The Story of Affordable Housing

This book written by Gretchen Morgenson and Joshua Rosner and published in 2011 is about the housing bubble that caused the financial meltdown in the fall of 2008, how it was started and who was responsible. “The American people realize they’ve been robbed. They’re just not sure by whom,” write Gretchen Morgenson and Joshua Rosner in their superbly written book “Reckless Endangerment.”

Those that take the time to read this outstanding and well documented history of the financial crisis will understand when they are finished, exactly who created the meltdown of 2008 and how they did it. Morgenson and Rosner show us in great detail, “…what happens when Washington decides, in its infinite wisdom, that every living, breathing citizen should own a home.”

It’s now been over 5 years since the bubble burst in October 2008 and almost 3 years since this book was published so why write a review now?

The answer is simple we learned nothing from the experience and hence it likely that a similar situation will occur again, and in fact with the new financial regulations and laws made along with the Affordable Health Care act that is now being implemented there is an almost 100% certainty that a new and maybe even worse situation will occur. The reasons that I make this statement are an extrapolation from the concussions in this book and so further discussion is warranted. But the reader should definitely read this book

The story of this situation begins in the Carter administration and ends in the Obama administration a period of over 30 years and six presidents. Along the way there were multiple signs of the developing problem but no one cared neither the politicians, the financiers nor the public; since everyone was getting something out of this in essence Ponzi scheme. However since the situation started with the government the blame must be placed squarely on them for none of this would have happened if the politicians had not interfered in the housing market.

The issue to be fixed was the low home ownership rate of blacks; and it was assumed that this was the result of discrimination.  To a point it was but it wasn’t so much racially motivated as economic.  Back then it was required to have 20% down to buy a home and to be able to support the payments.  Those requirements meant you had to have saved some money or borrowed it from family (like my wife and I did) and have a steady job making enough that the banks could expect that you could make the monthly payments.  This policy did, in fact, discriminate against those that could not make these standards’ and since poor people could not and black were proportionally poorer their participation rate in home ownership was lower.

For some reason the politicians decided it would be easier to force the banks to make bad loans then get the poor people (blacks) jobs and this started the ball rolling.  Like all government programs they take time to be felt economically and the new “federal” rules on giving mortgages were no exception.  By the end of the Clinton administration all the payers were engaged and the end was inevitable.  The problem was that the banks were expected to have a certain percentage of mortgages given to blacks that were equivalent to whites and if they didn’t the federal government put pressure on them. The banks complied by lowering their standards and the government aided them by buying some of the issued mortgages in Freddy and Fanny. This relieved the banks of the potentially bad loans and now more blacks had homes.

Early in the first Bush term the congress continued to make changes to this system to make it easier and easier to get a loan.  By the start of Bush’s second term an entire industry wide system was in place to generate loans to people with no income and no down payment. How anyone in power thought this would ever work is beyond me.  The system that was developed and explained in detail in this book was that the bad loans were being generated to supply the investment banks with packages of mortgages that could be broken in to what they called tranches and sold as investment grade securities. The details can be found in the book. Now everyone was making money on giving loans that could never be paid back and the end happened in October 2008 as the investors and then the banks holding those bad securities began to fail.

All of this is well documented with names dates and places where all the bad decisions were made, no one escapes. Then after the dust settled a congressional review blamed in all on the Investment banks and proposed no stricter laws on them.  No mention was made on how this all started with affordable housing the federal governments interference in the housing market.  So the bottom line was the federal government interfered in the privet market, created a major problem, then blamed the private sector for doing this and then passed new laws that made them stop giving bad loans.

Now with the Affordable Health Care act that was sold on giving health insurance to poor people without jobs we are finding the exact same thing occurring taxes and fees and fines are in place that raise the cost to those that are paying for insurance to allow for those that can’t pay to have insurance.  Unfortunately the laws rules and regulations will do to the health care industry exactly what was done to the home mortgage market; and probably a lot quicker since this was a very comprehensive piece of legislation.

Read “Reckless Endangerment” and see what will happen to health care in a few years as the Affordable Health Care Act is implemented.