The year is coming to a close. Many of us would admit that we find ourselves occupied less and less with our State’s economic problems such as the continued pileup of lost jobs or an increasing inventory of vacant FL foreclosures and instead find ourselves preoccupied with planning, preparation, and shopping for the holidays.
I, for one, think that this is a good thing. Too much of anything is not good and the overwhelming enormity of the various economic forces arrayed against us could prove to rob many of the things in life that really matter. Things like family get togethers, dinners, and other relationship based events that form the basis for all the things that are REALLY valuable in life will have a tendency to be lost this year for many. After all, most of the things that we treasure most could never be bought with money, but without it, we can often lose sight of that fact.
It is my hope that things turn around and a path to better days is presently in front of us. Common sense would indicate that such is probably not the case, but I am an optimist…a cautious one.
Whenever I start looking for trends and watching the news to try and identify real patterns of change, I find myself always returning to thoughts of the past and I have to ask…
Have We Learned Our Lesson, Florida?
I wish I could confidently say that we have, but at this point I’m not so sure. After all, a populace never seems to rise to higher moral ground than its leaders, nor will they adopt better financial habits than what is exemplified by those at the top.
Of course, I’m talking in general about these things as there are numerous exceptions to the rule on both issues, but by and large, the majority population of any nation has always mirrored patters seen in the behavior of their leadership. “Do as I Say, Not as I Do” is not an acceptable position to take as a parent nor is it acceptable for political leaders.
So as I drove to work today and saw a pair of for sale signs in front of two FL foreclosures that I passed on the way in, I wondered what the chances are that we’ll be able to reverse the damage that has been done in short order.
If the behavior of our government is any indicator, then we may be in for a far longer period of recovery than anyone is currently willing to admit.
Consider the fact that our country pretty much went completely out of control over the last two decades. Traditional financial restraints that were in place in the early 1900’s began to be removed one-by-one over the course of the 20th century, but the last 20 years by far and large encompassed a complete departure from all financial common sense.
Let’s rewind time a bit and remember that in 1929 only 2% of American households had a mortgage on their home. At that time, the number of Florida foreclosures followed the pattern that was seen in most other areas of the country which reflected that the rate was pretty much close to zero. Fast-forward to 1962 and only 2% of these same homes did NOT have a mortgage!
It’s no wonder that the number of FL foreclosures has increased, right? Forget the job losses, forget the struggling economy. If you go from 2% of homes having a mortgage to 92% then simple math would tell us that you have an increase of 90% in the number of mortgaged properties out there. That would naturally lead to an increase in the number of foreclosures by 90% as well, right? WRONG! FL foreclosures are up over 200% since 1980 alone! That’s more than double the rate that homes started acquiring mortgages, and that’s just since 1980…if we rewind the clock further the change in foreclosure volume is exponential, not incremental.
In 1980, the total amount of consumer debt that Americans had piled up was about $1.3 Trillion Dollars. That’s a pretty big number, but not compared to the fact that by 2002 we had managed to triple that figure to $3.3 Trillion Dollars!
Now I know that once we start using big numbers like “million”, “billion”, and “trillion” they all start to blend together and their magnitude begins to lose it’s significance, but consider this: If you did NOTHING during the waking hours of your life except count…from the time you were born till the time you died at age 70, you would barely be able to count to a billion in all the days of your life. A billion is a BIG number. Then compare that to just ONE Trillion dollars which is 1,000 TIMES as large as one Billion dollars! Now we’re talking about real money, right?
Also, we know that 70% of Americans live from paycheck to paycheck and 71% of Americans feel that their lives are more unhappy because of their debts.
So who’s to blame here?
We are! That’s right, it’s time to start taking some responsibility for the actions that extended as a direct consequence of the financial habits we adopted over the past century.
“But what about the banks and mortgage companies?” you say. “Why are they not held responsible for this mess?”
I’ll tell you why. Banks and mortgage companies do not have some “higher social responsibility” to somehow Shepard the American public in how they spend their money. That’s ridiculous thinking that runs in lock-step with the type of logic that believes that “everything” should be a right of the people and that the government should make sure all these “rights” are treated as needs that they somehow fund and administer to.
Let’s get real! Banks are COMPANIES. In case you didn’t know, a company is NOT a non-profit organization. A company doesn’t exist to make jobs (though jobs are an unintended benefit) and a company is not started or made to continue to run in order to “make the customer’s life better”. The idea that the customer is central to the existence of the company and that pleasing the customer is the company’s #1 priority is flawed thinking.
The TRUE and ultimate goal of a company is to generate a profit for the owners!
Any concerns about job losses, the number of FL foreclosures, the strained state of finance, or any of the other woes are not even on the radar to the owners running a company. Companies exist to make profits for their owners…they exists for no other reason!
Think about it. The engineer who decides to toss his “secure” design job for a major engineering firm; does he do it because he loves the customer so much that he knows that he can do a better job and thus make the lives of those same customers better?
NO! He takes this lonely path of the entrepreneur because he feels that BECAUSE he can provide better engineering services he would be able to secure more business for himself. He also believes that because HE will be “the company”, profits generated by his work and efforts are not siphoned off the top and sent to someone else. He starts a company with the goal of producing profits for HIM as the owner.
Don’t get me wrong. I’m not saying customers and customer service are unimportant. In businesses, customers are it’s more important asset and failure to treat them as such will destroy a company. But the truth is that if the company does NOT produce a profit (or enough of a profit) or the company does NOT meet the other goals the owner has for it (maybe like working half as many hours as he did at the “job” working as a designer for someone else) then that owner will close up shop. After all, if you are not making more money and working less, then why take on the extra risk? Why not make the same money (or more) working for someone else and leave all the baggage that goes with running a company to them?
This is the basis of capitalism. Notice that the company exists to meet the goals/dreams/desires of the company owner. It does NOT exist just to “create jobs” or benefit the customer. Those things are important, then are secondary benefits, but we must never lose sight of the fact that they ARE secondary.
That being said, banks are companies owned by many, many people (called stock owners) and they have to answer to these stock owners either directly (at board meetings) or indirectly when their leadership actions at the company cause people to vote with their checkbooks by either buying or selling shares of stock in the bank based on their performance.
With that in mind we have to realize that the leadership at the various banks may very well have felt that it was NOT a good idea to start up sub prime and Alt-A mortgage programs. They may have called a spade a spade and known that it was a path doomed to heap foreclosures on Florida, it’s residents, and others states across the nation.
Foresight is good, but again, America votes with their pocketbooks. If Citi says “I’m gong to walk the moral high ground” and chooses NOT to lend in the sub prime niche, but Countrywide DOES, what happens?
Well, in the short term, Countrywide begins to reap in huge profits. Investors (you, me, and our representatives that run our hands-off Retirement Plans) see these profits. They DON’T see those profits over at Citi. So what do we as investors do? We sell our Citi shares and buy Countrywide shares!
The leaders over at Citi of course begin to get an earful from the stock holders who have decided to stick it out. These investors demand that Citi pickup the pace…or else.
At this point the thoughts of mounting numbers of vacant FL foreclosure properties lining every neighborhood become a distant voices that are barely audible. The leadership has been put on alert that their JOBS are at stake. The time has come to give the owners of the company (the investors…that’s you, me, and our reps) what they want. After all, it’s OUR company, right?
So Citi jumps onto the sub prime bandwagon too. So does every other bank. So who was really to blame here? Did you really expect the CEO over at Citi to tell you to jump off a bridge? That the only way to meet Countrywide figures would be to take the same risky bets Countrywide was? Would you have listened?
Now it’s pretty clear that I may not be referring to YOU in particular here. I’m not even referring to my own self even though I did add myself into the mix there. I have never owned shares of bank stocks and maybe you never did either. That doesn’t absolve us as a people from the fact that millions of people DID and nobody else bothered to stop our neighbors from driving that train off the tracks and into a ditch. Everyone pays, even if we just sat by complicitly as the entire economy jumped the shark.
Yes, the past is the past and there’s nothing we can do about it but learn from it. As people stand by looking at their shattered retirement portfolios, seeing dozens of vacant FL foreclosures in every community, and with little sign of a turnaround in the sequence of events on the horizon all we can do is try to look past the evidence and HOPE that this is the end of the nightmare.
But is it?
Did anyone notice how the CEOs of the big banks started pulling down big bonus checks as soon as it looked like they had dodged collapse and were out of the woods? Many Americans were outraged at the very idea of these fat cats getting bonuses.
Personally, I wasn’t opposed to these people getting paid big bonus money. I dunno what the unwritten standards were suppose to be…I mean, are these CEOs never allowed to get paid big bonuses until we see boom times in the economy again? When ARE they allowed to get big bonus checks? Just because tens of millions of dollars seems excessive, who are we to start saying who can get paid what?
I mean should we take a vote as to what everyone should be paid every four years? If 51% say this is the max someone can get paid in a particular position then that’s it? Don’t sing that song too loud or someone might just show up at your front door to tell you that YOU are overpaid. What’s good for the goose and all that.
For me, the problem I had with them getting paid bonuses is the fact that they were supposedly based on profits.
Profits? What profits? You’ve got tons and tons of REO properties piling up. FL foreclosures and those in other big states are straight up out of control. Millions of these homes are “in limbo” while loan mods (that probably won’t work in the long run) and government programs try to take effect and you think that you made a profit?
Bottom line is that any profits recorded at this time by banks that have sinking mortgage portfolios are fake. Big bonus money seems like a CEO slash and grab to get whatever they can from the banks they work for before the REAL impact of those soon to be processed foreclosure properties starts to be made manifest. Pretty sick if you ask me.
In any case, the behavior of the leaders at the bank is “business as usual”. That doesn’t bode well for us having “learned our lesson”. I bet there are millions of Americans hoping to go back to their spend-thrift days of ’04, ’05, and ’06. They haven’t learned their lesson at all. Not at all.
The actions of our government should be another dead canary in a coal shaft. Instead of leading the way with fiscal responsibility, they decided that TARP and the Economic Stimulus packages were a good idea. We were force-fed this nonsense and now it appears as if it was all for naught.
In the end, being the guarded optimist that I am, I hope for a return to normalcy. Unfortunately, if human behavior is any indication, we might have to forego those types of hopes and get used to the fact that FL foreclosures, unemployment, and a period of struggle may be here for a significant period of time that is measured in years, not months.