Mortgage Meltdown

Watching Treasury Secretary Henry Paulson on Face the Nation, and then switching to Meet the Press to listen to New York City Mayor Michael Bloomberg, I was struck by a literary allusion to “The Foundation Trilogy” by Isaac Asimov.

I did read the then three volumes, one a day for the three days, following my completion of the grueling New York Bar Exam in July 1975. I was trying to quit smoking cigarettes and didn’t leave my apartment for three days. I did succeed in passing the Bar and completing the trilogy, however, within three weeks, I was smoking again.

If my memory serves me properly, the cycle of “foundation” civilizations went into inevitable decline when everything became so complicated that no one knew how to manage or fix anything.

That sounds like the economy of the United States.

Paulson, the former CEO of Goldman Sachs, the last of two remaining large, independent investment banking houses, was cagey in his responses to Bob Schieffer on Face the Nation. He appeared inarticulate, because frankly, he doesn’t know just how many of these bad mortgages the American taxpayers are about to buy, how much they are worth now, and what they might be worth later. No one does.

That’s the problem with deregulation. There is no oversight internally within the financial institutions. Why bother when the banks were making so much money. And there is no regulation from government, because the Republicans who controlled the White House and the Congress until 2006 have a dedicated belief in self-regulation until it is too late.

My problem with the bail-out is simple and two fold: first, it gives far too much unfettered discretion to this Treasury Secretary and the next, and second, it has no regulatory musts attached to it.

Mayor Mike was a bit more forthright in responding to Tom Brokaw’s questions on Meet the Press. He has taken a bipartisan stance, still talking to both candidates. His insights were deeper, because Mayor Mike made his money by understanding the markets, not just lending money. Mayor Mike spoke about a NYC mortgage program for first time home buyers that has loaned money to thousands of residents with only five foreclosures. He used this as an example of properly educating prospective home buyers and then responsibly lending them money.

Certainly, not everyone can benefit from the Bush enabled “ownership” society. Two big problems arise for people with too little income trying to buy homes, especially in high rent districts in and around cities. First, unless one itemizes, there are no tax benefits to paying interest instead of rent. And second, and perhaps more importantly, home ownership makes people less flexible and less able to just pick up and follow jobs. The glut of houses in the rust belt where 250,000 people have lost jobs in the automobile industry alone is evidence of this phenomenon: these workers can’t move to where the jobs are without selling the house first, because people's entire savings are often caught up in the house.

It isn’t just deregulation and greed, it’s incompetence once again. Remember John McCain was the senior member of the Senate Commerce Committee for how many years? And he admitted that he doesn't know much about the economy. Well, what was he doing for all of those years? Just listening to lobbyists, I suspect.

Here is the link to the transcript of Meet the Press, where Paulson also appeared later in the broadcast.