“Skin In The Game”

by James Stefanile, ABR, GRI, SRES, QSC, gCertified, REALTOR/Salesperson, Berkshire Hathaway Home Services New Jersey Properties, Montclair Office

The Weasels of Wall Street have done it again.  That’s my stereotyping catch-all description of the financial industry, particularly, the banking industry.

You think that’s too broad?  That I’m tarring an entire industry with the same, heavy brush?  It reminds me of when Zero Mostel (in the original movie of “The Producers” – the non-musical one) is told he can’t shoot the actors in his show because “the actors are people.”  “Oh, yeah?” he barks, “D’ja ever eat with one?”

I think our friends in banking and money lending have, once again, attacked the buffet table of our patience.  They’re cutting into the line and scarfing up all the good stuff and the rest of us be damned.

Now that I’ve stretched that metaphor to its breaking point let me tell you what’s got me so amped up that I’m publishing 2 posts in the same month.

In December of 2013 I published a post called “Greed, Risk and the Pope”  (click on the title to read the post).  In that post I discussed the part of the Dodd–Frank Wall Street Reform and Consumer Protection Act which mandated that mortgage lenders retain some risk when they securitized and sold bundled mortgages.

After 4 years of wrangling the regulators who establish the details of this law announced, this week, that there would, essentially be no risk retention for mortgage lenders. Here’s a link to an article in The New York Times Business Section on October 23rd:

http://nyti.ms/1D2DEi7

What happened?  As the article points out, and as my December 2013 post predicted, there was intense pressure on regulators from an odd coalition of interest groups to water down the effect of the law.  Banking associations, builders, consumer groups and, wait for it….The National Association of REALTORS brought enormous lobbying efforts to bear to avoid the lenders from retaining a mere 5% of risk.

The last 2 times there was no risk retention in mortgage lending a financial collapse followed.  One was in the 1920s, with a raft of real estate securitization, which ended with The Great Depression and one was the sub-prime frenzy that ended with the housing collapse of 2008 and The Great Recession.  I’m no economist but isn’t there a lesson to be learned here?  After the country recovered from The Depression (thanks, solely, in my opinion, to World War 2), the mortgage market operated basically the same way until September 11, 2001.  In those years, banks and lenders held mortgages until they were repaid and also held the risk of default.  This led to 60-70 years of peaceful mortgaging.  When the government oversight of the financial industry was loosened (nay, abandoned) in the aftermath of the fears brought on by 9/11 and the financial industry was told to police itself, the surge of securitization started again.

Now, with the watering down of this part of Dodd-Frank, the banks are free, once more, to not care if any loan they originate is paid back – in other words, profit without risking capital.

The astounding fact is the government colluded in this potentially catastrophic compromise.  The federal regulators bought the argument that credit would be severely restricted if there was risk retention.  This is the same fear-based chestnut that lenders trot out whenever anything threatens their ability to do whatever they want.  As The Times article points out, the only thing that will prevent another disaster brought on by securitization is the wisdom of the investors who buy the securities (in the form of bonds) to distinguish the good from the bad.  The last time around those investors showed no such wisdom.

Let’s not forget, also, that the government, in the form of Fannie and Freddie guarantees the vast majority of mortgage loans so if securitized loans go bad the taxpayer is on the hook.

It did not take long for all of us to forget what happened in 2008.  The desire for more lending has fueled this groundswell of opposition to risk retention.  The new conventional wisdom seems to be we need more lending and we will bow to the banks in order to get it.   This seems to be particularly true at the National Association of REALTORS.  I have taken my profession’s trade organization to task in the past for being on the wrong side of important issues.  I have also watched in amazement as we REALTORS have become the toadies of the mortgage lenders.  It appears we’re croaking the same tune again.

If you can’t get enough of my opinions, take heart.  I have another (non-real estate) blog called “The World At Large by Jim Stefanile – Thoughts On Everything Else”.

This month’s post is “A Fateful Universe?” where I discuss the idea that “everything happens for a reason.”  I hope you can visit:   http://jimstefanilesotherblog.wordpress.com/2014/10/28/a-fateful-universe/

The Whole Package

by James Stefanile, ABR, GRI, SRES, QSC, gCertified, REALTOR/Salesperson, Berkshire Hathaway Home Services New Jersey Properties, Montclair Office

 

With the Congressional mid-term elections and governors’ races imminent, there is always a temptation to vote for candidates who we think support what puts money in our pockets.

The Realtor Party, REALTORS’ political arm is good at identifying politicians friendly to real estate and to the issues important to the industry.  Quite a few of my acquaintances in the business seem to favor Republican candidates and think of them as more friendly to our profession.  My personal opinion is a politician will say anything to a specific constituency to enlist its support, whether they believe it themselves or not.

I respect my colleagues preferences and I understand pocketbook loyalty.  I wish I could look at candidates so narrowly but I can’t seem to distance myself from the totality of wrong represented by right-wing ideologies.  What the real estate industry responds to is the Republican notion that government should stay out-of-the-way of the market as it finds its equilibrium. Is there anyone who hasn’t seen the disastrous results of market self-regulation?  Can any politician spout free market ideologies with a straight face?

But that’s not my main objection to so-called “conservative” thinking.  I think it’s a total muddle without an over-arching, consistent set of beliefs.  On the one hand Republicans want to keep the government small and out of people’s business, but they vigorously advocate for the government to be in your bedroom, obstetrician’s office and on your wedding altar.  You can’t have it both ways.  If the government stays out-of-the-way of free markets it also needs to stay out-of-the-way when it comes to who you marry and how you manage your reproductive conscience and your family life.  Conservative thinking seems to want to stay out-of-the-way of anyone making money but insert itself into our personal lives.  It touts the sanctity of young life – unless it comes from Central America – then it should be thrown back and can go straight to Hell.  This isn’t really an ideology.  It’s yet another example of people who think they know better telling the rest of us where it’s at.  It’s a kind of Fascism (that’s right, I said it) based on fear and a perverted sense of entitlement.

But wait, you say!… Aren’t the Democrats doing the same thing in reverse?  Liberal on social issues and Draconian on market regulations? The current governmental market oversight under which the financial industry is chafing is the direct result of irresponsible and illegal actions perpetrated by a market that was supposed to police  itself.  I don’t believe there is a malicious governmental intent among progressives to interfere with a free market.  Everyone knows more trade and more commerce is a good thing.  It is, however, the proper role of government to step in when market misbehavior leads to crisis.  Republicans want the government to step out-of-the-way again.  Is there any rational justification for that?  All I hear is an increasingly hostile, strident, reactionary and downright ornery polemic coming from the right with an added opinion that they have all the answers to many, very personal, aspects of our lives (and have the inside track on the thinking of God Himself) .

I wish I didn’t have the urge to simply vote the Democratic line but I feel the Republicans have taken the choice away from me. The more they hew to their party line the more muddled and nasty they appear.  I cannot be associated with that kind of thinking on any level.

The United States society envisioned by conservative ideology hasn’t existed for years and our country is tilting even further away from the right.  The yearning to return to certain values of yester-year is nothing short of delusional and is antithetical to any sort of social progress.

I wouldn’t even mind so much if most right-wing economic theory hadn’t been proven so disastrously wrong. Reaganomics and its “trickle down” theory has been shown to be untrue and it was the beginning of the great divide between haves and have-nots in our country.  And was there ever a bigger mis-handling of the economy than the one resulting from the last Republican administration?  The truly bizarre fact is that most Republican economic theory being proposed today is a re-hash of those very principles that were so unsuccessful in the past.  The proposals coming from the right, although touted as dynamic solutions are, in my opinion, do-nothing ideas bent on preserving a status quo that doesn’t even exist anymore.

I am no one’s blindly loyal apostle only because I believe they will help me make more money, nor am I blindly left leaning.  I need an entirely acceptable package in anyone running for public office.  I will listen carefully to any candidate who articulates a reasonable and consistent total ideology, whoever they are.  Unfortunately, it currently seems to be a choice  between dumb and dumber with polarization rather than consensus as the goal.  I sometimes think both left and right are completely stumped in the face of our society’s great issues so whoever is less totally wrong and less completely nasty gets my vote. How about you?