Is the Fed over-intellectualizing and missing the point on housing? Or are they just too full of themselves?

By Frank Louis

Somebody please, help these folks see the light of day. Are they so impressed with themselves that they cannot see the forest for the trees? Recently, I shared some of my thoughts with you after the Jackson Hole Fed Conference. Now we get more of the same from another Fed Conference in Washington. In my quest for sanity, I only find more and more insanity. I just got through reading through some comments by two more Fed Presidents at the Washington Conference. They were more than excited to make known their sophisticated views on the housing crisis and subsequent rash of foreclosures that is killing this country. I am so excited! It is not often that we are graced with being able to hear from so many Fed Presidents in a row. Just a few days ago it was Jackson Hole, now another "important" Fed meeting in Washington, oh joy.

I was amazed at how these Fed Presidents never made any reference at all to the millions of Americans who have lost tens of thousands of dollars if not hundreds of thousands of their life's work's savings by investing in the real estate market that caused this crisis. The folks who saved, took the professional advice of realtors, brokers, appraisers, and bankers, Barney Frank too, and committed the crime of buying property in 2005. The people I write about in pretty much every article. The people, I have realized, no one else even cares to mention... much less take a stand for.

Think about it. Any news program you see or hear, transcript you read, article you find, any talking head you see focuses on those poor folks (victims) who were misled into the market and only wanted that infamous "American Dream." Not the people who saved and invested their money. It did not matter that, by creating this influx of non-qualified "buyers," the entire housing market would come crashing down creating an "American Nightmare" for the rest of us who actually paid. There is never one mention of people who worked hard, saved, and had their money sucked out from under them by the "housing bubble" they did not create. Three Fed Presidents in the last two weeks whose comments I have reviewed all spoke only about the "minority areas with high concentrations of foreclosures." Disparate Theory they call it. But more on that theory in a forthcoming article. They think that more money should be sent to these areas so that "local governments and nonprofits can tackle these broader challenges" that have resulted, like crime. What about the challenges Americans who have been held up (albeit not by gunpoint) and robbed of everything they worked for. Doesn't that qualify as "crime" by these government standards? Perhaps not.

At the Washington, DC Fed Conference, recently, Boston Fed President Eric Rosengren lectured us on several facets of the foreclosure crisis: His key points: the actual foreclosures themselves, and the mitigation of these foreclosures (which, until now has been a terrible failure) and the problems these foreclosures create in their communities such as deteriorating properties, unemployment, crime (which, as I observed, obviously does not include being robbed of the money people spent in the form of a down payment on what is now underwater, upside down, valueless property). Children have to change schools he also observed, when they have to move. Very sad indeed.

How can this guy miss the forth and most important result of this crisis? That being the fact that anyone who bought property in 2005 or thereabouts and put money down on that property has had every penny stolen as well as their credit worthiness and will most likely have to file bankruptcy in the end too. You know, hard working Americans who worked for decades, saved diligently and invested in the "American Dream" the old fashioned way; with their hard work and money. What about them Mr. Rosengren? They just go broke while you intellectualize on these rather obvious distractions from your "greater reality?" Think about it? Working with and for the individuals I am talking about would turn this crisis around.

I know, I know, you will tell me it is "buyer beware" and that "no one forced anybody to buy real estate." I agree on one hand, but no bank or real estate professional ever disclosed what was actually going on in the market. If they did, who would have actually "invested?" Fiduciary responsibility anyone? What we had was two separate and distinct groups in the market: Those who did not pay a penny and people who paid a lot and lost it as a result of the people who paid nothing. Crooked realtors and buyer brokers and mortgage lending professionals all got their commissions, even for the straw buyers they were able to convince to "buy." These commissions were paid with the very money those making 20% or more down payments lost.

Another Fed President, Sandra Pianalto (Cleveland President) also made reference to a statistic that documents the average number of days that properties stay vacant in Cleveland is now 954 days. That is about 3 years! And, she went on to expound very intellectually and knowledgably about how most loan modification programs so far have been a failure. Well of course they have been. The programs are designed to fail as we have pointed out pretty much every week in this column and on the weekly Frank Louis Show. She blames it on the wrong "business model." If that is not a case of over-intellectualizing, I do not know what is. Really. Try the Frank Louis Short Keep Solution and see what happens!

She went on to talk about "framing the problem" and offered up several self glorifying thoughts on the crisis, none of which include the Frank Louis "short keep" or "cash for keeps" solutions. No, her solutions all involve the government; perhaps even using the very program that got this crisis started in the first place, the Community Reinvestment Act (CRA). She says these funds (Your and my taxpayer money) could be used for banks in "acquiring, tearing down, and rehabilitating distressed properties." Not one mention of my Short Keep or Cash for Keeps programs. Not one. I guess my solutions are just not abstract enough to get airplay in her arena. But it does on the street. I know that. You can read about "cash for keeps" and "short keeps" in previous articles.

Why not use this opportunity to do the following: Find out who used actual money down to buy their property (investment or otherwise, it does not matter). Easy to do too. If one property in a neighborhood drops in value, so do the others. Its called "comps." I am sure she has heard of it. If someone used actual money to buy a property then they should keep it at the current actual true value (the short sale or foreclosure value). Save these people's credit, give them their money back, and they keep the property. Crisis over. Face it; the majority of people these government programs are aimed at "helping" really should not be in home ownership in the first place. Liar Loans?

Then my "cash for keeps" program would provide needed funds to the owner to do the "rehabilitating "Pianalto spoke of, not the government, not the banks. Plain and simple, no over-intellectualization needed. Tell me, why are we paying people to vacate property? Especially renters? If you own rental property have you ever tied to evict someone? You can't unless you are prepared to spend hundreds if not thousands of dollars on the process. That is not crime? Do we award the wrong behavior in this country any longer?

But I am told my solution will never work. Of course I am told this by the same minds that created the crisis in the first place, those in the property sales and financing industries. The reason being that saving the traditional American family is not the issue for this government, or these banking and real estate professionals. It is all just an abstract game of business models and failed contrived programs involving loan counselors, more lenders, more appraisers and more realtors. Like I said, the same folks that got us into this mess. No, the people who are targeted for help are often those who cannot be helped and will not be helped. There are reasons other than discrimination that create the in the shadows "unbanked" in this country. Perhaps they are in the shadows through their own actions. And why is no attention being paid to those who have lost so much as a result of these misguided strategies?

One problem with this economic crisis is that these financial experts are relying on economic "business models" that will not really solve the problem in the end (the housing crisis for American Families and their small businesses) and, I believe, are not really intended to solve the problem. The solutions these experts come up with will, however, keep them profitable throughout the devastation while we loose our solvency and whatever hopes we had for leaving anything of value to our children and/or grandchildren. So far modification programs have "proven largely ineffective " Pianalto says; pure genius I tell you, genius.

Each week I remind myself of our founders' commitment to their Christian beliefs and just how that belief served to direct the birth of this nation. They read vehemently from Scripture; a fact somehow dropped from our history books. They looked to Scriptural references to guide their decision-making. If you do not believe this, research it yourself. They made laws and decrees that were not only based in Scriptural truth but also require that we follow Scripture in our lives if these laws and economic system are to work, it is all pretty logical. In my estimation, the way the economy is being run today, the way this country is being run today, is not what the founders intended.

There are many scriptural quotes that I am sure the founders read. Here is one from the New Testament, 2nd Corinthians, Cpt 10: Vs 12. It is fitting for this conversation about the Fed and those claiming to seek solutions in this crisis. This scripture warns about those who "commend themselves by measuring themselves by themselves and comparing themselves among themselves, as they are not wise."

Sounds like the Fed and most of our leadership today. It also sounds like most of the people who I believe have gotten us into this situation in the first place. How often do you turn away from what is being fed us as news or information knowing full well it is 100% off the mark? Sure, we hear politicians tell us how we are all "God's Children" (which is not in the Bible that I know of) and how "God loves all of us" but is that "scriptural" in the way this is presented to us? Not really. Are we just expected to believe this because we are told it? But I will have more to say on this topic in the next weeks also.

As I have written in the past, the more you hear these experts speak the more you realize just how much they "over-speak" the problem. They "measure themselves by themselves" do they not? They can talk all around the crisis and above the crisis and suggest several exotic financial schemes. The latest one I read about is dubbed the "earned principle forgiveness" program. It sort of rebates you some money somehow. It is ridiculous. This program just has to be one of the worst in a long series of bad jokes being played on us with our own money. Read about this scam plan yourself if you want to really get sick to your stomach. Is there no end to this stupidity? Anyone who is involved with real estate will tell you: "no one is going to buy property if it is just going to go down in value. " So, as long as foreclosures and short sales continue prices will continue downward. Don't catch the falling knife.

© Frank Louis