My bio shows that I was a high school biology teacher long before I was a real estate professor. Today, my biology and real estate experience intersect.
We’ve learned that limited gene pools and localized interbreeding in humans can accentuate negative or positive traits in offspring (hemophilia, extra fingers or extraordinary athletic prowess). Animal breeders and seed companies utilize this knowledge..
Inbreeding and interbreeding applies also in the current housing/financial “crisis”.
Wall Street experts convert projections for company returns on a quarterly basis to values of shares on a daily basis. Mortgage financiers and the secondary mortgage market (including Freddie Mac and Fannie Mae) specialize in translating projections of a return on a 30 year mortgage into shares that could be purchased by investors.
These 2 gene pools had perfected their systems for investors and money flow differently. Within each, the weak companies or lenders failed, the strong prevailed.
Early in 2002, in a period of low interest rates, Wall Street firms saw an opportunity and began to breed more aggressively with Mortgage Finance. New short term money was injected into a system that understood only long term returns. And Wall Street, expecting quick profits, got them……for a while. At first, mating was fast and furious, with no understanding of what supported this passion : 30 year mortgages that were becoming more and more exotic to include more borrowers, plus the lives of millions of people, each with their individual problems and properties. Then, in late 2006, when borrowers began to default, Wall Street investors started to leave the relationship. The flow of money dried up just as borrowers were unable to meet the changing conditions of new exotic mortgages. As a result of this failed relationship, mass confusion, distrust, anger, fear and financial loss now prevail.
The administrative branch of the US government, for the last 7 years, has essentially been a lax parent with de-regulation or lax enforcement of regulations. The legislative branch is an elaborately evolved system, with deliberations, hierarchy, staffers, lobbyists and a 2 or 6 year cycle. There are established mating dances to woo members on legislation.
As the end of this administration cycle neared, it became evident that financial issues (including a huge deficit, reliance on foreign money to keep our interest rates low, rejection of the idea of having social security invested in the stock market, collapse of the dollar) were huge problems. The solution was to bring in Henry Paulson, an outsider from Wall Street, new to the inbred government gene pool, to inject new ideas and life into the system. Secretary Paulson, a brilliant CEO, according to Fortune Magazine, was given executive powers equal to the Secretary of State and Secretary of Defense, with more apparent power than our elected president. His tenure brought the first nationalization of an industry in
These actions happened very quickly. So far, those of us in the resale housing market have not noticed results in our arena, thus, it is too early to see how existing or future homeowners will be impacted.
Has the liaison between government and Wall Street firms worked? Should Congress vote quickly and without thorough study to guarantee humongous sums of money? Will the new infusion of cash prevent problems, solve problems or create new problems (including permission to make future bad investments) that would be paid for by the offspring of every American for the rest of their lives? Is there assurance that the broad reforms can be implemented by a government bureaucracy, or a plan for how they will affect individual home and business owners?
I am sure that there are other alternatives to the one plan being promoted. I hope that the “fear factor” and timing of the eminent election will not deter our legislators from contemplating the long term result of their pressured decisions. And I hope that their actions will help achieve the goal of financial comfort and individual home ownership for all that desire it.
