Wall Street Walk
Good Business News
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"When I do good, I feel good; when I do bad, I feel bad. That's my religion." Wall Street & The American DreamOkay I’ll say it. What no one else will say. It’s not Wall Street’s fault—at least not completely. Wall Street, the “fall guy” for every financial evil known to humankind, is simply a product of our money-obsessed culture. We revere money. We deify it. Money is our God. How can a cultural deity be only the responsibility of its high priests? There are plenty of innocent victims on Wall Street too. OK, innocent might be pushing it. Let’s change that to “unsuspecting.” There are plenty of unsuspecting victims on Wall Street. People who were simply doing their jobs from the mailroom, to secretaries, to top sales analysts, traders, and managers who had no part whatsoever in the subprime mortgage debacle. If Wall Street is not responsible, then who is? Let’s start at the beginning. In the beginning, Man created The American Dream. And it was good. The fundamental essence of the Dream is to create a better life, which includes owning a home. Home ownership is as essential to the American Dream as Apple Pie. That’s where the mess begins. American people over the last decade who did not own a home felt left out, less than worthy, insecure, and unprotected. Our entire economy is based on building equity through home ownership. Retirement has been planned for decades around selling the family home. Dangle a carrot in front of a starving renter and offer them an easy way to have their slice of the American Dream. Buy a home with zero money down. Or better yet…buy a home and get cash back just by putting your name on the line. A smiling mortgage broker in polyester pinstripes pushes the paper in front of you. Just sign here and the American Dream is yours. Cash in the bank and a home of your own. Except the home really isn’t yours; the bank owns one hundred percent of it. You actually own nothing. You’re just the person who is allowed to live in it until the payment adjusts to three times the current amount. Is that greed or desperation? You decide. I had a friend, yes “a friend,” whose husband was both a real estate agent and mortgage broker. He personally bought eleven houses with no money down in a desert community thirty minutes south of San Francisco. He bought all of these homes in a corporate name with NegAm terms. This means he paid a small interest (1-2%) payment for the first three years until the loan adjusted to its full 9% rate. In those three years, he rented the homes, for which he paid nothing, and pocketed the $2,000 per month difference between the mortgage payment and rent. At the end of the three year “teaser rate,” he would refinance at the same rate or flip the house for its 30% increase in price—all with no personal risk or investment. Remember those late night infomercials, the dozens of books, Learning Annex seminars that hailed get-rich-quick real-estate schemes? “Buy real estate with no money down.” Well, this guy did. It worked for a while, until it didn’t. The housing market flattened, then declined, and he could no longer flip or refinance. He was stuck with triple rate payments and ballooning loans that exceeded home values. What did he do with all that debt and no way to repay it? He walked away. Yup, he just walked away with seven years of revenues from eleven homes he “bought” with no money. You remember the old corporate veil, don’t you? Is it greed or desperation? You decide. Folks this real estate investor is not on Wall Street. He’s a full-time security foreman at a large California state agency, with a state pension plan, state health insurance, and job security, who received a real estate license after 3 weeks of education and a mortgage broker course of similar length. This is not the “evil” Wall Street banker we love to hate in bad times and celebrate in good. This is a regular guy who took the “no money down” concept he learned in a Learning Annex course seriously and ran with it. Literally. Now think of the mom and pop who find their mounting medical and legal bills, education and car loans, utility costs, and high interest credit card debt overwhelming. No matter how hard they work, they can’t save enough to get ahead. All they own is the home they have lived in for twenty-five years. Their mortgage will be paid off in a few years. Sinking in debt, they see a banner ad on the bottom of their PC screen. “$500,000 mortgage. $899 per month. Cash in your home equity.” Eureka! Relief is on the way. Mr. Smiley Polyester Pinstripes tells them to sign on the line and your woes will disappear—at least for a while. Is it greed or desperation? You decide that one too. Let me ask the question again: is Wall Street responsible for the current financial crisis? OK, sure. In many ways, they are. The mortgage traders, sales people, analysts, and managers who failed in their due diligence on loan underwriting standards. The many bankers who doubtless knew the loans were flawed, but securitized them anyway. The bankers and investors whose unrelenting appetite for profit wrapped shaky loans so tightly together in “exotic” financial instruments no one had a clue what they were. The rating agencies, underwriters, and lenders whose business model amounted to"take the money and run." The risk management officers who looked the other way until bonus time. The traders, bankers, and investors who wrote big numbers on pieces of paper and forgot those numbers represented human lives and livelihoods. Certainly, they are all responsible. Yet how about all those who bought homes for investment with no money down and no ability to repay them? Are they responsible? And how about all those who looking for "free" money got cash back by just signing their name? Are they responsible? What about all those real estate and loan “professionals” who took advantage of America’s overworked and underpaid, and looked home buyers and homeowners in the eye and said "just sign here" knowing full well the loans were deadly? These individuals add up to hundreds of thousands of small-time investors, home flippers, slippery mortgage brokers & real estate professionals, bucket shop lenders, and unlicensed loan “distributors.” They come from all walks of life, not just Wall Street. Main Street is full of small-time bankers, brokers, insurance agents, realtors, used car salesmen, and snake-oil salesmen who will tell you anything just to get the deal done. It’s been standard operating procedure for some for thousands of years. There is something unnerving about someone who can look you in the eye and feel good about tricking you out of your life savings. It’s like looking down the barrel of a gun at an unsuspecting deer and pulling the trigger. Shoot to kill. Bulls-Eye. Millions of unsuspecting borrowers went down swiftly with one well-placed bullet. Where was the government when we needed them? Even deer hunting is regulated. Then who is responsible really? Here’s the list: The unscrupulous mortgage broker, the fast talking realtor, the no-money down flipper, the bucket shop lender, the lethal NegAm/Option-Arm lenders, the big banks, the little banks, the investment banks, the institutional investors, and last but not least the Securities and Exchange Commission, the Federal Reserve, Congress, and the Administration. As a GoodB Wall Street Walk editor, I am often asked if "everyone on Wall Street is a crook." Emphatically no. Nor is every real estate agent, banker, or mortgage broker anything other than ethical hard working individuals. There are plenty of good people in all industries who make money the old fashioned way. Fairly and honestly. Apparently, however, there are enough individuals who don’t operate this way in Big City and Small Town USA to make a difference—a serious economic crisis kind of a difference. Yet there is something even more potent than Wall Street or Main Street at the root of this financial tightrope… the cherished and revered American Dream. The Dream that forces us to do anything we can to own a piece of the pie, even sell your neighbors down the river or pull them down with you. The Dream that drives us so hard to attain it, we are left it with a worldwide depression and the threat to American stability and comfort looming over our heads. Maybe the current financial crisis with all its power and pain makes this the right time to readjust The Dream.
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