Sunday, May 22, 2011

Recently Bill Black broke down the fraud and thievery that was the most recent financial 'crisis' in a long interview with Harry Shearer on his Le Show.  

The issue, as I see it, is of education.  How the average citizen could allow such massive fraud, generation after generation, points to either ignorance or a lack of capacity for understanding.  I'm just trying to hold on to the hope that we can someday educate our way to justice.

When my wife and I were buying our first house our Loan Broker said two strange things:

  1. I could state my income rather than proving it.  We needed a higher down-payment to do it, but we could get that as a loan and simply "not disclose" that fact to her so she needn't disclose it on the documents.  The banks "understood" this was happening - it was the documents that were persnickety.   
  2. Depending on the cash we needed out of the transaction she could have the appraiser set the value of the house at "whatever we wanted it to be".  The loan to valuation ratio would then correct for the amount of cash we wanted out and out loan would still be considered solid by the "guidelines" which, of course, were something we were told to actively skirt.
While we did go with the stated income option we did so because we were indeed in transition and the following year I began my current career and salary which was the basis behind our statement.  The other chicanery made us uncomfortable because as critical thinkers it smelled of fraud.  It is not unrelated that the real estate agent who hooked us up with this broker was so unscrupulous that we left his tutelage after a few short outings.

This is a long way of saying that we were educated enough to spot the fraud even though our knowledge about the particular system [real estate & loan] was thin.  As a result we bought a house for what it was worth, for a loan we could afford, at one of the highest moments of the SF Bay Area bubble.  

All the money that was sucked out of the system during this boom/bust happened because of greed, fear and ignorance, not some mythical hand of the non-existent "free" market - the facts were there and the signs clear.  I'm sorry for those who ended up under water but the insistence that the real estate prices would always go up and the reliance of a loan process that was visibly shaky if one only looked led to some very bad decision making under conditions that were screaming something is wrong with this picture.

A quick look to history would have saved many.

That said, none of this would have been possible without the out-and-out thievery of the corporate world and the pure-evil of a system that values money over decency and justice.

More on this later but, for now, read or listen to Harry and Bill lay it out for you, then read some of the other resources below.