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Foreclosures aren’t Everyone’s Problem

Whenever the mainstream news starts making think in terms of absolutes, I know something is wrong…so I quickly load up  As always, Cato Institute Author, Alan Reynolds provides a fresh view on something the main stream news outlets either don’t see or don’t want to bring up.  I have written about a Mr. Reynolds article in the past, and he was even cool enough to comment in response!

A quick reminder, the Cato Institute’s Mission is,

to increase the understanding of public policies based on the principles of limited government, free markets, individual liberty, and peace. The Institute will use the most effective means to originate, advocate, promote, and disseminate applicable policy proposals that create free, open, and civil societies in the United States and throughout the world.

Mr. Reynold’s article titled, “The Foreclosure Five” originally appeared in the NY Post and can be found in full on Cato’s Site HERE.  It seems like (just like most things in life) the foreclosure problem follows the pareto theory of 80/20.  Meaning that 80% of the problems are caused by 20% of the participants (a rough rough rough translation of pareto).

What is Causing the Current Foreclosure Problem?

Mr. Reynold sums up the main stream’s media stating,

When President Obama discusses his $275 billion mortgage bailout, he talks as if it was a national problem, caused by a national decline in home prices. “We must stem the spread of foreclosures and falling home values for all Americans,” he says.

Then he makes it clear,

…there is no national market for homes and no national price for homes. Instead, most of the United States will pay for the folly of few.

That is an incredibly simple yet smart statement…think about how local is the local real estate market?  Once you get beyond 5 miles on Long Island, you are in an incredibly different world.  Even in rural areas, what is it? 40 miles?  Thus my tax dollars helping someone in Cali who overpaid on a mortgage just seems unjust.

I’d love to hear Mr. Reynolds’ views on the next logical argument that it is a national problem because of CDOs (i.e. those investment vehicles which take mortgages from all over the country which have, at least in part, brought our financial system to its knees)? Hopefully, he’ll respond, and if he doesn’t – Some of you readers better!

Our Problems are Caused by 5 States


Mr. Reynolds compares the top 5 foreclosure states with New York (my home state) which is right in the middle for foreclosures.  He finds some interesting (and some obvious – i.e. higher unemployment rate) common traits between the top 5, but I think the one the most important once people still are having trouble with – those states which are on this list (minus the problems involved in Mich because of the auto industry)  – your home should not have grown as fast as it did and you are now crashing.

If you didn’t sell you missed it, if you bought during it – sorry this is a zero sum game – I, in New York shouldn’t have to bail out someone in Cali!  Let the market work itself out.



  1. It’s so true. I live in a region where housing is doing fine. Heck, Arkansas banks did fine last quarter, even pulling in a profit. We didn’t get caught up in the “BIG MONEY $$$$” hype… but now we have to pay for it.

  2. Well said! A lot of people have no one to blame but themselves, especially people who quit making payments and walked away from their homes.

    There are a number of homeowners who are under water in California, but sticking it out. Why should they be jilted why some folks are months behind and have no hope in catching up?

  3. The foreclosure crisis was and is being caused by the separation of lending from the servicing and ownership of the mortgage loans. The lenders often sold the mortgage loans to people who did not understand what they were paying for when they closed on their loans and often were sold a loan on the same house two and three times.

    Wall Street Banks purchased these loans which were often made without proper lending review, and even intentionally sold to the consumer and the Mortgage Note Buyer based on false representations. Sometimes the Note Buyers encouraged the poor lending practices.

    The Wall Street Banks took these Mortgages and sold the loans into a Trust and receiving in return Bonds to be sold on the market as “safe” investments. The Rating Agencies were hired and paid by the Wall Street Banks to give superior ratings to these Bonds knowing that the security for these bonds were thousands of home loans.

    Most of these loans had very high interest rates that increased at preset times to even higher rates. Since the loans were made without income verification, without paying attention to the debt load of the buyer, and by promising the borrower that the loan could easily be refinanced when the loan interest rate increased from the initial rate to a higher rate– the loans were pretty much structured to create massive numbers of defaults by the borrowers.

    Virtually none of the Government agencies responsible for preventing this type of fiasco did their jobs: not the Federal Reserve, the FDIC, the OTC, the OCC, the FTC, or the SEC.

    Congress even did it’s level best to remove the existing protections and make it easier for the con artists (Mortgage Lenders and Bankers) to fleece the public. The Bankers, mortgage brokers, realtors, appraisers all made their profits and transferred the problem to the American Taxpayer. I am not saying that every realtor, appraiser or mortgage lender participated in the fraud, but far too many did for our monetary system to stay solvent.

    Until I see Paulson, Thain and the other Bankers being prosecuted for fraud I am not going to believe the government is willing or able to protect the American Taxpayer. The only Mortgage lender CEO I know about being prosecuted for fraud is the Countrywide Mortgage CEO.

    Most consumers I have observed did not read their mortgage loan paperwork with any real comprehension of what they signed. This includes many of the college educated consumers. I say this based on over 20 years of discussing client financial matters as an attorney/CPA with typical American consumers involved in estate planning, probate and bankruptcy.

    The real estate market may be local, but the banking system is national and international in scope. Wall Street sold more CDOs at face value than existed in tangible property on this planet. It is pretty simple to see the size of the financial calamity.


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