to pay my tuition. I got involved in the bubble, but I was too scared to be greedy. I think I took the right approach. I know people who came out of the tech crash with no retirement money. How could they let that happen? I’ll bet some of those same people just got caught flipping houses.

Actually, now that I think about it, I know two people who got caught with four expensive properties. I should have asked you all to do me a favor and say a prayer for them. They really need a solution. They’re wonderful people, but they can’t seem to get a handle on common sense. They should be enjoying retirement, but their lives are full of stress.

The Book of Proverbs says get rich quick schemes don’t work. It really says that. I’m paraphrasing, but it says that.

I have to tell you, when something this improbable happens, I tend to assume something supernatural is going on. This mistake was so obvious, and so many bright people made it, it can’t all be natural. Surely we are not that dumb. I recall a Biblical passage about God putting a hook in someone’s nose, to lure him into a difficult situation. I think that’s right; maybe some of you know what I’m talking about. I believe that still happens.

Sometimes I think we are headed for tough times, and God sent us John McCain so we would have someone mean enough and tough enough to watch over us. I think that’s how we ended up with George Bush. Imagine Gore, kowtowing and apologizing to the terrorists. We would have been vaporized.

I hope the worst of this mess is behind us. It would be fantastic to see all those new homeowners manage to stay where they are.