Have We Learned Anything From the Financial Crisis?

By Stacey Moncrieff, Editor in Chief, REALTOR® Magazine

Stacey Moncrieff

Stacey Moncrieff

If you agree that the country hasn’t yet learned its lesson from the financial meltdown of 2008, you’ll want to take a look at a piece in Sunday’s New York Times by Sandy B. Lewis and William D. Cohan.

“The Economy Is Still at the Brink” alternately takes to task President Barack Obama and Congress (stop with the short-term fixes, and start imposing some real reforms on the banking system), U.S. consumers (stop spending money you don’t have), the securities industry (let’s have some real transparency in the area of asset-backed securities), and Wall Street executives (when are they going to publicly admit their role in the financial crisis?).

Lewis and Cohan call for something along the lines of South Africa’s Truth and Reconciliation Commission for top bankers. One condition for repayment of TARP funds, they suggest, should be that bank executives give a public deposition, explaining under oath what happened and why. In exchange for their honest testimony, they’d be granted immunity from prosecution. Interesting idea.

Cohan is both a former Wall Street executive and an investigative journalist. His book on the crisis, House of Cards: A Tale of Hubris and Wretched Excess on Wall Street (Doubleday, 2009), is supposed to be gripping. I’ll be following his advice to stop spending money I don’t have–I plan to pick up his book at the library one day soon.

Stacey Moncrieff

Stacey is vice president of business-to-business communications for the National Association of REALTORS®, overseeing the association's key communications with NAR members and REALTOR® association executives.

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Comments
  1. Ben Crum

    When unemployment reaches 12%, how many jobs will have been “saved”?

  2. Margot Easley

    The book sounds like it would be a great one to be included in every high school. reading program. As a Realtor I find myself frustrated by the REO banks that are holding VA and FHA properties hostage. I am also exasperated by the programs that are supposed to “fix” the problems. The redundancy, lunancy and immobility of the REO banks that I have had to deal with (Bank of America, Deutsxh National and Wells Fargo) makes buyiing a forclosure almost an impossibility for a middle class American. I personally feel guilty when I present all the paperwork from the banks to a buyer, because of the totally one sided contract. What the banks did to our economy was ugly, but what they are continuing to do us is, in my opinion, even uglier. We are in exactly the same position as we were when we had the depression. The only difference is that now, instead of a few fat cat individuals being the monopoly, , it is a few huge fat cat corporations

  3. Steve Tutt

    U.S. Ups the Ante in Foreclosure Program

    The U.S. government is offering another $3.1 billion to mortgage servicing companies to encourage them to modify loans for borrowers facing foreclosure.

    More than 9 percent of 45 million U.S. mortgages, or about 4 million loans, were delinquent in the first quarter of 2009, according to the Mortgage Bankers Association.

    The Obama administration put up $50 billion in March as an incentive to encourage the mortgage industry to modify loans to make monthly payments more affordable. So far, however, the plan hasn’t been very effective with relatively few borrowers able to qualify.

    To increase the numbers, the administration last month expanded the program to provide incentives for lenders to streamline their short-sale processes.

    As of this week about 50,000 borrowers are enrolled in three-month trial modifications under the plan, the Treasury Department says.

    Part of the problem, lenders say, is the volume of applicants, which has overwhelmed workers charged with modifying the loans.

    Source: The Associated Press, Martin Crutsinger (06162009)

    OK, let’s see…

    1) We have created a program few can qualify for, but we allotted $50,000,000,000 bounty to encourage participation. I hope it’s not all gone yet.

    2) 50,000 loans have been modified.

    3) f it’s all been spent that’s $100,000 per loan.

    4) The bounty offerred is about $5000 per loan.

    5) That’s $250 million accounted for.

    6) That leaves only $49.75 billion missing in action so far.

    7) But, there are only 3,950,000 more loans to modify, this month.

    8) By my calculations, at that rate, we need nearly $4 trillion more.

    9) But the geniuses in power say “Let’s throw another $3,100,000,000 at it. Maybe that will fix what’s wrong with the program.”

    10) I believe the prevailing ignorance in our Government is a bottomless pit, challenged in stature only by the pit they are throwing the money into.

    Has the rest of the country been suddenly transformed into mindless lemmings? Why even waste effort on all this subterfuge? Just print the money and run! Oh, I forgot. It needs laundered first.

  4. Wayne Martin

    Imagine how disapointed the “Big” business schools are. This is the best thinking they turned out. Look what all the short term profit greed turned out.

    But here a fix, from Joe American. Who’s smarter? Wall Street or this person

    This is from an article in the St. Petersburg Times Newspaper on Sunday.

    The Business Section asked readers for ideas on “How Would You Fix the
    Economy?”

    I think this guy nailed it!

    Dear Mr. President,

    Please find below my suggestion for fixing America ‘s economy. Instead
    of giving billions of dollars to companies that will squander the money
    on lavish parties and unearned bonuses, use the following plan. You Can
    call it the Patriotic Retirement Plan:

    There are about 40 million people over 50 in the work force.
    – Pay them $1 million apiece severance for early retirement with the
    following
    stipulations:

    1) They MUST retire. Forty million job openings – Unemployment fixed.

    2) They MUST buy a new American CAR. Forty million cars ordered – Auto
    Industry fixed.

    3) They MUST either buy a house or pay off their mortgage – Housing
    Crisis fixed.

    It can’t get any easier than that!

    P.S. If more money is needed, have all members in Congress and their
    constituents pay their taxes…

    If you think this would work, please forward to everyone you know. If
    not, please disregard.

  5. I started my real estate career during the big boom. Not once did I think that any of the banks gave out risky loans to consumers who could not pay them back.

    However, now all that I have heard so far from the banks is that the consumers who defaulted are at fault. Therefore, the banks increased their qualifications to make loans. After all, they cannot risk their money on those at risk consumers now can the. As a result, most of my middle class first time home buyers cannot meet the banks qualifications.

    The banks were happy to take the government TARP funds but soon started repaying them. I was told by one banker that they did not want the federal government to tell them what to do. Someone needs to look at what a typical want to be home buyer has to go through. Stop the lenders from blaming the consumer.

    The government would be better off to start a different kind of funding that helps consuemrs with small loans so the people can empower themselves. The banks will have a fit, but, too bad. There are other lending plans in the world that have been found to be very helpful. These need to be researched.

    Finally, if we continue to try to rescue the same old lenders who respond by decreasing their loans, we will never get out of this hole that has been dug. The government is not really helping us. By stating this the government is as guilty of fraud as those on wall street have been accused.

    Thanks for letting me vent.

    Robin Hill

  6. Diane Ribbentrop

    Re:This world wide financial meltdown and why it became so massive:
    President Reagan then both Bush’s policy of deregulating banks & Wall ST planted the seeds to this meltdown- with a bit of help from President Clinton.
    This allowed lenders & Wall St to do business unethically almost illegally with impunity. ‘ Junk ‘ securities were being labeled as TRIPLE A. Exotic instruments such as credit default swaps and derivatives made things much worse.Massive greed took over from there.
    Bush’s treasury Secretary , Alan Greenspan pushed this policy even more. Yet no one is accountable. Mr Obama needs to put safeguards quickly – into the system once again – which we had prior to Mr Reagan.
    Bush ‘s Treasury Sec Hank Paulson a former Wall St CEO – GAVE 700 billion to his Wall ST buddies – with NO STRINGS ATTACHED.

    Thanks for giving me this chance to state my opinions.

  7. Diane Ribbentrop

    Housing and lending:
    Right now ,Mr Obama is doing damage control. We have been left with a huge world wide disaster. Desperate measures had to be taken – so we would not experience a true depression – which would cause untold misery. Ameicans must be patient.
    This crisis took over 25 years to grow – like a cancer, until it exploded in Fall 2008 .
    Predatory lending added greatly to this housing meltdown. Lenders are finally being
    ‘ picky ‘ in who qualifies for a loan, too bad they did not do that years ago, when they gave loans to anyone with a pulse ! Have we all learned our lesson ?
    We shall see.

  8. Rae Bourassa

    I am a REALTOR now after spending 27 years with the federal government in housing programs. I watched the lenders pull away from the nice, traditional fixed rate FHA loans in favor of the “easier” and “better” loan programs. The good government backed loans were available, but they chose to put buyers into loans that made them more money. They were motiviated then by self interest, and they continue to do the same thing in disposing of the properties they have taken back in forclosure. It is almost impossible now for a first time buyer to get a bid accepted – the REO sellers are selling their properties to investors who can waive inspections and do a quick close. Even though the first time buyers may have bid more, the REO sellers want the “sure thing.” They do not want to wait for loan approvals

  9. Rae Bourassa

    that take time and require appraisals. I wonder how many of these bank sellers are accepting federal bailout money and are supposed to be helping homeowners. And how many of these foreclosures could have been prevented by the bank working with the homeowner who got the bad loan in the first place?

  10. My fear is that the economy has not seen the worst of it yet. My buyer clients are Still waiting (now months) to hear word on their offers submitted to banks. Now these clients are giving up on the short sales and want to search for a home without issues associated with the banks having a say in accepting the offer. Our economy is not improving, gas prices are climbing, taxes are increasing and jobs are still being slashed. I can see already in my age group (40 ‘s) that the increasing number of us folk are loosing everything just to provide the absolute basics for their family. I foresee another large wave of foreclosure.

  11. I am a Canadian Real Estate Broker and have been watching prices escalate in the Canadian Real Estate market in much the same manner as in the US. The root cause is that the drop in interest rates permitted buyers to pay more for a mortgaged home than before, just so long as the monthly payments stayed within an amount they thought they could afford. Simple. The decline in mortgage availability (which is much the same as rate increase needs to result in lower affordability and hence, lower prices. The idea of lending without consideration to equity or ability to repay (a very US idea) created a frenzy of speculative buying and selling at unsupported price levels. If you want to fix this you must first learn to spend money you have saved. DUH! Then buy within your means. (This means if interest rates are low, consider whether you will be able to afford your payments when the rates rise and if you can’t, don’t buy. DUH!) Then, never, never increase your mortgage for any reason. The loan is meant to decrease over time. And finally, don’t let your government borrow money from China so they can give it away in the streets. Duh!
    My opinion after all these years thinking America was a good place to live has since been corrected. Nobody including your Government seems to have the simplest concept of sound financial management. Rome fell too. Don’t despair. I am told that China treats its slave nations with fairness and an open heart.

  12. WDM

    What we have learned is that real estate sales is a tough business to be in. I’m a third generation real estate person. My grand parents lost everything in the 1929 depression. They were young, hardworking and ambitious. They had little education but they were able to come back and build a small fortune using “tried and true” real estate principles. They retired in their mid 50’s on notes that they carried. They were thrifty and new the value of a “buck”. They are heros in my book. They weren’t a bunch of whiners. They made hard hard decisions so they wouldn’t become someone else’s hard decision.

    The American dream is still out there, all you have to do is get off your butt, stop whining, making excuses and make it happen. Again!

    Remember, if it where easy everyone would be smart and rich. Home ownership is not for everyone. You have to work at it, use sound financial strategies and give it some time. Luck makes itself, most of the time.

    Everyone just needs to go to work. As we say in our office: All we want to see is “phones & elbows”. Make it happen!

  13. Tim Sander

    The bad dream started in 1913 with the passage of the Federal Reserve Act. It is neither federal nor is there a reserve. It is owned mainly by foreigh banks (Bank of England), etc. When the fiat money system dies a quick death, that will be the day that we are reborn in the financial arena. Currently we just have one criminal enterprise saving another. How about the general public, the man on the street, who is paying the real bills? There is no bail out for him.

    And I can also tell you from my experience as a real estate broker in New Mexico, there is no real help for homeowners either. It’s all window dressing. The Lenders LIE. I represent homeowners who are underwater. One mortgage company lost my file 10 times. THEY DON’T REALLY CARE. THEY ARE THE SCAMMERS………….

  14. Golden33

    Unfortunately, I don’t believe we have learned anything from this financial crisis. Soon it will be a distant memory and people will go back to doing the same ole foolishness. I’m disappointed in Americans. There was a time when Americans were hard workers, but now everyone wants something for nothing. We’ve grown lazy and have this sense of entitlement because we are American. Very few things are American made…we’ve sold our soul to China and I guess we’ll complain about that in the near feature. Just about everything in stores today have the “made in China” stamp. Ironically China will make our products but not allow us to sell them there. I remember when Wal-Mart once advertised that all of their products were American made…no more. Everyone still wants the fancy foreign made car and the big lavish house that they can’t afford. I applaud President Obama for his efforts and think he is doing what he can to bring us out of this mess, but I don’t agree with continuing to throw money at these banks and corporations that don’t bother to make good on the guidelines for receiving the money. There are millions of sensible people like myself who have great ideas on how to turn this mess around, but sadly our thoughts will never be considered. On that note, why waste time stating my ideas for recovery, instead I’ll say this…we are putting the cart before the horse once again. Many people believe this crisis is over, but there is more to come.

  15. Melody Schwarz

    I don’t think much has been learned or will be learned. With the current deficit reaching trillions of dollars and the wasteful “stimulus” spending the government is doing, we have no direction to go except down.

    I think a good alternative – although costly – would be this.
    There are approximately 169 Million registered voters in the U.S. If each one were to receive a lump payment of say $150-200 thousand with certain stipulations attached, we would save the housing market, car industry, local economies, and overall economic outlook.

    With the restrictions that your mortgage must first be paid for – and no ability to refinance once paid off for at least 10 years, the banks would not need the money that is being hurled to them at an astronomical pace – and would also not be able to squander it.
    If you don’t have a mortgage and are renting, then the restriction would be to use the money towards the purchase of a home.
    The other alternative would to be to use the money towards an education for those just out of high school, with homes paid off or no desire to purchase.
    Of course you would still need good credit, job security, etc to qualify for a loan, but this money could be held until those are achieved. And you would only need the loan if you were seeking to utulize more than the lump payment.

    That would save the housing market, builders, supplers and create more jobs in all of the fields associated with building and renovating homes. It would also free up hundreds of dollars each month for the families to save, spend in the economy, pay off other debt, etc.

    If you did not use the all of the money for the pay off or purchase of your home, then the second requirement would be to pay off or purchase a vehicle. Again, this would save money monthly for families, create more jobs in all of the automotive fields, and turn the automotive industry around.

    After that the only other restriction would be to pay any outstanding debts, charge offs, collections, etc. By doing this, the banks would recoup their money, again families would save on those monthly payments, and people could start rebuilding their lives.

    I know there are a lot of areas where $150-200K is not much, but as an equal across the board benefit it would help. There is nothing that says an individual has to use the money frivolously. By spending wisely and imposing restrictions, jobs can be created, homeless rates would drop, homeownership would be at a record high, and for a change the American people – not just the wealthy, and the corporations would be able to pursue all of Americas great gifts.

    As a Real Estate Agent, it is frustrating to me to see the hurdles potential buyers are going through to buy a home. Rentals are running out and rents are skyrocketing. Many people are being forced to rent at rates higher than their monthly payment for a mortgage would be or are forced to live in a far less desirable area just because of the costs of rentals.

  16. Steve Tutt

    It really doesn’t matter if we learned anything. In less than 75 years we forgot the lessons of the Great Depression. Buying stocks on credit, buying a house on credit by unqualified buyers, little difference. We, as a society, are doomed by our own greed. I predict the next great collapse of our economy in less than 50 years, that is if we don’t buy into the great Socialist lie for the fast fix. I guess it really doesn’t matter, we are screwed either way.

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