Turn on any radio or TV station and you’ll be told that the current financial crisis will not clear itself until the housing crisis abates. Then, of course, there’s a cut to some damned, dumb story of some damned, dumb, high-profile moron who lets her boyfriend beat her up every three days, and if you’ve had some coffee, you might think, “Wait, what was that first story again?” Forget it.
Here’s what happened:
A) Housing prices skyrocketed earlier in this decade, irrationally. My own modest rowhouse in Philadelphia went for “selling purposes” from about $95,000 to a quarter of a million dollars. My wife, I, and even our young daughter knew this was preposterous. Nice to think about…but essentially crap. Way weird.
B) The MBA bright boys decided this was an opportunity, and began “bundling” mortgages of our house, our neighbor’s house, the local crack dealer’s house, and some several knuckleheads’ houses in Memphis, Fargo, and/or Boise into leveraged, “securitized derivitives,” which they then sold to the DUMBEST MAN ON EARTH, often a banker trying to make his books look good.
C) NO ONE EVER THOUGHT TO ACTUALLY LOOK AT HOUSES and decide what common sense said they were worth…
D) …let alone think about other knuckeheads deciding to buy houses – or, ha! second/investment houses they couldn’t afford EXCEPT FOR THE ASSUMPTION THAT HOUSING PRICES WOULD GO UP FOREVER.
So, here’s what you had: E) The generation of business geniuses that I went to school with decided that it was all worth the risk to sell the above referenced, ironically entitled “securitized derivitives,” after they’d been sliced and diced so thoroughly that no one could understand the products being sold, to THE ENTIRELY RETARDED BROTHERS OF THE BANKERS referenced above. Or, as I explained to a friend who has spent his life writing poetry, translating poetry, and actually doing honest work of various types in an e-mail, “[I]f if you leverage – businessese for ‘lie about’ – the value of a pile of mortgages, changing the value from ‘1’ to ‘2’ by selling it to somebody for twice its value because housing is appreciating, that’s one thing – that’s ordinary analysis and speculation, here on the part of the buyer at ‘2,’ principally; however, if you keep repeating this action, re-selling and re-selling leveraged paper until that ‘1’ becomes ’40,’ well, that’s “a big lie,” as the priest told Loretta in Moonstruck, and that’s where the house of cards collapses because housing can’t always go up. Of course, it takes a real moron to buy a pile of mortgages on, say, 100 rowhouses in East Falls [where I live] at a value of $100,000,000, which would make the ratio 1:4, or – 100 x (4 x the peak value of this house a couple of years ago). (It’s certainly not worth $250,000 now.) But this is the magnitude of the problem: There actually were idiots out there – lots of them – too stupid to say, “I don’t understand your contract,” or too stupid to say that 100 x Rick and Gayle’s house will never = ONE BILLION DOLLARS.” Seriously, that’s what this is all about, and it ain’t over.
Obama’s new, semi-helpful plan may get to the floaters – think people in the Atlantic when the Titanic went down. What do you call those flimsy round things you throw to floundering swimmers? Here we’re talking about those who will drown if their elevator mortgages actually activate (read, kick the monthly payments from $900 to $2200), but it doesn’t get to those who are already “underwater” (their houses are already worth, say, $75,000 less than the principal of their mortgages).
Sorry, welcome to The Second Great Depression…the banks aren’t lending, and probably haven’t even actually fired all the retarded (sorry, “mentally challenged”), and thus, about 600,000 people are losing their jobs every month.
Hope I’m missing something. If I’m not, you’d all better consider ultrashort ETFs, and buy some TUMS.
And maybe a gun.