Thirty years ago, a certain house sold for 20-grand. Today that same house sells for 300,000. This is voodoo valuation, and I shall outline, chronologically, how it works.
Let’s say in your neighborhood there are 100 houses, remarkably similar to each other. You all buy those houses for the prevailing rate at the time, let’s say, for fifty-grand. Now, three years later, four of you put your house up for sale. Who do you call? The real estate broker. They come out, scratch their ass, take a picture, do some of their calculator fueled math, and tell you to list for $100,000. Why? Well, the more money, the more commission, and don’t they deserve 15% for taking a picture? And in order to get you some scratch and pay their commission, well, it’s gotta go for $100,000. Now, the halfwit, crooked mortgage broker pays out some kickback to the loan officer, who amazingly, for no discernible reason backed by any sound economic formula, loans that $100,000 to some clueless buyer.
Guess what. Now all 100 houses are worth $100,000. Ain’t voodoo grand!
Now, the tax assessor gets off their lard ass and starts slobbering, rubbing their nether regions because they can raise your real estate tax assessment. And once that $100,000. gets on the tax books, well—that freaking house is worth $100,000.
So, essentially, a trifecta of clueless buyers, worthless realtors, and greedy money brokers can inflate the home values in a neighborhood almost effortlessly. And everyone wins!!!
Well, not everyone. The buyer got cornholed. ‘But’, you say, ‘that’s free market at work’. To which I reply, ‘No, you’re laboring under a misapprehension’. The buyer may need a house because they work there, or they were raised there, or their elderly parents live there, or they just love the place. So they don’t really have a choice. They call the real estate broker, and guess what? The price went up again. And guess what, all 100 of those houses are going to sell for the same amount—or higher, because they all use a broker, and the brokers all cross-pollinate information. And no home owner is going to sell their house for less than what the neighbor got.
So it’s not free market setting the price of a home, it’s a combination of a realtor’s optimistic grab at ever greater commissions, the mortgage broker’s greed and willingness to bribe lending institutions, and the tax assessor’s immediate stamp of legitimacy via the real estate tax rolls. So if you want to live there, if you need to live there, you ain’t getting a deal because the fix is in.
And no, it’s not ‘supply and demand’ either. Because, just as the houses are now selling for some ridiculous price, the new houses will sell for that much too. What it costs to build one makes no difference. Drive through your town, find the biggest house. The gaudiest spread, and flip a coin, heads a builder lives there, tails, a builder lives there.
The cost of a new home has zero to do with what it actually costs to build the home. I know, I have built some. Builders as a group, are some of the sorriest, greedy scumbags in existence. Most have never struck a nail. Couldn’t build a shelf if you stood over them with a loaded nail gun. I apologize if you are one of the small percentage of decent builders, and if you aren’t, come see me and I’ll show how I drive roofing nails with my hand.
Anyway, let’s move forward to the roaring 2000’s. Now the mortgage brokers have not only increased their greed, but they’ve multiplied, by the thousands, and they’ve become predatory.
What word better describes the new trend of lending more than 100% of the homes already inflated value. That’s predatory. The buyer is in the hole right out of the gate. In fact, that practice is so astoundingly crooked, I can’t spend any more time on it, or I’ll go out and kick the shit out of somebody wearing a suit.
So now, today, we have those same 100 homes mentioned earlier, selling for 400,000…for no logical reason at all. Of course it’s good to see your home increase in value, but not increase beyond any sensible formula. I mean, that could cause a collapse and ultimate devastating devaluation.
Clinton, presiding over the greatest economic boom since, I don’t know, the invention of the car, the computer boom, fell under the ‘I’d like to buy the world a Coke’ spell and forced Fannie and Freddie to lend, well, pretty much anybody money for a home mortgage. Hell, the values are rising every hour, can’t lose! If you have to repo, heck, you can sell it for more!!!
Well, it turns out you can lose. When you systematically drain all the manufacturing jobs out of the country, import everything, create only low-wage jobs in the service and retail sector, allow massive inflow of desperate immigrants, drive wages down in the trades sector, and begin to implement the outsourcing of every other job, suddenly the peeps with the inflated mortgages can’t make the payments—because they don’t have a job.
But don’t let that stop ya, keep selling. In fact, sell faster.
Until today, where they call all these loans ‘toxic’. It’s a crisis. What a load of crap.
This entire escapade has been a formula on how to destabilize and destroy an entire class of people through shortsighted greed.
Here’s an excerpt from an article in the September 30, 1999 New York Times business section, a worthless, socialist fishwrapper, but a broken clock is right twice a day.
Fannie Mae Eases Credit To Aid Mortgage Lending
By STEVEN A. HOLMES
Published: September 30, 1999
Fannie Mae, the nation’s biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.
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In addition, banks, thrift institutions, and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings, and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates — anywhere from three to four percentage points higher than conventional loans.
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In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980’s.
”From the perspective of many people, including me, this is another thrift industry growing up around us,” said Peter Wallison a resident fellow at the American Enterprise Institute. ”If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.”
THAT’S FROM 1999 ISSSUE OF THE NEW YORK TIMES! You see, they knew this would happen. Now it’s a crisis?
The banks didn’t help themselves either. Especially the huge ones. They just went on a buying spree. How frequently did your bank change its name in the last ten years? Mine did three times. Grow, grow, grow. The big banks gobbled up every little bank they could find. And now they’re screwed. And we’re supposed to help them?
Do you know how a bank works? Here, let me try a simple explanation. I have one dollar in my pocket. You ask to borrow it and promise to pay me three dollars. I give you the dollar, and I write this down in black ink. I’m now worth three dollars. Someone else comes in and asks for a line of credit for three dollars and promises to pay back nine dollars. Sure, I say. Now I’m worth nine dollars! Next it’s a promise to pay back 27 dollars in exchange for the nine dollars credit. I’m in tall cotton, and I ain’t got a nickle in my pocket.
That’s how a bank works. And a big bank, well, they do it bigger. Billions bigger.
Now, let’s say you have a bunch of addle pated Mr. Magoos running the government, people who’ve been in their power positions so long that their lips are permanently puckered into a government teat suckling pose, and the only thing they worried about was continued contact with that teat. So they follow a leader who is, well, the opposite of intellectual. Someone who struggles delivering a cogent sentence. And that person decides that the dollar should be the de facto currency of the entire world, and hegemony is just a few skirmishes away, and suddenly—the other countries revolt. “We ain’t investing in your crap no more. We got our own money, and we think it’s just as good as yours.”
Now if you’re a bank, you’ve got a crisis. You’ve loaned out way more than you can ever collect. Because, you loaned it at greater than the value of the assets tethered to it.
Nice work, fellows. Enjoy your millions.
You want some investment advice. Look at a company as though it is a pyramid. On the bottom, you have a solid foundation of workers, producing, carrying easily the tapering channel of less productive ‘management’. That company has legs.
But, when the pyramid inverts, when the top is bloated with executives, and managers, and grand poohbahs who produce nothing. When the foundation is a tiny fraction struggling beneath the weight of nonproductive upper echelons—that company’s about to fall.
How do we fix it? We bar lawyers and the wealthy from holding public office.
Lawyers are trained to look for a loophole by which they can screw you. It’s their nature. Nothing is ever simple when a lawyer is involved.
Wealthy are hooked on the game. Get more, get more, get more. It’s a disease, like alcoholism.
There is nothing wrong with getting rich. Getting 20 million for sitting on your aerobicized ass. But really, treat it like what it really is. Like you were sitting on a bench, and someone walked by, dropped a hundred dollar bill on the ground at your feet, you snagged it quickly, stuck it in your pocket and curled inward waiting to see whether anyone noticed. Go into a corner and enjoy your money. But, SHUT THE FUCK UP! No one wants to hear about it. The natural affinity for amassing wealth from the efforts of others is not a prima facie evidence of superior leadership abilities, superior intelligence, or superior logic.
