skitahoe

Rick Santelli: The Best Five Minutes in CNBC History

I believe that there are as many people who'd be identified a hard working upper middle class or upper class people who're hurting just as much as those who're being classed as those not working, expecting a hand out. Certainly when companies go belly up, or lay off huge percentages of their labor force more of those laid off are middle to lower class, but they're not slackers, they work for a living and you can bet the majority are seriously looking for work.

I was speaking to a Property Manager who I moved a property I own to about the foreclosures in that area. He indicated that he knew of not one single case where the owner who lived in the property was being foreclosed. His contention was it was almost all losses by flippers that resulted in foreclosure. While this is probably an exageration, or specific to his area, there is a lot of truth in what he's saying.

Many flippers aren't lazy, they often do repairs on property they buy themselves, but for years they've made big money buying and selling property often where banks financed nearly everything. They certainly didn't see their world ending, but when it happened many walked away leaving the banks holding the bag.

Today the flippers with money are performing a service, and they should be well rewarded. They're buying the foreclosed properties, which even new have often been looted and allowed to run down, and they're fixing them up for resale. This is positive as run down properties bring everyones prices down, so they shouldn't be condemned for their actions, but the banks should perhaps be condemned for permitting flippers of the past to put in almost none of their own money in purchasing real estate.

The problem investors in real estate have is the banks have gone from one extreme to another. I'm a real estate investors, the last purchase I made was over ten years ago, few have been sold, and most of those that did were to tenants. I'm never late with mortgage payments, yet because I own over 4 properties, the banks don't want to talk to me.

My point is that banks need to service their customers instead of pulling back services. They act as though they don't have money to lend even after receiving hundreds of billions in bail out funds. If you pay down a credit card balance, they lower your credit limit even though all bills have been paid on time.

In short, it's the action of the banks that brought down the economy, and it's the lack of action by the banks that's keeping it down. It's foolish to give loans to people who can't pay them back, but it's even more foolish not to work with people who're willing to work with you by doing things like lowering interest rates at a time you can borrow from the FED at under 1%. I doubt very much that many of those foreclosed on in the last 3 years couldn't have kept their properties if offered loans at 4%. Sure, 3 years ago loans weren't that low, but with all the foreclosures occuring, they should have been, but the FED didn't see it either. Sure if the banks acted without the FED they'd have lowered profits, and no doubt lowered executive bonuses, but they'd be in far better shape.

The problem in part was the banks often didn't have a horse in the race. They simply were servicing loans they sold, if they did foreclose, others held the bag. In short, the system failed because every agency in it had opted for short term greed over long term gains.

Freddie and Fannie would never have gotten in trouble had they stuck to buying fully complying loans, but there were supposed to be bigger profits in buying others. Lending requirements were dropped to levels where I could probably have gotten a loan for my dog, if not, most certainly my daughter who's still going for a professional license so she can be paid, but currently works essentially for free. In short they all cooked the books because that's what paid the big bonuses.

Deregulation has a wonderful sound, people like to be free, but the reality is it both led to tremendous greed on the part of executives, the higher up the chain the greedier, and it led to ignoring the regulations where they were in place because the regulators made it clear that they could. That's where agencies like the SEC come in.

In short, we've had many years of our politicians, regulators, and executives essentially all saying, "Greed is good", it was a great line in the movie, but long term profit would have been far better. Companies like GM have put greed over long term profit for at least the last 40 years, failing to reinvest profit in more efficient and higher quality production facilities resulting in foreign named American made vehicles all rating higher in quality and reliability. Perhaps we needed the wake up call we're having now, it's painful, but hopefully if won't be to long before it's over.

Gary