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Banbury Cross

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Post details: No Flipper Left Behind

No Flipper Left Behind

As the sun slowly sets over the prairie of the current White House administration - three landmarks are casting particularly long shadows: Iraq, Katrina and Countrywide. The last may seem bush-league for now, but as the housing industry sinks deeper into the quicksand of frivolous lending, the US largest mortgage company may soon become the new Enron, falling pray to the dark side of the housing boom that it helped to create. It wasn't always that way though.

There was a time when people were earning their living by producing something other people might need rather than pushing paper around and speculating in the Bubble Du Jour. Of course, riding the coattails of the housing mania was much easier and even advanced condo flipping didn't really require many skills beyond giving your John Hancock.

There was a time when people researched their investment. The times when due diligence entailed more than clambering onto a jolly bandwagon rolling down the street. Times when "buy low, sell high" was the first comandment of prudent financial management - the rule to be later quietly replaced by "buy high and hope there are more suckers waiting on the sidelines".

There were times you had to put money down to buy a house. You had to show that you are serious about your purchase. But as the need to lure more people into the growing Ponzi scheme arose, the lending standards were loosened, then loosened some more and finally completely abandoned.

There were times when real estate agents were knowledgeable professionals providing guidance through the legal jungle of buying a home. The times when their trade toolkit included more than a pair of faded pom-poms and their pitch wasn't reducible to a single mantra of "housing prices only go up". But arguably, it is hard not to cheer for overpriced market when your comission is the percentage of the closing price.

There were times when banks carried the risks associated with loaning money. The times when they were the primary holder of the debt, which made them think twice about who they loaned to. These days, however, they just collect a fat commission and then they package the debt into bond-like securities, which they sell around, mostly to unsuspecting foreign investors. That of course is a mighty incentive to loan money at all costs.

There were times when invisible hand of free markets weeded out business people making bad decisions. The times when men took responsibility for their bad decisions and learned from them. But these days, when the music stops, and the schemes are starting to collapse, the big investment bankers come knocking on the government's door with pleas for a bailout. Like a bunch of little boys crying "Mommy".

But make no mistake, the powers that be are listening. It's not that they want to bail out the poor homeowners who could just walk away from their $0 money down mortgages and feel very little pain. They want to bail out the Wall Street denizens and the hedge funds that hold all the toxic debt. Why? Well, there is nothing more heart wrenching than seeing a major campaign contributor in distress. Plus in deciding who will be bailed out, more red tape will be created, which means more government jobs. And if in the process an environment for corruption is created, so be it. Sure we could spend the money on Universal Health Care or educational programs, but hey - this will be well worth it. After all, nothing spells "freedom" like supporting irresponsible behavior.

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