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Congress Ruins America by Accident

Forget “Wall Street Greed”.  Think “Meddling Congress”.  We as a country are in the financial mess that we now find ourselves because Congress had a great idea!  I thought their idea great too until I realized that their “Affordable Home Ownership” program gutted a perfectly good banking system.

What happened?  Well, former President Clinton wanted to make home ownership more affordable to the average person.  Clinton directed the Department of Housing and Urban Development (HUD) to come up with a plan to make homeownership more affordable.

Bye the time “Affordable Homeownership Strategy” was ready for a vote, President Bush was in office.  When Bush made the announcement on TV that the National Homeownership Strategy was passed by Congress and the Senate, I remember thinking “Good, this is something that makes sense.”  Little did I, or anyone, know the trouble it would bring.

That was the first domino to fall that brought down America.  Under the new banking rules, it became easy to find mortgage financing to buy a house.    When the average American realized that he/she could afford a home, and that home prices kept rising, he/she went out and bought a house.  The thinking was “Don’t worry if we can’t afford it, prices keep going up.”

People bought mortgages that they couldn’t afford, because they could sell the house in a year or two at a higher price.  It became a feeding frenzy.  As demand for homes rose the demand kept pushing home prices higher.

The unexpected events that ruined the American economy

The demand for mortgages affected banks.   Banks hired more mortgage agents.  Mortgage agents got jobs with little training – because buyers didn’t want to wait.  The buying stampede was on and there was money to be made.

Allan Greenspan, then the Federal Reserve chairman, kept interest rates low. That was like throwing gasoline on a fire.  The feeding frenzy kept up, with home buyers bidding more than asking prices.  And if a buyer didn’t over bid high enough, they wouldn’t get the house.

With all that money in the economy, Wall Street found ways to leverage the equity built on the traditionally safe home mortgage.  Little did they know, it was a house of cards.

The housing bubble goes bust

During this time, American companies were outsourcing their product needs. The outsourcing opened trade doors and tremendously helped populations around the world find work.  It also helped American corporations to diversify their operations and provide lower cost goods to American consumers.

The down side was a loss of American jobs to overseas workers.  As American workers lost jobs, they began defaulting on their mortgages.  Banks began to suffer losses.   Soon, home prices were not being bid up anymore.

With banks now suffering losses and home sales stagnating more workers lost jobs.  Soon, hundreds, then hundreds of thousands of home mortgages were in default.

Wall Street firms held mortgage paper that they found worthless.  Mortgages were supposed to be bedrock stable.  Instead, the old reliable bank income from home mortgages dissolved.  Banks failed.

Brokerage companies failed.  Bear Sterns, Lehman Brothers and others followed by huge companies that insured against losses such as AIG failed or needed government intervention.

The house of cards had fallen.   Billions of dollars were lost.  Jobs gone.  Home prices slid back a decade or more.

The US Congress only meant to help the American worker afford a home more easily.  But Congress was blindsided by events.  Congress is always blind to events. . .its a world of “compromise” for Congress.

The US Congress is more like a committee than it is a board of directors.  The American public wants to elect movie stars, lawyers and college professors.  The result is a committee of politicians unable to analyze how their actions will affect the future.

The economy is a business.  To grow it, you have to think like a business.  This editorial asks the reader “How’s the US Congress working out for you now?”

More reading on this historic destruction of America

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