Today, Secretary of the Treasury Henry Paulson made a powerful statement about our national economy and how the mortgage finance crisis affects everyday American families. Unfortunately, Secretary Paulson and the New York Times did not provide a translation understandable to those very same everyday Americans about what he really meant.
I intend to provide the readers of DailyKos with just such a translation below. Hopefully, this will serve as an antidote to the ongoing gibberish coming from the Bush Administration regarding our economy and the mortgage crisis. Maybe as a bonus it will wake up our Democratic leadership to the fact that standing idly by while the Republican Party and their crooked buddies continue to rip off middle class Americans is not an option.
In sum, it is my take that if you're not hopping mad about the mortgage finance crisis, you simply haven't been paying attention...
Here's what Secretary Paulson and the New York Times said (with my emphases) in blockquotes followed by my translation.
"Let me be clear: Despite strong economic fundamentals, the housing decline is still unfolding, and I view it as the most significant current risk to our economy," Mr. Paulson said in a speech at a Georgetown University law forum.
My fellow Americans, the impression you may have gotten that the mortgage finance crisis was over was misleading. While the large corporations where you buy your gas and your groceries continue to make money hand over fist, some of the predatory lending companies that wrote inappropriate and exploitative loans to millions of Americans are not doing so hot. And, yep, some of the banks and investment firms that underwrote the companies that made those loans are not doing so hot either. Further, many of the Americans who could not afford those loans in the first place are now facing foreclosure and the loss of their life's savings without so much as a meeting with a loan counselor or a chance to renegotiate. Additionally, neighborhoods are now seeing waves of foreclosures as adjustable rate mortgages are triggered.
In sum, we are witnessing a situation where even those homeowners with good credit who make their mortgage payments on time and who have always played by the rules are watching as their properties decline in value. My fellow Americans, this situation is really bad for our economy.
This situation is even worse than the weak dollar, the war in Iraq, or our dependence on foreign investment from nations like China, Saudi Arabia and Dubai to underwrite our national debt. People who bought $600,000 homes on 25 year mortgages in new developments are watching as development companies sell the home next door for $500,000; even middle class Americans who read the fine print of their loan agreements are watching as multiple homes in their neighborhood are foreclosing and going on the market at firesale prices. This process is wiping tens if not hundreds of thousands of dollars from the net worth of middle class Americans and making it hard for even Americans of considerable means to sell their homes or recoup the value of what, for most families, is their single greatest investment, their home.
This is not a good situation.
"The longer housing prices remain stagnant or fall, the greater the penalty to our future economic growth."
My fellow Americans, most American homeowners, banks and communities in our history followed a simple formula that ensured that, over the life of a home loan, a mortgage in a single-family dwelling in the United States was a wise investment. First, banks and lenders insisted that potential homebuyers make a significant down payment on their home and have the proven ability to make their mortgage payments over the life of the loan. And, second, homeowners, lenders and municipalities worked cooperatively with tax incentives, programs like the FHA and investments in local infrastructure like schools and roadways, to make sure that a pool of homeowners who invested in homes in a community saw a steady rise in the value of their property. Communities worked together and home values steadily increased.
Sometime in the 1980's this common sense formula began to change. First, an anti-property tax movement swept the nation that allowed some homeowners to opt out of investing in the communities they lived in. Schools weren't built. Roads weren't improved. Libraries idled for lack of funds. Second, real estate investments, even single-family homes for middle class families came to be seen, more and more, as speculative investments. Refinancings, speculative real estate play, sketchy financing schemes, and the bundling of those speculative real estate investments meant that a great deal of risk was bound into that basic, tried and true formula of American real estate...sensible loans and investment in our communities. This speculation was founded on the idea that the market would always rise, that home values would never stagnate or decline. This created a bubble.
We in Washington and on Wall Street knew about this bubble. We also knew that even with sound lending practices on the part of banks and sensible fiscal policy from Washington, an investment in real estate was still, after all, an investment vulnerable to market forces, and sometimes market forces mean that even a single family home may lose or stagnate in value for a period of years.
So, my fellow Americans, a huge chunk of our economy is predicated on housing values rising...not stagnating or falling: and what I'm telling you today is that housing prices are stagnating and falling.
The mortgage finance crisis is not simply about poorly educated folks who unwisely purchased a home and the speculators who helped them. This situation affects every American household. It affects the ability of Americans to move to take a new job, it affects the rental market, it affects retailers, investors and even affects otherwise well-to-do Americans perception of their own wealth, and hence, their spending patterns.
In sum, the real estate bubble we built over the last decades is now bursting and values are stagnating and declining. We don't know to what extent. But this is a very big deal that affects everyone.
"I have no interest in bailing out lenders or property speculators," Mr. Paulson said today. "Still, we must recognize the very real harm to families affected by the housing downturn."
My fellow Americans, many of you who are paying attention will see my efforts to negotiate deals with banks and financial institutions behind the scenes and wonder what is going on. I have to admit that directly contrary to what I said above, these deals will most certainly have the effect of bailing out lenders and property speculators. You see, while I don't really care about two-bit lenders and speculators, I do care about the firms and banks that invested in them.
However, what's more to the point is that enough everyday people are getting hurt by this housing downturn that I have been forced to call attention to that reality to persuade my rich friends to pony up some money to put a band aid on things before enough of those everyday Americans get fed up that they demand that Congress do something more drastic. Real people, real voters who played by the rules are going to lose large amounts of money if Washington and Wall Street don't do something about this soon; unhappy middle class voters are bad for the Republican party. We can't have that.
Mr. Paulson is becoming more active on other fronts as well. In his speech today, he called for new nationwide rules for mortgage lenders, changes in the practices of credit-rating agencies and tougher scrutiny by federal banking regulators."
My fellow Americans, I am calling for new nationwide rules for mortgage lenders, changes in the practices of credit-rating agencies and tougher scrutiny by federal banking regulators. All of these are things that I or my predecessors could have done or called for at any point in the last seven years.
We didn't call for these changes because, just like when our friends at Enron or Chevron or Walmart or Halliburton or Blackwater were making money like it was going out of style...we weren't going to do a thing when our buddies at Countrywide put aside decades of sensible lending practices in the United States real estate market and unleashed millions of ticking ARM-bombs on American consumers.
We knew better and yet we did nothing.
And we did NOTHING because our buddies were making too much money. It's that simple. For as long as the United States real estate market continued to rise, nobody was going to complain: not consumers, and not the Democrats in Congress. And that's all that mattered. We had the power to call for all the above reforms at any point. We didn't. We're calling from them now because voters are angry and our economy is in trouble.
Mr. Paulson also tried to step up pressure on mortgage lenders and mortgage-servicing companies to renegotiate terms for people in danger of defaulting on expensive subprime loans. "We have an immediate need to see results," Mr. Paulson said. "The current process is not working well. This is not about finger-pointing, it is about putting an aggressive plan together and moving forward."
My fellow Americans, despite my efforts to cut deals with banks and financial institutions behind the scenes to preserve some semblance of the status quo there are large numbers of predatory lenders who are simply unwilling to renegotiate with troubled homebuyers and are forcing those homebuyers into foreclosures. This is hurting our economy and screwing thousands of little guys.
I know that there are plenty of folks on my side of the debate who are pointing their fingers at the little guys and, normally, I'd be sympathetic...however, I'm pointing the finger at the lenders and mortgage servicing companies to tell them that if they keep this up, they are going to screw the pooch and the Democrats are going to pass some laws out of Congress that will make them wish they had never issued a single ARM or sub-prime mortgage. If the GOP and Wall Street don't put a plan together that these predatory lenders start to follow, we are going to be royally screwed.
"I’m increasingly concerned there are some homeowners out there being harmed by the complexity of the system," he said. "I want to see more results. I don’t want to see foreclosures taking place where 50 percent of the people haven’t talked to anybody."
The predatory lenders and banks aren't negotiating with homebuyers; they are just foreclosing on them. Over fifty percent of foreclosures are happening without anybody talking to the homeowner in any constructive way, ie. no mortgage counseling, no good faith attempt to renegotiate, no nothing. This is bad for the economy and bad for the GOP. If the predatory lenders keep screwing the little guy, they are going to end up screwing a hell of a lot of big guys, too...and the Republican party.
On the one hand, Paulson and the Bush Administration admit that they have a legitimate economic crisis on their hands. A "torrent of foreclosures" will have significant impact on the United States economy. Paulson, speaking for Bush, is increasing the urgency of his rhetoric and talking about the "little guy" to move the financial and banking industries to take action and stop the self-destructive practice of foreclosing on millions of Americans without even lifting a finger to make a good faith effort to renegotiate.
But, this is also a double crisis for Paulson and Bushco. You see, the Bush Administration, at all costs, cannot have Congress regulate the marketplace. If that were to happen, and a wave of middle class voter sentiment were to swell against the predatory lenders and their deceptive practices and impact on the housing marketplace, then, GOD FORBID, the Democrats might pass laws that regulated the kinds of loans banks and financial institutions could offer to homebuyers.
You see, the real worry that causes Secretary Paulson sleepless nights is that Congress might regulate the corporations. Paulson can't have that, at all costs.
Friends, we've lost touch with common sense.
A home is the single most important investment a typical American family makes. By agreeing to reasonable terms on a mortgage and working within the network shared by the local community, the lender and the homeowner/taxpayer, American homebuyers built the greatest real estate market known to man: Main Street USA.
We did this by building schools, by building businesses, by working with our fellow citizens and taxpayers to pass bonds that developed roadways and sewage systems. We built the American real estate market together, one community at a time.
That was us.
But some people got greedy and had to make more than their share, some folks turned a blind eye to speculators interested only in profit and a quick turnaround, some folks opted out of investing in their own communities by voting themselves out of paying property taxes. And George Bush and Henry Paulson joined a long line of politicians happy watching as that system was short circuited and manipulated for profit. We've seen this before. Whether it was Enron or Halliburton or Chevron or Countrywide, for today's GOP, there is no such thing as a sound investment and long term work within one's community to build value for everyone.
Profit is for the big guys; given enough time, it's supposed to trickle down to us little people.
Haven't we had enough of that lie?
Believe it or not, the Constitution gives Congress the power to regulate commerce. Business, in fact, is the business of Congress. It's true.
Will the Democratic party roll over like we did on the bankruptcy bill? Or will some Democrats grow a spine and finally say enough is enough? The GOP has proven they don't care a whit about fiscal responsibility and the middle class. Will our leaders in Congress stand up for once and make the translation?
Foreclosure is a nasty word. Herbert Hoover helped issue the last big wave of foreclosures our nation faced. Looks like George W. Bush is happy to join his company.
Friends, what are we going to do about it?