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Greedy ignored signs of economic disaster
COMMUNITY VOICES
| Sunday, Aug 17 2008 5:59 PM
Last Updated: Sunday, Aug 17 2008 6:03 PM
Logic does not always prevail in the investment market. "Speculator" often conjures up an image of manipulation or predatory action.
But the signs of the country's current condition were obvious for some time. Regrettably, a segment of the unrealistic public, some amateur investors with a false sense of entitlement, and some financial institution managers greedily remained myopic.
When business logic was cast aside or ignored, and the belief that rapid home value growth was the new guaranteed path to easy money emerged, buyers, mortgage industry officials and builders defied basic business and financial rules, knowingly setting themselves and the country up for this disaster.
The "wisdom of the moment" is to bail out "unsuspecting" buyers, and prop up mortgage institutions that suffered losses from unpaid loans and dramatic increases in foreclosures.
The larger portion of the American public that did not buy more than they could afford, or did not re-finance multiple times for funds to spend on other discretionary items now must shoulder the costs of the unsuspecting, ignorant, greedy, or just selfish.
The ripple effect is catastrophic, since those who caused the problem want to walk away from their problems. It's the new no-penalty "bankruptcy." Banks get left holding now-undervalued houses, payments to all sorts of other creditors go unpaid, and neighborhoods with many foreclosures look dismally sad, unkempt and less desirable.
Contractors, builders, tradesmen, suppliers, Realtors and independent lenders are closing their businesses or offering liquidation pricing. The corporations and independently-owned support businesses are posting massive lay-offs or store closings.
It would nice to be sympathetic, but where are the legal penalties to the buyers, the financial managers and the brokers who brought the country to this result? Who is held accountable?
My confidence that our economy is going to be restored soon is not high. This process is only starting to surface, with more dark revelations to come.
As usual, the more fiscally conservative individuals who did not overreach will suffer the de-valuations and tolerate the brown lawns in their deserted neighborhoods. They will suffer the higher prices that will be charged for all goods and services from companies that are impacted with losses and bad debts.
Their next actions will be to become even more fiscally efficient so that they can financially assist their sons and daughters who over-extended.
Since my family and I have seen and experienced this cycle before, our investments were moved into safer, more conservative yield portfolios over 18 months ago. We trimmed expenses and did not take on debt. While we are making no major purchases, any items bought are with available funds not with credit cards.
We have proactively offered our home for sale at the new, lower price levels, to sell and capture/protect the current (though lower) equity, since we understand that our regional area may incur dramatically reduced home values next year, as the quantity of foreclosures accelerates.
Since there is no evidence that this cycle will be short, we are prepared to sacrifice and down-size now, become financially liquid, and remain flexible to determine our next move as the markets bottom out.
Lou Leto of Bakersfield is a strategic business consultant. Community Voices is an expanded commentary that may contain up to 500 words. The Californian reserves the right to reprint commentaries in all formats, including on its Web page.