Barbarians at the Gated Community

Act 1. The Golden Age.

“Never invest in any idea you can’t illustrate with a crayon.”  ~Peter Lynch

In ’99 Clinton signed into law the great de-regulation that was the Republican wet-dream. One of the GOPs maor issues with Glass-Steagal was the fact that BHCs could not own other financial companies was repealed. That meant that very flexible, non-traditional banks could own investment companies and have reduced risk (as share-holder debt could be written off tax-free) So you have fly-by-night BHCs buying up investment companies, and pumping money into very risky ventures. What happened next? The Dot-Com-Boom, the “Meta” economy (where people were investing not in value, but in investment potential, creating a feed-back loop of investment) and an unending, golden age of prosperity…That ended.

The bubble, of course, couldn’t last. It was like everyone in the room was holding their breath because, well, they all invested, knowingly, in ideas that had no intrinsic value. So the first person to say “wait a minute” would cause the ponzi scheme to fall.

Act 2. Land Ho!

“Property is organized robbery.”  ~George Bernard Shaw

So, after the bust,  ideas were out of vogue, and people naturally decided that they needed to invest in tangible assets. The down-turn in the economy lead to a lower interest rate, so investment firms, owned by small BHCs, decided a new tact. Sell people on APR based mortgages, package them into funds and sell those funds to larger companies (who then would sell them to foreign investors) This, of course, made property immediately attractive to a) people who couldn’t afford it and b) house “flippers” err… “homevestors”. So mortgages got sold, (there were a lot of people taking advantage of the fact that not a lot of people understood what an APR really was) and funds were created. These funds were greedily gobbled up by larger investment firms desperate for a product to sell. These were then sold to larger investments as quality, low-risk funds.

Well, the interest rate started to creep up, and APR dues jumped up exponentially. People who couldn’t afford their McMansions soon began to default, and “homevestors” gladly let their second or third homes fall into foreclosure, as foreclosure was the cheapest option for them. The “quality funds” began to lose money like a drunken sailor on fleet day, . Banks were left holding onto property that they couldn’t extricate and big investors panicked as they watched as house values plummeted. Loan companies dried up as people couldn’t re-finance due to their houses being worth a quarter of what they were, and big investors withdrew all the cash they could from anything related to property. Markets tumble, investment companies are toothless, and Depression is eminent. Unless.

Act 3 There’s a Hole in the Bucket.

“If all the economists were laid end to end, they’d never reach a conclusion.”  ~George Bernard Shaw

So, like any Classical Greek Cycle, we have 2 Tragedies and a Comedy. Here’s the scene: Republicans are arguing with themselves, shouting “De-regulate” and “Regulate” The Adam Smithians are desperately looking for the “Invisible Hand of the Market” while the more pragmatic GOP’rs are looking for the government to invest in failing stocks, hoping to kick start their wallets/the market. Democrats are also more than willing to throw money at the situation. Some want to throw money at the poor fools who bought into APR mortgages, some want to punish the capital wizards who conjured this situation by driving dumptrucks of money up to their companies front doors, but refusing to pull the lever until the so-called “fat-cats” leave. And, this entire, sad, broken Flea Circus is whirring impotently under the heat-lamp of an election.

While us traditional home-owners, the lamenting chorus of this series of plays, tighten our belts, try not to accumulate too much debt, and wait 5 years for the foreclosure properties to clear the market, so we can re-fi and consolidate debt. And we watch the vultures who have a little bit of money left, swoop down to feed of the carrion of these break-bottom properties. And laugh, because someone, not us, is going to get very, very rich from all of this chaos. Yes, all we can do is laugh the weary, mad laugh of the desolate.

The End.