Financial degenerates
wallstreetexaminer.com
To all the foreigners who loaned Americans your savings, we thank you. Besides propping up our economy for the last five years, you have helped us buy stuff we could otherwise not afford - stuff that you could have bought yourselves considering that you probably produced it to begin with. Now, you can kiss your savings good-bye. It was a fun ride. When we party again like it’s 1999, we’ll call you… assuming you bring all the booze and party favors.
For all the talk of swindled homeowners and manipulative lenders, my only comment is that it takes two to tango. Sure the borrowers lied, but they couldn’t get any money if the lenders weren’t so eager to give it to them. The lenders certainly put people in risky loans, but it was ultimately the borrowers who wanted to get some money for consumption.
There’s a real mental and moral disease in all layers of American society today. From government to business to consumer, it’s all about getting what I can from the system with consequences be damned. The most optimistic of us hope there’s a way to continue the shell game through future re-financing, the worst of us do not care one bit. Here’s an extreme story that probably doesn’t describe most Americans, but it describes enough:
The case of Karenn and Steve Oropeza from down the street shows how Inland Empire buyers complicated their lives by overextending themselves.
The Oropezas arrived at Calle Canon Road in 2004. Corona appealed to them because of its quality of life and regional cachet. “It was labeled as the new Orange County,” Mrs. Oropeza says. Public records show they paid $557,000 for a four-bedroom house and took out a $500,000 mortgage. Her husband is an area manager for an auto-parts retailer and she is a purchasing manager for a firm that sells dietary supplements.
As property values skyrocketed, they refinanced three times, most recently in late 2006, for $835,000, Mr. Oropeza says.
The couple say they used some of the money they pulled out of the house for home improvement, such as a backyard waterfall. But Mr. Oropeza says the bulk was used to pay off credit-card arrears. “We were in a vicious cycle of refinancing our home to get out of debt,” he says. “We banked on selling the house, but that’s where we failed.”
The couple listed the house several times, even before the final refinancing, which raised their monthly payments to about $6,300. Earlier this year, they were asking $839,000 for the house. But it just sat. Elsie Cambone, the Coldwell Banker agent who had the listing, says prospective buyers were put off by the vacant home next door.
Meanwhile, Mr. Oropeza expected to be transferred to Texas, so the couple began house hunting there in 2006. In June, they bought a 3,600-square-foot home for $283,000 in the Houston suburb of Katy, Mrs. Oropeza says. “It was easy. We had good credit. The deal was done in seven days.”
In the run-up to their move, she says, the couple lived off credit cards to “make sure we had cash for the house payments” in Corona. They packed up in June, and then took their 9-year-old son and 2-year-old daughter on a long-planned Caribbean vacation. They returned to Calle Canon Road, “got in our cars and drove to Texas,” Mrs. Oropeza says.
Neighbors Ms. Lefranc and Mr. Saffold are dismayed over the Oropezas’ departure and note that shortly before leaving, the couple bought a new Lexus. “I think they took money out of their house and split,” Ms. Lefranc says.
Mrs. Oropeza says that she and her husband recently bought a Lexus and a Chevrolet Suburban with no money down. She denies that the family intended to abandon the house. The choice was straightforward, she says: “It was easier to keep the house in Texas than the one in California.”
“We’re sad because there goes our credit, and because people think we are a bunch of flakes who walked away from the house and tried to make money,” Mrs. Oropeza says.
Flake is not the word I would use to describe the Oropezas. I’m frankly surprised their credit wasn’t shot a few years back. Where do we start? Let’s see:
-Two middle-class professionals.
-Three refinancings in the same home within three years.
-Paying debt by taking on additional debt.
-Borrowing to purchase such necessities as a backyard waterfall.
-Buying a house before selling the existing one.
-Buying two (new?) cars while facing imminent foreclosure.
-Living on credit cards to preserve the cash for a down payment.
-Went on a credit card-funded vacation to top it off.
-Dereliction of mortgage obligations in spite of expecting to keep the second house.
-In spite of all this, they had good credit.
If someone did pay the Oropeza’s asking price, I can’t help but pity him as he helped fund their $280,000 worth of re-financing. Oh I forgot, hundreds of thousands of home buyers committed this very act of generosity over the last four years. The Oropezas are the very people Hank Paulson, Ben Bernanke, and Hillary Clinton want to save because they’re “victims.” Yeah, victims of their own overindulgence.
Is it any wonder the credit markets are in such a mess? Not only did they abet this behavior, they still rewarded these faithful debt slaves with a good credit rating. No financial system can survive if it rewards moral hazard, and that’s exactly what it did. I’m sure many Americans did not engage in the Oropeza’s reckless behavior to that extreme, but I’m also sure a majority of Americans can check off one or more of the items I listed above.
With incomes declining, cost of living rising, and unsatisfied desires, the only way to keep this going is through the reckless expansion of debt. When you look around, you’ll see that everyone and every entity does it. Five refinancings. Credit card shell games. Leveraged buyouts. Iraq War funding. Social Security tax games. They’re all just symptoms reflecting our diseased culture.
And the beat goes on. |
