I hope your weekends are going fabulously. For our Australian, Filipino, New Zealand et al friends, I hope yours was grand. Here are a few mix and match comments, around a theme of needed history lessons.
Speaking of that part of the world, my wife and I have fallen for an older Australian show called “Packed to the Rafters.” It lasted for about six seasons and our PBS station is doing reruns. The premise is during the housing crisis back in 2007-09 timeframe, a family called the Rafters have various adult children and even a widowed father living with them. They are an abnormally normal family during stressful times, so it makes for good theater. The writers are quite clever in focusing on one or two family members a show to reveal how they arrived to their present predicaments.
It seems the housing crisis was so long ago with the various travails we have had since then. What is interesting today is inflation is creeping up again due to guess what – housing prices going up. Hopefully lessons have been learned about selling mortgages to people that cannot afford them and then packaging crappy mortgage deals into investment products that understate greatly the risk. But, we seem to be people who are good at erasing history.
Yet, not only are we forgetting history, we have a concerted effort going on in the US to whitewash history, even if recent history, as if it did not happen. It is bad enough that Americans, as a whole, would fail miserably on history and geography lessons, but to avoid teaching some parts because it makes us look bad is just a bridge too far. While masking bad things is not new – read summaries about the Pentagon Papers, the banning of the song Strange Fruit,, the Freedom Summer murders, the Lavender Scare, McCarthyism, Native American genocide, etc. – there are parts of our history that don’t show up as much as they should.
Since we began with the housing crisis, let me close with real history lessons that do not get enough airplay. Two of the poster children for the housing crisis are Beazer Homes and Bear Stearns.
Beazer was a developer that would clear land and sell houses in a community fashion. It is reported they did not tell the prospective buyers the realtor, the inspector and the mortgage lender were all related to the Beazer business. So, many prospective buyers were sold a home that was more than they could afford, based on mortgage numbers that were presented as a perfumed pig, with variable mortgages so interest rates could go up 200 basis points each year, and a house that had few inspection issues. When the housing prices dropped beneath the mortgage owed, that caused an upside down financial dilemma. Many lost their homes.
Bear Stearns is an investment banker that no longer exists. It is reported they packaged these bad mortgages together in a bundle and called them Collateralized Debt Obligations or CDOs. The law of large numbers works only when good risks negate bad risks in large bundles, but if the majority of the risk is bad, that means the whole product is risky. Bear Stearns was over-exposed with these bad risks and it took them down. What is interesting is a financial analyst got a meeting a year before Bear Stearns collapsed and told the CFO they were going under. The CFO kicked him out and the man said he would bet against them and made a killing for himself and is clients betting that these over-leveraged entities would fail as housing prices declined. This is the theme of the movie ‘The Big Short.”
If we don’t know our history, then we will repeat our mistakes. And, as we speak there is a rise in white nationalism in this and other countries, people are trying to tell you the truth is not factual, and the financial markets cannot crash again.