There’s a Beggar at the Door, It’s Your Banker

There’s a Beggar at the Door, It’s Your Banker
By David Glenn Cox

My parents used to tell me about the last great depression, I vividly remember my father explaining to me how the landlady would come to beg his parents for the rent. Not to ask for the rent or demand the rent but beg. My grandparents would give her whatever they had at the time, fifty, seventy-five cents. She would leave, joyous for a small percentage of the five-dollar rent.

She was happy because it was her grocery money, as well. She would give maybe half of her rent collections to the bankers and they, too, would dance a jig. She knew, all to well, that if she put the Coxes out the property might stand vacant for months. It would then become her responsibly to guard the property from vandals or from squatters. Local law enforcement had been curtailed because of the losses in tax revenue.

Properties couldn’t all be protected and I have told the story, previously, of what happened to landlords too quick to pull the eviction trigger. The cops moved them out, the neighbors moved them back in. When the cops came back and padlocked the door and put them out permanently, neighbor children were instructed not to let a pane of glass stay. Strange as it might sound today, a senior project engineer, and executive vice president for a mid-sized corporation, was ordered, as a child, to vandalize property, as was every other child in the neighborhood.

You see, the world was turned upside down. Landlords begged and bankers pleaded with their debtors. Criminals were admired and the police were despised. My father told me of a boy in his school who was picked on because his father worked on a garbage truck. And how, a year later, he was envied because his father still had a job and they were eating good.

My mother told me that, as a child, the cry of "New Car!" meant run and find a stone. How her doll would disappear before Christmas and reappear Christmas morning with a new, home-made dress. Or of the best ways to steal ice and where to find coal along the railroad tracks. Her’s was a different world; a world turned upside down, where back yard gardens had armed guards in them.

So, today, Federal Reserve Chairman Ben Bernanke said, "Efforts by both government and private-sector entities to reduce unnecessary foreclosures are helping, but more can, and should, be done," in a speech to bankers in Orlando, Florida. "Principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure.’’

That thud you heard was mortgage bankers, nationwide, fainting dead away on the floor, give…? back... money? The chairman was effectively telling them that the worm has turned. The time to dictate terms and pontificate from the high throne of opulence was over. Get on your knees and beg for the rent money, each empty house foreclosed on becomes a millstone around the bank’s neck, dragging down the price of all other properties in the neighborhood. Making it all the more likely that those other owners, upside down and unable to pay, would just walk away.

Bernanke’s comments were not unexpected but, as with all groups, pride goeth before the fall. As The American Securitization Forum said, mortgage servicers "should have a clear basis for concluding that borrowers are unable to make their payments, rather than simply being unwilling to do so,’’ before reducing loan principal. The insane arrogance to believe millions of Americans are cleverly trying to pull a fast one on slow-witted bankers boggles the mind. Do they think we held a secret meeting at Hilton Head and planned this all out?

As the Fed chief warns of a spiraling cycle, Bernanke warned today that the housing crisis may deepen. "Delinquencies and foreclosures likely will continue to rise for a while longer.’’ Bernanke’s comments were made to the Independent Community Bankers of America. A surfeit of homes for sale indicates, "further declines in house prices are likely.’’ Nationwide, home values have declined 10% but that number is the average, the higher the home value the less the decline; the lower the value the more it declines. Leaving hundreds of thousands upside down in a mortgage and, as teaser rates disappear, monthly payments grow from $1,500 a month to as much as $6,000 a month. Consider that 2005 and 2006 marked the peak of the US housing boom, that is this year’s and next year’s crops, which will be the most brow-beaten. Or, in other words, you ain’t seen nothing yet.

That’s one million mortgages due to reset next year, with an 18-month supply of existing homes already on the market. Now, add to that inflation, fuel prices, slow job growth and the inability of healthy mortgage holders to get new mortgages or to sell their current homes and you see why Bernanke warns and his voice quivers as he says, beg! swing a deal!, cut the price now while there’s still time! By comparison, during the housing rescession of the 1990’s, home prices declined 2.8% at its worst point.
Now you have home prices dropping 10% annually, and, according to Robert Shiller, a property expert and professor at Yale, "Wherever you look, things look bleak, with 17 of the 20 metro areas reporting annual declines and the remaining three reporting flat or slow growth rates. Looking closely at these negative returns, you will see that 14 of the metro areas are also reporting record lows and eight are in double digit decline."

Bernanke is forced to carry a large block of ice to the North Pole, to give the bad news to the captain that the wound is fatal. That the world is turning upside down. We can change the discussion to who was right or who was wrong, or about responsibility and irresponsibility, but, in the end, it all depends on who can learn to walk on the ceiling. Bernanke was first criticized for soft-pedaling the issue and is now criticized for fear-mongering. I think the truth is in the middle, gentle Ben is holding the bag in the woods for the world’s largest snipe hunt as Bob Dylan’s words ring in his ears.

Come gather round people wherever you roam
And admit that the waters around you have grown
And accept it that soon you’ll be drenched to bone
If your time to you is worth saving
Then you better start swimming or you’ll sink like a stone
For the times they are a changing.

There’s a beggar at the door, and it’s your banker.