With the rapid collapse of financial house Bear Stearns over the weekend, the collapse of the house of cards that Wall Street built atop America’s housing boom is underway–despite temporary market rallies indicating otherwise. And while much attention will focus on how a company deemed solvent on a Wednesday could be belly-up by Sunday, America needs to come to grips with the fact that accountability for the current credit crisis is widespread.
When economic and financial systems are in crisis, the initial urge is to take action to mitigate the pain. But in mitigating the effects of the housing bust, we may only be spreading it out longer and delaying the time that we can recover. What is really needed is a full-scale assault to root out the causes of the housing collapse before we can begin the growth cycle anew.
The knee-jerk reaction in Washington – and on the campaign trail – is to do whatever it takes to keep people in their homes. This is admirable, and certainly a worthy goal but it should not be done with a carte-blanche for all Americans who are facing foreclosure or are struggling to pay their mortgages. Blame for the recession America seems to be facing, and inflation we are currently fighting, lies not solely at the feet of Wall Street, but at the front porches of hundreds of thousands – if not millions of Americans – whose action should warrant their being labeled nothing more than”Main Street criminals”.
Housing prices were able to inflate in America over the past decade not because Americans were becoming wealthier, but because many unscrupulous Americans defrauded the nation’s financial systems.
I have no doubt that the FBI, New York Attorney General Andrew Cuomo and – eventually – Congress will conduct investigations into Bear Stearns and whichever financial institution takes it in the chin next. But such investigations will only focus on the symptoms, not the causes, of America’s current economic turmoil.
What we need now, are further investigations into how so many people got into homes they could not afford. Let’s do some quick cocktail-napkin math. If at the peak of the housing boom, the median price of a home in Southern California’s San Fernando Valley was $750,000, then that would require mortgage payments in the range of $4000-5000 per month. To qualify for such a mortgage, that would require an income close to $200,000, especially in such a high-tax state. And how many people are making that kind of money? Not even in tony Beverly Hills does the median income come close to those levels!
The state attorneys general need to go back to the work that they gave up after scoring some high-profile victories in their investigation of the mortgage industry. Mortgage brokers, realtors, and appraisers who profited unscrupulously need to be held accountable for putting Americans in a place of peril by lending money and encouraging those who couldn’t afford big-ticket mortgages to buy – on little more than faith and wobbly credit.
But the investigation should not stop there. Before anyone benefits from a “foreclosure freeze” or other federal program to keep them in their homes, their mortgage applications should be reviewed. If anyone facing foreclosure lied about their income, assets or ability to pay, then not only should they not receive mortgage assistance, they should be prosecuted for fraud by the local District Attorney. These Main Street Criminals essentially robbed their bank with a pen, and not a gun. In many cases walked away with more cash than one could likely get from an armed robbery.
Every day, the rest of us Americans are paying for these excesses. We pay with our taxes going to bail out people in mortgages they cannot afford, and we pay with the billions of dollars needed to bail out Bear Stearns. We pay with inflated housing costs, we pay with each rate cut that sends inflation higher and the dollar lower, and we pay with soaring costs of commodities, every time we buy a cup of coffee.
From Wall Street to Main Street, everyone who contributed to the current credit crunch must be held accountable. Because the rest of us are paying, day after day.