The Continuing Mortgage Crisis: Are We Fueling Our Own Downfall?
The news seems to be filled with failing financial institutions and financial turmoil. Stocks are tumbling; there are runs on a bank (maybe banks as this plays out); and government officials and agencies are pointing fingers at each other. It could be news reports from the Great Depression.
Mr. Mozilo’s IndyMac has been taken over by the federal authorities, and it will reopen on Monday under their auspices. Seeing how well Countrywide did, is it a surprise that another Mozilo venture is on the skids? As Senator Schumer and the Office of Thrift Supervision argue who is to blame, a sensitive public did start withdrawing their funds once Schumer’s letter expressing concern over the firm surfaced. The savings and loan was struggling before this run, but the event hastened its demise.
On the other front, investors have been driving the stock price of Freddie Mac and Fannie Mae over concerns over their ability to make loans. As the stocks dropped, these firms found that their capital was decreasing, which caused their costs to obtain money for loans to rise. This in turn caused more fears, which led to further declines in the stock, and yes, you got it, further trouble in obtaining the money for loans. The funny thing is that they are fairly healthy financially. Of course they have been hurt by our current situation, but look at their operating income report, and you will see that they are not in bad shape.
This leaves me to ponder a theme that I already expressed in another post: is the downward spiral being fueled by news reports, which cause people to react, which in turn causes more problems? These stories seem to confirm my suspicion that we may be shooting ourselves in the foot. Reactive responses to reports which may or may not be true caused further issues. As I watch my colleagues work ever harder to make a living, I can see that our struggles will deepen. It is difficult to write how this will really effect these professionals though. Only half of the Realtors in the United States were involved in a transaction last year, so obviously they have income from other sources. Many other real estate professionals are part timers, handling their work in this industry as extra income (which makes me wonder if I am stupid for making this my full time work). If they never or rarely work in the profession, their quitting will not really effect the economy.
Iconclude on a positive note after this observation. Although we may believe that we are in a recession, even without evidence that we are, we could thrive in this market. My grand-uncle and grand-aunt did alright financially during the thirties. From 1929 to 1933, they lived simply and worked at jobs that were menial, but paid them. In 1933, they were fired from their jobs for being Germans, so they started their own business. They carefully picked a business that was in the right location and was desired, so the place did well. Not great, but they had some money. They took their money and invested in conservative investments. By the 1950’s, they were pretty well off as their retirement approached. I also think of a man that I knew who had a positive experience during the depression. He was a manager in a steel firm. He also had some extra money. A friend, who was a stock broker, was having a hard time selling his wares, so this manager bought the stocks to help his friend out. They were quite undervalued, but later they shot up. The main stock purchased was Xerox. If we are smart and simply do not react to the current news, we could find ourselves coming out better in this bear market, when we make wise choices.
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