One thing I have learned over the years is that every decision has consequences. If I choose to spend my entire savings on a new car and then the air conditioner breaks, I have to live with the consequence of spending all my savings on the new car and will have to figure out a way to pay to fix my air conditioner. Unfortunately, those in elected office don’t seem to face the same consequences for their decisions.
Case in point: HUD quotas and government-sponsored agencies (GSEs). HUD quotas and GSEs drove the housing crisis. From The Financial Crisis on Trial (WSJ):
For the first time in a government report, the complaint has made it clear that the two government-sponsored enterprises (GSEs) played a major role in creating the demand for low-quality mortgages before the 2008 financial crisis. More importantly, the SEC is saying that Fannie and Freddieâ€”the largest buyers and securitizers of subprime and other low-quality mortgagesâ€”hid the size of their purchases from the market. Through these alleged acts of securities fraud, they did not just mislead investors; they deprived analysts, risk managers, rating agencies and even financial regulators of vital data about market risks that could have prevented the crisis.
The GSEs began acquiring large numbers of subprime and other low-quality loans in the mid-1990s, as they tried to comply with the government’s affordable-housing requirementsâ€”quotas for mortgage purchases imposed by the Department of Housing and Urban Development (HUD) under legislation enacted by Congress in 1992.
These quotas initially required that, of all the loans bought by Fannie and Freddie in any year, 30% had to have been made to borrowers earning at or below the median income in their communities. The quotas, however, would increaseâ€”they rose to 40% in 1996, 50% in 2000, and 55% in 2007. HUD also added and raised quotas for “special affordable” loans that were to be made to borrowers with low or very low incomes (in some cases a mere 60% of the area median income).
In other words, the government essentially created the demand for subprime mortgages and then when everything imploded, they hauled in all the evil bankers for questioning. This is typical.
Please note that I am not taking the bankers’ side on this. I am not saying that bankers and loan originators were not greedy. What I am saying is that HUD’s desire for affordable housing was the match that lit the fire.
I have been enjoying family time the last week or so. I’ll be back to blogging next week.
We took a trip out to West Texas to spend Christmas with my wife’s granddad. Living in Southeast Texas, we rarely have snow. So, it was really cool that it snowed before and during our trip there. The kids got a white Christmas. Very cool.
I’m looking forward to 2012. I’ll have an announcement to make later this week of a change that will be taking place here at AFM. I’m also kicking around some other ideas for AFM.
In the meantime, enjoy your family. Here’s to a happy, healthy, and financially-blessed 2012!
This graphic has been circulating on facebook. I like it.
Since posting about e-book prices a couple of times, I have been following the story. Today’s WSJ had a front page article about e-book prices.
For those of you not familiar with what’s going on, e-book prices have been going up over the last year or so. In some cases, e-book prices are higher than the price for a paper version of the same book.
Agency pricing. Basically, what that means is that publishers set the prices for e-books and do not allow discounting. There’s no such restrictions on paper books.
Why the change?
This is the interesting part. This all happened due to Steve Jobs. From the article:
It was Mr. Jobs himself who wanted to level the playing field for e-book pricing. Early last year, as Mr. Jobs, then CEO of Apple Inc., planned for the launch of the iPad, the company wanted to start an e-book store so that iPad owners didn’t have to rely on Amazon’s Kindle store to buy e-books.
But Apple didn’t want to have to compete with Amazon’s discounted prices. Under Mr. Jobs’s direction, Apple persuaded five of the biggest publishers to abandon the wholesale model, by which retailers were free to discount the recommended retail price. Under the new pricing arrangement, publishers set the price of e-books.
In March, Random House Inc., a unit of Bertelsmann AG and the country’s largest consumer book publisher, joined its five large rivals in adopting the no-discounting digital pricing model.
Seriously, it really irks me to have to pay so much for something I know is cheaper to produce than the paper edition. So, I have decided that I’m not buying any more e-books until the prices come down.
Related: The Wall Street Journal Takes a Look at E-Book Pricing
Ten Things Only Bad Managers Say:
If you donâ€™t want this job, Iâ€™ll find someone who does.
I donâ€™t pay you to think.
I wonâ€™t have you on eBay/ESPN/Facebook/etc. while youâ€™re on the clock.
Iâ€™ll take it under advisement.
Who gave you permission to do that?
Drop everything and DO THIS NOW!
Donâ€™t bring me problems. Bring me solutions.
Sounds like a personal problem to me.
I have some feedback for you â€¦ and everyone here feels the same way.
In these times, youâ€™re lucky to have a job at all.
I agree with most of these except for the eBay/ESPN/Facebook example. I think people should work when at work and do those other things at home or during off hours. I don’t think that’s too much to ask. The rest of her examples are pretty much no-brainers.
So home sales were worse than we thought. Sales figures over the last five years will be adjusted downward next week. It will be interesting to see how much.