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6 responses to “Virginia Consumers’ Heavy Debt Load”

1. 

   LarrytheG

   January 22, 2018

   the credit card debt looks low….

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   1. 

      TBill

      January 22, 2018

      Yes either that or you and me are single-handedly stimulating the economy.

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2. 

   Reed Fawell 3rd

   January 22, 2018

   Jim Bacon says: “Nine years of central bank stimulus and debt-bingeing around the world has made the U.S. and other economies more vulnerable than ever to a rise in interest rates, says William White, the Swiss-based head of the OECD’s review board and ex-chief economist for the Bank for International Settlements. “Market indicators right now look very similar to what we saw before the Lehman crisis, but the lesson has somehow been forgotten,” he says.”

   I’d say Jim Bacon statement is SPOT ON. And in many different ways. This includes today not only consumer leading, but real estate mortgage lending yet again and now also higher education student loans. While the drivers vary in minor degree from crisis to crisis, they remain remarkably uniform in most respects time after time, creating long strings of chronic recessions that have plagued us in every decade since 1970 in my personal experience.

   Here are my comments back on Jan. 21, 2016 regarding some of what triggered the sub-prime mortgage loan crisis of 2008, in reply to someones comment that: “Fannie Mae had perfected the art of manipulating lawmakers, eviscerating its regulators, and enriching its executives. All in the name of expanding home ownership. … Fannie Mae led the way in relaxing loan underwriting standards, for example, a shift that was quickly followed by private lenders. [CEO James A.] Johnson’s company …”

   To which I replied back then:

   My slant on what happened was quite the reverse. That CEO’s Johnson and Raines inflicted poor underwriting and accounting standards on Fannie Mae at the behest of their political masters. And those political masters gave them the sword and shield they needed to deepen those bad habits until they ignited the match that blew up the US economy. The corruption took over 15 years to gestate then spread and ignite the debacle.

   The underlying problem began after the S&L collapse when Federal Regulators (FSLIC & RTC) forced the liquidation of S&L troubled assets. Here in 1990s Wall Street began to package multifamily housing projects, mixing prime and subprime into securities wrapped by Fannie Mae’s guarantee. Here the political pressure from Executive branch and Congress shoved a bad result into the marketplace, doing far more harm than good.

   One of the most pernicious results was the later political pressure exerted on Fannie to shift the same technique developed for troubled multifamily projects over into sub-prime loans in minority neighborhoods. This is what exploded the economy.

   I wrote about this several years ago around 2012 or 2013 on Bacon’s Rebellion. These comments still have relevance to what is happening today, in all sorts of public private partnerships, and now also to the the flood of carelessly underwritten student loans in Higher Education, and home mortages.

   As we grow far too accustomed to our own bad habits, we cannot see how over time our bad habits enlarge and twist themselves and key markets out of shape in ways that put us finally on a road to our own failure, producing catastrophic results, whether it be home ownership, the education of our children, the public/private building of our infrastructure, the financial health of our consumers, or financing the health of our citizens.

   See Playing with Other Peoples Money article on this website. Here’s a shortened and edited version on one long comment below that article.

   “Private enterprise is no more moral that government. Out of control experts can be found in abundance everywhere. They work for governments and private enterprise too. Indeed many private enterprise experts work for government for lots of money. And the successful ones learn how to work the system, how to win low bids and flip them into maximum profits. Unfortunately today’s financial realities can easily acerbate this all to common and current government, expert and private sector overreach.

   Take, for example, how non-govt investment rating agencies told non-govt Banks that sub-prime MBS were “prime” investment grade securities?” This rating agency debacle is example of experts run amok, driven largely by government mandates. Muni bonds being only one of endless examples.

   But where things most likely get bent out of shape is where politics enters the marketplace to achieve political results. In the case of sub-prime mortgages it was Fannie Mae following the dictates of its political masters.

   In short, a creature of the Federal government, Fannie Mae, was captured by Congressional politics. Congressional mandates shoved Fannie into the business of using its credit to guarantee sub-prime mortgages that were securitized then sold to the public until ever more and ever riskier loans polluted the nation’s pool of home mortgages and the scheme collapsed.

   This is a long story. But one could see the risk of these structures being guaranteed by Fannie long before the sub-prime debacle. Real estate is unique. It’s unlike other assets typically used for security. It’s very local and peculiar insofar as its quality as security of loans. So it’s properly the business of local lenders familiar with the unique nature of their local market. Hence the first multifamily Wall Street securities wrapped by a Fannie Mae Guarantee done in the early 1990′s which involved mixing “sub and prime mortgages” from across the nation raised red flags among those knowledgeable about real estate by reason of real experience. But the Wall Street folks, whose black box computer models and endlessly complex esoteric financial structures comprising multiple levels of risk (differently priced tranches cutting across thousands of loans) were untethered to the dynamics of the real estate securing them, could not see the risks.

   Nor would anyone see the risks – not the government regulators, the Congress, Fannie Mae, Wall Street, the rating agencies, lawyers and appraisers, bundlers and mortgage closers and brokers. Nobody would listen or act responsibly. Too much pride, too much political influence, to much political posturing and agenda, and to much money, was involved.

   And, of course, as always happens the crooks (smelling blood on the water) arrived for the killing. But this happened mostly later. Still, from the get go, people were making tons of money for getting these troubled assets off the books of troubled lenders as required by yet another government program of 1990′s regulations, so everyone forged ahead.

   Money corrupts. So experts began to run amok, fueled by the fact that the experts creating the problem earned huge fees doing it before they offloaded the “hidden risk” to the public. Fannie Mae provided the perfect cover, giving triple A credit to less than triple A product. Thus a federally created program that for decades had built a liquid highly efficient mortgage market for properly underwritten home loans that was rightfully the envy of the world, was hijacked.

   The problem was further turbo-charged by more politics and government intervention. The ruse behind this maneuver was as American as Apple pie. Every citizen gets to own a home of his or her own, irrespective of their ability to pay for it. (a simplified overstatement but not by much.)

   Of course, Wall Street and conduit bundlers of sub-prime loans (all private) were only to happy to jump in, make a bundle, then offload even more junk onto the public, leaving Fannie Mae holding the bag by reason of its federally mandated guarantee.

   It was a perfect deal by Federal government and Wall Street standards. The politicians got all the credit. Wall Street and conduits that packaged the mortgages got high risk free cash profits up front. The taxpayer got the shaft (gigantic losses) in the back. The sub-prime homeowner got his own bankruptcy by reason of his federal government feeding him and/or her financial crack cocaine, all for political advantage.

   One great tragedy was the near ruination of Fannie Mae, which up until the early 90s was a poster child of successful government at work. The benefits that Fannie brought to this nation are incalculable. One can say this institution, as much as or more than any other, brought the American Dream to the the American people. Every credit worthy family got a home of their own, one they could afford, from a starter home, right up the ladder. No other country enjoys the success that Fannie Mae created for us. But how easily even the greatest of Federal government programs can be twisted out of shape, and then used for purposes that poison the financial health of a nation, its individual families and citizens. And this poison goes right to the core of the American dreams, our homes.

   And, while private companies, more often than government, put the brake on experts taking undue advantage, and private companies typically cannot afford to go broke, those rules get blurred if private companies get tangled up with government regulations, mandates, and guarantees that twist these iron rules of private enterprise out of shape, and so thwart the rules of free enterprise functioning within a properly regulated marketplace.

   Here the problem started in the 1990’s after long success when Multi-family securitization by Fannie Mae began to include the bundling big commercial individual mortgage loans (each secured a rental housing project) with weak credit into packages of stronger loans, matching risks, to get the weaker loans off the books of troubled S&Ls as defined by federal law.

   So here a government bail out program began to twist the market. It was also a logical first step to later securitizition of INDIVIDUAL home loans by mixing sub prime individual loans in with prime loans, and selling them off together. The practice, fueled by politics, driven by political influence, and the politicians need to get himself reelected, quickly began to fed on itself, growing with each election, and ever higher profits for those who could offload the debt, under the cover of a federal guarantee.

   The gigantic failure that resulted shows how gov. intervention as a player in the marketplace, tilting free markets to government mandated results, so often results in unintended consequences, often catastrophic ones. ”

   — Bottom Line —

   The above example shows how a Government that inserts itself as a chronic, deep, and continuous player in free markets can easily blow up the market. Obviously, the fact pattern of roads, bridge, and tunnels differs quite a bit. But I suggest that when a society and/or its government encourages its private business sector to become a chronic, deep, and continuous player in the historic tasks of public governance, that society and government is also playing with fire. One that can easily flare out of control.

   It is important to note that these CEO’s were political appointees. They arrived at the head of Fannie Mae carrying the culture, ethics, aims and ideologies of the political establishment in power, not the ethic and culture of Fannie Mae. In my opinion it was from there that they when about changing the how Fannie Mae did it work, to satisfy and /or in response to the political establishment in power at the time. Otherwise they could not have, and likely would not have, tried to do, what they in fact did and got away with for so long. That of course is common as mud in Washington DC.

   It is also important to note that this variant of crony capitalism infects our body politic under both US Democratic and Republican Party regimes. And it has been alive and well since before the founding of the American Republic.

   “The (Jamestown) colony was a private venture, financed and organized by the Virginia Company of London. King James I granted a charter to a group of investors for the establishment of the company on April 10, 1606. During this era, “Virginia” was the English name for the entire East Coast of North America north of Florida. The charter gave the company the right to settle anywhere from roughly present-day North Carolina to New York state. The company’s plan was to reward investors by locating gold and silver deposits and by finding a river route to the Pacific Ocean for trade with the Orient.”

   See http://www.britannica.com/place/Jamestown-Colony

   George Washington was a notorious crony capitalist. This is one reason why Washington DC and his Patomack Canal and his vast landholdings were so close together in location and time, and why he also insisted, using bare knuckle politics, that parts of Fairfax along the south shore of the Potomac be carved off and included within District of Columbia.

   Similarly the privatization of Airports under President Reagan morphed in private over-reach activities by various public private partnerships such as those that we have recently seen with regard to the ill founded expansion and operation of Dulles Airport and closely related events.

   These problems or their lack instead relate to the particular ethics, morals, and systems of oversight embedded within a culture at particular times and the ethic of individual players during those times, rather than any theory of INHERENT corruption within the US Democratic or Republican Party.

   This, however, is quite distinct and from the inherently authoritarian or totalitarian systems of government rule, such as Fascism or Communism, where business, commerce, and “religion” must be merged into or otherwise controlled by the central government if the political system is “to work”.

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   1. 

      Reed Fawell 3rd

      January 23, 2018

      Jim Bacon above says:

      “Recessions are painful but cleansing. Economies need small but regular downturns to wring out speculative excess and maintain long-term stability. The U.S. is enjoying a burst of stronger economic growth this year thanks to tax cuts and a rollback of regulations, but the business cycle is one of the longest-running in U.S. history. It can’t go on forever, and it won’t.”

      I agree based on history. I recall servious and very painful industry altering recessions that BEGAN in the following years, and lasted typically for three or more years, each recession having ramifications far and wide:

      1974
      1979
      1990
      2000
      2008

      I have described some of those ramifications and the key drivers behind those earlier recessions in comments found at:

      https://www.baconsrebellion.com/time-son-restructuring-act-higher-ed/

      I suggest that now in the future the margins for error will likely be thinner, and the depth of future recessions will likely be deeper, because of several factors that buffered earlier recessions but are no longer in place to buffer damages now:

      1/ The dramatic decline of the American family and American marriage. Family and marriage buffer financial defaults, and enlarge opportunities to work out defaults successfully.

      2/ The dramatic decline of long term jobs, and todays employment instability in America, given the explosion of contract workers.

      3/ The dramatic decline of relationship lending in America, including community banking, Credit Unions, and S&Ls in America.

      4/ The dramatic rise of large financial institutions (and perhaps too fly by night operators) doing long distance, non-relational, computer lending in America, including its augmentation by later securitization.

      All of these factors working together hold the potential of creating poor underwriting, poor loan servicing, and poor workout services, that will result in large cascading defaults, hair triggered for cumulative adverse affect.

      High technology, poor government regulation and interference in markets, and the collapse of local community lending and support systems, might well trigger depressions now instead of our more recent milder recessions. And, of course, the coming massive higher education student loan defaults could easily play a key roll in triggering and sustaining such future depressions.

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      1. 

         Reed Fawell 3rd

         January 23, 2018

         In addition to all the above cultural changes harming our youth:

         It is useful to consider how many other factors are piling up to thwart the chances of success of many of our youth today, making it ever more difficult for them to secure meaningful long employment that allows them to accumulate the wealth and security that they need to realize the traditional American Dream – to be able to get married, buy a home, and raise and school a family in a healthy neighborhood, while they save and invest for a secure retirement.

         For only one of many examples:

         Many educator believe that FAR TOO MANY of our youth are going to the traditional college today, chasing college degrees they do not need, cannot honestly earn, and meaningfully take any advantage from, employment or otherwise. And that the process of attending such colleges does many of these students far more how than good, and indeed that it often scars those students for life.

         And, that their attending those colleges is wasting their time and their money for nothing of value to them in return, while it needlessly piles up personal debt that hobbles their future and the future of their families, while at the very same time it wastes their only best chance to get the training they need for their own bright future that they deserve.

         And these educators believe that:

         Instead of our current system that wastes and despoils our kids futures, roughly half and perhaps more of the kids going to college today chasing a fictional BA or BS degree, that these students should be learning saleable skills in technical, vocational, and trade school instead. Here they will not waste 4 to 6 years on a bogus education.

         And, instead, if many of today’s colleges will retool themselves to become trade schools working in coordination with industry, these students will receive all the skills they need to enter the workplace at good pay within a year or two, at most. This not rocket science. This is not speculation. This is a proven formula. Look at Germany for instance.

         Many of today’s colleges and universties are have been built on a myth. So people would call it a lie, sense all serious educators likely know the truth. But will not admit to it. That is the fact at 20% at most of today’s youth get any real traditional college education at all in today’s traditional colleges. Most of the rest are meant to be going to one to two year trade schools or going directly into the workforce with a solid high school education, buttressed by some modest post high school learning at most.

         So what today’s higher education establish tells us about the value of a baccalaureate degree is a myth for all by 20% of our young people, and some educators argue that figure of 20% is high by half.

         If this is correct, they try to image the damage being done to our young. Students know when they cannot understand what is going on it the classroom. That feeling scars them forever. Particularly when they are told again and again that they can do what they cannot do. Making these matters far worse, and what is truly irresponsible is when our system of higher education tells our kids the awful lie that kids who do not got to college and/or do not get at college baccalaureate degree will fail at life, or somehow be defective, or inferior or be less worthy or valuable than other kids who do, through no virtue of their own doing but instead by a random gift that enables then to score high on certain narrow verbal, writing, or math skills that comprise only a very small sliver of the talents, gifts, and qualities all people possess in lesser or greater measure, talents that mean nothing unless one earns respect for themselves or from others by their having the character and courage to put their talents whatever they are to high and good use, for themselves, their families and others.

         Higher Education in America is deeply corrupt. It needs to change.

         This scar is far worst than the terrible loss of their time, and of their money, and from the mortgaging of their future, all for a fraud perpetrated on them by our educational system.

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      2. 

         Reed Fawell 3rd

         January 24, 2018

         Acbar in a subsequent post titled “Does Undergraduate Education Subsidize University R&D” dated January 23, 2018, brought to our attention a Jan. 22 Washington Post Article found at:

         https://www.washingtonpost.com/news/grade-point/wp/2018/01/19/why-is-it-so-difficult-to-figure-out-how-much-youre-going-to-pay-for-college/?utm_term=.6219fc5c7916

         This Washington Post article is highly disturbing. It shows a feeding frenzy of money lending activities in Higher Education that appear to be out of control. This is the hallmark of financial lending programs headed for disaster.

         In similar lending arenas harboring such frenetic and seemingly unregulated activities, substantial numbers of people typically end up going to jail, including often Corporate Chief Operating Officers.

         One of the most startling aspects of this particularly obvious abuse going on in Higher Education is that Obama’s Consumer Financial Protection Bureau so aggressively attack the private credit card industry in defense of consumer rights, while at the same time was so totally irresponsible in failing to protect the rights of students from obvious predatory loan practices by public and non-profit institutions of higher education, and that system’s enablers.

         The built-in conflicts of interests in these transactions are patiently obvious, yet appear to be totally ignored. So the “deceptive advertising and offering practices” so rampant here, amounting to likely fraud, are highly predictable.

         These financing activities surely will not end well for whole bunches of individuals, Higher Education, our students, the American economy, and the American people, generally.

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