15 September 2008

Ghost in the Graveyard

Down goes Lehman.

It's been an interesting scene for anyone following the continued fallout of the Real Estate Bubble Boondoggle, when everyone thought -- yet again -- that old rules didn't apply and this was some kind of "new economy." However, money is money, and as fanciful as the imaginary system of value is, in the end it is tied to the very real facts of securing food, clothing, and shelter. So while many of us were treating our houses like printing presses whose very wallpaper dripped greenbacks, and speculators were pretending that their fantasy-laden house flipping markups were linked to "what the market will bear," the financial system -- from mortgage brokers to the big lenders -- was somehow sniffing so much glue that they got caught up in the ridiculous shenanigans of "interest only" and "negative amortization" loans.

Borrowers borrowed on the timeworn failed notion -- easily disproven by even the most rudimentary market analysis -- that prices always go up (not in the long term, mind you, but always...) and that record-breaking housing price increases were inexplicably the new norm. An interest only loan didn't matter: your new home would appreciate 300% in five years, allowing you access to the cash; ARMs that would reset in five years wouldn't matter, because interest rates would always be low and your house would always be worth immeasurably more money.

There's always been a sucker born every minute, but banks are supposed to play the opposite role: they're supposed to limit their exposure to moronic financial schemes by refusing to lend money that isn't likely to get repaid. But Jesus Christ is was as if we were in Carnival time and nothing mattered -- everyone was making money faster than coke could be snorted in the upper floor bathrooms of Manhattan investment firms, except it wasn't really making money in the traditional sense.

In short, the false economy of the housing industry (or perhaps the real economy -- the false part was the presuppositions) had nothing to do with increasing wealth and everything to do with overextending credit, and when the bill finally came due...well, we all can see the aftermath of a bad credit binge. Except this one isn't confined to your overspending on holiday shopping and facing a few bad months in the new year.

My friends, we are seeing the logical consequences of the right-wing's near-thirty year assault on financial checks and balances, proving once again that those who do not know history are doomed to repeat it.

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