Saturday Dec. 27, 2008
Posted by David Rothenberg on Friday, January 9, 2009
I’m going to bypass the traditional end of year wrap-up which every radio station and television show host feels compelled to share. After saying it was the best of times – Obama’s election…it was the worst of times – Bush’s continued incumbency, what is there to say about the past year that hasn’t been said?
I want to move on to the economy. As Nixon used to say, let me make it perfectly clear…I am not an economist. In fact, just the opposite if there is such a description. I am truly in the dark about how Wall Street works and what makes the economy good or bad. The only comforting realization is that people who work in Wall Street also seem clueless.
I was impressed with the lengthy and riveting report in last Sunday’s New York Times, compiled by Jo Becker, Sheryl Gay Stolberg and Stephen Labaton with a headline “White House Philosophy Stoked Mortgage Bonfires.”
Let me put my response in first person terms. During the Reagan years, New York apartments started going from rentals to co-op and I was baffled by it. I was perfectly content in my large Village apartment at an affordable rent when we were told that buying was voted in. I was given an insider’s price…which I was informed was quite generous in that market. But I didn’t have the money or inclination to buy. I was so naïve that I didn’t know that you did not have to pay off all at once. I was introduced to a plan for a down payment and having a mortgage to pay… along with a monthly maintenance fee. To keep the apartment, I got a small loan, just like all the folks you are reading about today. The mortgage remained stable but the maintenance fee was escalating much faster than any rent stabilization would have allowed. It reached the point that when I was ready to retire I couldn’t consider it because my monthly cost-mortgage and maintenance was 400% higher than a decade earlier.
My friend and lawyer guided me. He instructed me to sell my apartment, the one that I thought I would live in for the rest of my life…and buy a much smaller apartment outright. That meant no mortgage payments and a much smaller maintenance fee each month. It allowed me to go into semi retirement. Buying was not a financial advantage for me. It might have been great for some other tenants, a few bought 4 or 5 apartments at an insider’s price and then flipped them for a profit. It was a money maker for people into real estate maneuvering but not much good for people who wanted to live and be able to afford where they resided.
When I read the Times article things became clearer for me and I better understood what many people are going through. Apparently George Bush – early in his Presidency – went on a campaign exemplified by his statement “Part of economic security is owning your own home.” Fannie Mae and Freddie Mac were giving loans to many people who couldn’t afford to buy but were sold on the idea that the American dream was theirs. I had been dreaming happily as a renter…not having to pay for every repair in my apartment. But the terrain was changing drastically in real estate.
The Times' article tells us that a man named Armando Falcon Jr., a Clinton appointed Texan, who ran the Office of Federal Housing Enterprise Oversight, filed a report on Fannie and Freddie in 2003, warning that the pillars could crumble. Falcon’s report outlined a worst case scenario in which Freddie and Fannie could default on debts, setting off “contagious illiquidity in the market”…alas, a financial disaster.
The day after Falcon filed his report the White House attempted to fire him… and replace him with Mark Brickell…a leader in that industry Falcon attempted to tackle. When Freddie Mac became involved in an accounting scandal, Falcon’s firing was postponed. He was eventually replaced by James Lockhart, an Andover classmate of President Bush and a former deputy commissioner of the Social Security administration which Bush had tried to privatize.
The Times' report disclosed that under Lockhart’s watch “both Freddie and Fannie had plunged into the riskiest part of the market” and Lockhart’s office planned to lift restraints on the companies’ huge portfolios, a decision objected to by former White House and Treasury officials who had worked hard to limit them.
We also learn that Rahm Emanuel, now President-elect Obama’s Chief of Staff, who was then an Illinois Congressman, warned the White House that it was not doing enough. He told the President and Treasury secretary Henry Paulson that the credit crisis would get deep and serious and the only answer was big, internationally-coordinated government intervention.
Bush’s response was to develop a stimulus package that sent taxpayers a rebate, a check that you might have received before a midterm election.
Bush’s philosophy was Americans had to own a home…and then he set up a program with no oversight or regulation…a combination that led to an economic policy with an 18th century philosophy. He was surrounded by pigs that gobbled up fast profits with little concern about the state of the nation. Some of the companies that received bailouts are still giving end of year bonuses as high as 4 million to executives who have failed miserably.
As I said, I don’t know much about economics but I do recognize incompetence. Quite frankly, I have never understood why so many obscenely wealthy people go to such lengths to get tax abatements …to avoid paying their fair share of taxes. Wouldn’t you think that they would want to support the country which gave them such opportunities and wealth? Taxes go to roads and highways, police and fire departments, libraries and the army, tunnels, schools and the Navy and Air Force…part of the American tapestry from which they benefit.
So I guess I have a lot to learn about economics. But so does George Bush.
I’m David Rothenberg…out on a limb.
I want to move on to the economy. As Nixon used to say, let me make it perfectly clear…I am not an economist. In fact, just the opposite if there is such a description. I am truly in the dark about how Wall Street works and what makes the economy good or bad. The only comforting realization is that people who work in Wall Street also seem clueless.
I was impressed with the lengthy and riveting report in last Sunday’s New York Times, compiled by Jo Becker, Sheryl Gay Stolberg and Stephen Labaton with a headline “White House Philosophy Stoked Mortgage Bonfires.”
Let me put my response in first person terms. During the Reagan years, New York apartments started going from rentals to co-op and I was baffled by it. I was perfectly content in my large Village apartment at an affordable rent when we were told that buying was voted in. I was given an insider’s price…which I was informed was quite generous in that market. But I didn’t have the money or inclination to buy. I was so naïve that I didn’t know that you did not have to pay off all at once. I was introduced to a plan for a down payment and having a mortgage to pay… along with a monthly maintenance fee. To keep the apartment, I got a small loan, just like all the folks you are reading about today. The mortgage remained stable but the maintenance fee was escalating much faster than any rent stabilization would have allowed. It reached the point that when I was ready to retire I couldn’t consider it because my monthly cost-mortgage and maintenance was 400% higher than a decade earlier.
My friend and lawyer guided me. He instructed me to sell my apartment, the one that I thought I would live in for the rest of my life…and buy a much smaller apartment outright. That meant no mortgage payments and a much smaller maintenance fee each month. It allowed me to go into semi retirement. Buying was not a financial advantage for me. It might have been great for some other tenants, a few bought 4 or 5 apartments at an insider’s price and then flipped them for a profit. It was a money maker for people into real estate maneuvering but not much good for people who wanted to live and be able to afford where they resided.
When I read the Times article things became clearer for me and I better understood what many people are going through. Apparently George Bush – early in his Presidency – went on a campaign exemplified by his statement “Part of economic security is owning your own home.” Fannie Mae and Freddie Mac were giving loans to many people who couldn’t afford to buy but were sold on the idea that the American dream was theirs. I had been dreaming happily as a renter…not having to pay for every repair in my apartment. But the terrain was changing drastically in real estate.
The Times' article tells us that a man named Armando Falcon Jr., a Clinton appointed Texan, who ran the Office of Federal Housing Enterprise Oversight, filed a report on Fannie and Freddie in 2003, warning that the pillars could crumble. Falcon’s report outlined a worst case scenario in which Freddie and Fannie could default on debts, setting off “contagious illiquidity in the market”…alas, a financial disaster.
The day after Falcon filed his report the White House attempted to fire him… and replace him with Mark Brickell…a leader in that industry Falcon attempted to tackle. When Freddie Mac became involved in an accounting scandal, Falcon’s firing was postponed. He was eventually replaced by James Lockhart, an Andover classmate of President Bush and a former deputy commissioner of the Social Security administration which Bush had tried to privatize.
The Times' report disclosed that under Lockhart’s watch “both Freddie and Fannie had plunged into the riskiest part of the market” and Lockhart’s office planned to lift restraints on the companies’ huge portfolios, a decision objected to by former White House and Treasury officials who had worked hard to limit them.
We also learn that Rahm Emanuel, now President-elect Obama’s Chief of Staff, who was then an Illinois Congressman, warned the White House that it was not doing enough. He told the President and Treasury secretary Henry Paulson that the credit crisis would get deep and serious and the only answer was big, internationally-coordinated government intervention.
Bush’s response was to develop a stimulus package that sent taxpayers a rebate, a check that you might have received before a midterm election.
Bush’s philosophy was Americans had to own a home…and then he set up a program with no oversight or regulation…a combination that led to an economic policy with an 18th century philosophy. He was surrounded by pigs that gobbled up fast profits with little concern about the state of the nation. Some of the companies that received bailouts are still giving end of year bonuses as high as 4 million to executives who have failed miserably.
As I said, I don’t know much about economics but I do recognize incompetence. Quite frankly, I have never understood why so many obscenely wealthy people go to such lengths to get tax abatements …to avoid paying their fair share of taxes. Wouldn’t you think that they would want to support the country which gave them such opportunities and wealth? Taxes go to roads and highways, police and fire departments, libraries and the army, tunnels, schools and the Navy and Air Force…part of the American tapestry from which they benefit.
So I guess I have a lot to learn about economics. But so does George Bush.
I’m David Rothenberg…out on a limb.
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