Saturday, August 15, 2009
Global vs. Local Banking and Investment
I mentioned somewhere earlier in this blog how as the new bright global thing comes into shape that certain things would or should remain local.
Local beliefs, customs, religions are not going to change in the next century. Everyone’s attitude about the sacredness or the respect of local items is going to have to be made adjustment wise by everybody on the planet. Local control should also extend to economics and finance.
The one thing now in the present economic turmoil that the MSM is ignoring is the housing situation.
Somewhere along the timeline, human rights in the form of housing and health care got turned into some sort of commodity to be bought and sold on the global exchange. A slave exchange in a metaphoric sense got created because there was no experience or precedent or laws in dealing with the new financial thingy. Bastard institutions and irrational bad economic thinking sprang up and nobody noticed or cared.
Everyone somehow got caught up in the financial thingy because of two things, pensions and 401Ks. Very few corporations do the pension thing anymore. Only municipal and state governments do much investing of their pension fund things these days. The 401K and IRAs at first sounded like a good thing, like HMOs, in the eighties.
It was a means to create money, stimulate the economy and invest in new enterprises. Sounded good. Only instead of loaning money locally to build or retread old factories, the money got loaned overseas. Why? A greater rate of return on the money.
When I was younger, a six percent return on capital was a classic standard that stood for decades. You didn’t get rich overnight but your principal grew over time and in the end your nest egg was relatively secure. You had local control of the money. You saw the local home builder’s fund build new houses. You saw the addition being put on the local factory. You knew who you were investing with and what they were investing in through your local banks.
While I have done some commenting on the health care in recent articles, let me deal here only with just the housing thing.
Housing, shelter should be affordable. It should not be ten times what it is worth or was worth a decade or so ago. Taking local control away from local business and or banking and putting it in the hands of global interests has been a disaster. Why? Because you don’t know the particulars of the local market.
The current housing bubble crash and toxic asset waste dump in America had it start at the end of the eighties. The stock exchange starting selling “junk bonds”, meaning “air”, as if the risk or the investment was somehow justified merely by the “for sale” sign by the "legitimate” exchanges and “traditionally conservative” brokerage houses.
Junk bonds led to speculation and became the backbone of a boom and bust housing speculation market. This more so out west I think than in the east. Local capital was not so readily available there before this time.
The Savings and Loan Scandal of the eighties and how it was mismanaged by the Federal government in its mopping up actions is a primary cause of the present economic collapse worldwide.
The Savings and Loans took global money, junk bonds, and inflated local values and in the short term, the ponzi term, the rate of return seemed too good to be true.
The federal government stepped into the S & L mess and covered up the mistakes of major political players in the Senate who helped rewrite the laws to allow crooks to operate as legitimate bankers out west in Arizona, Nevada and California. The Feds poured hundreds of billions into the patch up after the collapse of that housing bubble in the late eighties. Instead of sending hundreds of people to jail to set an example, the criminals were out on the street and waiting for the next opportunity to come along in deregulated, unregulated banking/financial/mortgage markets. Charles Keating became the Bernie Madoff singular scapegoat of that era.
The Savings and Loan bubble collapse had been good practice for novice crooks, working off commission, who now would run amuck in the nineties and up until 2008.
When the Fed took over the toxic waste loans of the Savings and Loans, they came up with a national, not a local, formula to regulate further mortgage loan scenarios.
By standardizing some aspects of the mortgage business to streamline and package loans globally, they left out the naturally occurring check and balance of local markets.
In the past, growth was slow out west based on real demand. With a global scale of investment, short term housing speculation began to pump up the local economy on air. Home equity loans on temporary ponzi wealth fueled the belief that this was a real economy and growing on real growth demands. In fact, buying a home, turning it over after six months for profit, was not about housing but creating artificial or fictional wealth. The Fed scheme to let any illegal with a phony SS card to get home ownership only pushed demand into further artificial regions.
While I see the need for some global investing in real estate locally, where are the old fashioned local guys who used to sit around the cracker barrel and decide how many houses to build on a real demand from quarter to quarter and based on local bank assets? Local control from local banks and without access to junk bond like investment capital used to work very well – very well indeed.
The states worst hit by the current foreclosure melt down out west, Arizona, Nevada and California currently are the same states that did not learn from the Savings and Loan disaster.
The Fed, the global factor, has to be scaled down in the future. Let local markets in housing be determined by local available capital. Otherwise this bullshit bubble in housing will never end and nobody will ever be able to afford a house again.
Instead of encouraging fewer and fewer big banks with Gov’t money, they should be chartering new regional and new local banks to exclusively manage and untangle the current housing toxic waste pile – and to monitor future housing investments locally.