Duane Tron: What is presently unfolding will make the Great Depression of the 1930s pale in comparison

From Duane Tron, November 22, 2008
Subject: Re: If Ohio was Switzerland CORE members would have waved sausages under the noses of the STRS Board!

Greed isn't uniquely American and I resent anyone, including the Swiss, to imply same! At the present greed has become a universal problem which has embraced every culture and nation on the earth. Selfish people pursuing personal gain have created the mess devouring global economies. From the very beginning I have opposed all of this global financial garbage that has been touted by Republicans and Democrats alike. Why? Because I have taught economics most of my life and I understand the danger of placing all of one's eggs in one basket. This is what has been happening globally for many years. Second, I don't feel sorry for the Swiss. They weren't complaining when the profits on their bank shares were running at record levels.

I wish to point out that Freddie Mac and Fannie Mae were into redistribution of wealth well before Barack was elected. They made it their primary goal to provide financial support, and loans, to every American who wanted to buy a house, whether they could afford it or not. As we've discovered a critical number of mortgages weren't able to make balloon house payments, variable rate mortgages, and house payments that were too high based on family income.

Four years ago I was helping at the Lions Club Pancake Days here and listened to a top local realtor telling about a young couple who came to him and wanted to buy a house. He told us they looked at the listings and picked out a house they wanted to see. He looked at the pre-application they completed listing their annual incomes. He informed them that based on their combined incomes they couldn't afford the house. They insisted on going out and looking at it anyhow.

One of them had their parents meet them at the house. It sat on about 15 acres and cost well over $375,000.00. Their combined incomes were less than six figures. Do the math! The parents gave them about $30,000.00 for a down payment but it still made the price in excess of $350,000.00 once all of the fees were added onto the price. This made their monthly mortgage payments in excess of $3,500.00. John, You and I could easily handle a three to four thousand dollar a month house payment couldn't we?

The realtor again indicated that he thought they might want to look at something smaller and in a lower price range since they were starting out in their first home and they were in their late 20's. They bought the house on a variable interest rate plan, which the realtor advised against. The house? Oh! It sold at auction just about six months ago at a price roughly one half of the original price following foreclosure. We've experienced record foreclosures in this county and I know the same applies across the state and nation. And now we know how we got into this mess!

Let's see! My wife and I were married for seven years before we bought our first house. It was a modest one story brick ranch sitting on a small lot in a housing development. Seven years later we bought this house and it was sitting on a third of an acre, is frame and sided, and only 1,165 sq. ft. Four years after we bought it I purchased another acre of land adjoining to give us more space and prevent anyone from building close to us. That was a nice move. We would have never looked at any house costing six figures then and I can't afford to even look at anything costing what the young couple bought. They bought it and they lost it! I don't blame the realtor as he was honest and upfront with them from the beginning.

We've progressed into a culture where everyone wants what they want when they want it, and they want it ALL right now. Nobody wants to start out with starter homes. NO! They have to start in upscale homes for the nearly rich and famous. This has become one of the most pronounced lessons of the housing market meltdown. In the states with the highest foreclosure rates (ie CA, TX, FL, etc.) banks and mortgage companies were making ridiculous, and very risky, loans to young couples like the one I described here. Most were buying huge and expensive homes they couldn't pay for and AIG, Fannie, and Freddie, among the worst, were making sure they could get low interest variable rates, that ballooned after a few years, and their monthly payments went off the charts.

It started out as a small problem and quickly blossomed into a full scale economic crisis for which you and I are going to pay for the rest of our lives. The meltdown started in California as my daughter quickly points out. Speculators were putting people into expensive homes with the idea you buy it at a lower price, own it for a couple of years, the value will increase two-fold or more, and then sell it and move up to something bigger and nicer. This is the scam builders, mortgage companies, banks, and insurance companies perpetuated to inflate home prices. They were encouraging people to become housing speculators and then selling off risky mortgages to larger banks globally. They were all speculating with OUR money. And now we're paying for it with bailouts and requests for more bailouts, huh?

We had all of these people who bought houses on variable rate (cheaper) mortgages, and then the payments ballooned to levels they couldn't pay back. Then when the meltdown started the value of the houses began to drop and people had to just start walking away because they would never be able recover what they paid for the houses. For example it's like making payments on $400,000.00 homes that are now worth less than $200,000.00. Do the math!

In California people were buying million dollar homes and watched the value drop by half. And friends, we have a housing meltdown that started spreading across the country like dominoes! The banks started selling off the sub prime loans trying to salvage whatever they could. Who did they sell the sub prime loans to on Wall Street? Oh! Pension plans such as ours! They pointed out how these loans had been making quick returns on the investment and everyone wanted a piece of the action. When investing in the markets the idea is to make as much money as you can and as fast as you can. Get those big and handsome returns!

This is precisely why our investment staff don't deserve any bonuses. I'm not an investment expert and I would have stayed away from investing in home mortgages as far back as five years ago. If I knew there was a major crisis brewing, why didn't our EXPERTS know the housing meltdown was coming?

The warnings regarding Freddie and Fannie were being sounded back in 2002. Serious questions about sub prime lending first surfaced in 2003 when President Bush called for an investigation into the business practices of Freddie and Fannie. He was ignored and Barney Frank, Chris Dodd, and a few others insinuated that his requests were racially motivated. They ignored him and did what they wanted to protect and prop up their friends at Freddie and Fannie. We reap what we sow and we've been sowing the seeds of greed with an entire generation! Welcome to a new world order of even greater poverty, starvation, and deprivation.

I do know one thing and that's the fact that we are just in the beginning of a major global crisis unlike anything ever seen before! What is presently unfolding will make the Great Depression of the 1930s pale in comparison. You heard it right here!

Mr. T
St. Paris, OH