Robert Kiyosaki Blog

Financial Education Portal inspired by Robert Kiyosaki


What a mess

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I’ve been delinquent the past few months in posting. I’ve been quite busy, what with some of my business ventures (including a couple of new ones), real estate and the real estate investment clubs. There’s a lot of fodder for blog posts over the past few months. From more bank collapses including Fannie Mae and Freddie Mac, insurance company implosions including AIG, foreclosures skyrocketing, etc. But keep reading because you’ll find what finally motivated me to blog today when I’ve already get about 18 hours of work in the next 5-1/2 hours.

I’m pretty much sick and tired of hearing mortgage brokers lay the blame squarely at the feet of borrowers. Let’s face it: there are (or were) a lot of bad brokers that coached borrowers and in some cases outright misled them. There were also borrowers that went along knowing full well that they were lying and could. The borrower knew it, the broker (and originator) knew it, the bank knew it.

Even the insurers knew it. AIG was “insuring” these loans that everybody in all financial sectors knew were fundamentally unsound.

Then they were put together with other loans of all grades into a great big pot. Then, like apples that you wouldn’t eat because they look bad and are on their way out but when pureed you don’t know the difference when made into apple sauce and sugar is added, they got sliced and diced into little pieces sold to investors as a sanitized product that had supposedly reduced the risk. Then they paid the companies to rate the new securities. Just like banks that had their preferred property appraisers that were compromised (think the investigations in NY and CA into inflated appraisals pushing people into jumbo mortgages or sub-prime products by collusion), the ratings were inflated (and unregulated). To further wash these bad mortgages, these securities were sliced and diced again in new securities, and rerated even higher!

What investors doesn’t want some of their assets in AAA rated securities that pay a rate of about 8%? For those wondering, that AAA rating is supposed to mean that there’s about as little risk as there could possibly be.

Ever since falling out of the last real estate bubble in the early-mid ’90’s, government has wanted to increase home ownership. That’s good for everybody including real estate investors and government because, lets face it, prices go up and so does tax revenue in a world of increasing value. So let’s just drop that partisan political nonesense. Republicans have been trying to blame Bill Clinton, Democrats, Congress, etc. In other words, it’s that nebulous “them”. Democrats have been trying to blame “them”, corporate greed, Republicans, Congress, George W. Bush, etc. And they are all right and all wrong.

It’s US as in America that got us into this mess. And it’s US that need to get us out of it.

The big popping sound and then the rushing air going by as the vacuum is drawn pulling down home prices, wages, tax revenues, stock values. Oh, yes, and inflation is being drawn up by forces like running the printing presses and massive government spending.

Let’s face it. The country turned more socially and fiscally conservative starting with the election of Ronald Reagan and culminating with the election of George W. Bush. Everyone agrees that taxes were high. But over the last 8 years, the Congress and President have pursued a cowardly tax policy. Lot’s of Libertarians with a big L joined the Republican party because the figured out that they were going nowhere as big L Libertarians.

Yes, that’s what I said. Cowardly.

Why do I say they are cowards? We let’s see. We had a huge deficit and we were finally paying it down and paying it down quickly. But we had an enormous crushing debt load still. So instead of maybe making a small cut to taxes and still paying down your debt, a big one was instituted. What happened is the equivalent to you or me having huge debt (that we have to pay for) and deciding that we don’t need 1/4 of our income. Now we are upside down and paying out more than we take in. You can think of it as quitting your job or being laid off and living on your credit cards. Sounds good when we talk about tax cuts but it’s really like losing your job but you still have the same expenses. Oh, just stop eating or heating your home. Now you won’t be spending as much! Especially if you don’t spend on you spouse or kids!

Then throw in a very unpopular war and try to lower taxes again! This is the first war in American history where taxes were lowered in wartime! Too bad the government doesn’t act like we are at war! Except of course for spying on us. Think of it as now you’ve been laid off but you just decided to double your expenses and you just naively think you’ll borrow and let your heirs pay for it!

Isn’t that the opposite of what we are trying to do?

Fast forward to bank failures, insurance giants failing, etc., because of their bad decisions. Their leaders got paid upwards of $100 Million per year and justified it by saying look how much we made the company and shareholders! Of course, shareholders would and should have received a bigger piece but that’s a different story. Basically, they took the money and ran. Now we see that there was widespread fraud.

There have only been about 6% of sub-prime foreclosures and 3% of prime. That shouldn’t bring down the financial situation. Except that the securities were weaker than advertised and how do you break them up and get the mortgages out.

Yea, the free marketeers now want a socialist answer. Not that I think that’s necessarily bad, but the same people that wanted no regulation want the government to fix it. Call it what it is. It’s nationalizing these businesses and essentially these industries. So what do we call it something else when it happens here? Or right, because America doesn’t have refugees either, just evacuees like after Katrina. Anywhere else, we’d be calling them refugees.

If I were in Congress, I probably would have voted for the bailout/rescue/nationalization. Then I’ve have gone to the john and puked.

So who suffers the most? Sure investors do. Sure the government does because there won’t be as money to spend (oh, wait, I forgot about the aforementioned printing presses). We do, the tax payers. We’d suffer if these businesses failed and we’ll suffer with the bailout. Which would be worse, we won’t know. But the bad fiscal, monetary and tax policy, especially over the past 8 years allowed for a death blow.

Why do I think we are in this mess? Greed? Incompetence? Greed? Fraud? False populism? Vote pandering ($600 tax rebate and a bigger deficit)? You bet. But they are symptoms.

It’s deregulation, my friends (oh, great, now I sound like John McCain). It started under Reagen, continued under Bush the Elder, accelerated under Bill Clinton and reached it’s peak under Bush the Younger and a Republican party that controlled Congress and could deregulate (or defund enforcement which amounted to a cynical way to achieve the same result–see they don’t do a good job anyway inspecting/regulating, see?) yet couldn’t pass a budget.

A number of real protections (that’s what regulations are for) were put into place because of widespread fraud, misrepresentation and a believe that too many people were speculating on stocks among other things that led the Black Friday in 1929. Through the 1930’s, these regulations came into effect for insurance, banking, stock markets, etc., etc. Fast forward and we’re back to where we were. Just like in the ’30’s, massive foreclosures, growing unemployment, inflation, etc.

I’ve said all of that and now I don’t feel any better. I might feel worse.

So why did I post? Because an act of compassion and humanity. The Cook County, Illinois, Sheriff announced today that he will not evict people living in multi-family housing that are being evicted because the owner is losing the property. He won’t put them on the street.

I’m in the market for these types of property so why am I posting?

Because he’s right. He’s right from a humanitarian aspect. It’s also pretty dumb sometimes when banks evict when they’ve got paying tenants and I see it every day. Property rots like overripe fruit when it’s vacant.

Here in Massachusetts, the Senate in the Spring passed this provision. The State House hasn’t taken it up and we are a largely progressive state.

This is a social justice issue. Screw the money. There will be a lot of people on the streets, families, kids, the elderly. Call your state rep. here in MA and ask why they never passed Senate Bill 2664 / House Bill 4734.

Read the act.

It allows for eviction for cause, like non-payment of rent; the tenant violated the lease/tenancy; the tenant is a nuisance, causing damage or interfering with other tenants; being used or permitting to be used for illegal activities; they’ve refused reasonable requests for access by foreclosing owner for repairs or improvements required by law. It’s pretty reasonable.

The act would sunset end of year 2013 and evictions that happen illegally carry reasonable fines.

This should be passed.

If you are in a different state

Read more here:
What a mess

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1 Comment

  1. It allows for eviction for cause, like non-payment of rent; the tenant violated the lease/tenancy; the tenant is a nuisance, causing damage or interfering with other tenants; being used or permitting to be used for illegal activities; they’ve refused reasonable requests for access by foreclosing owner for repairs or improvements required by law.

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