Charlie Mitchell Column

Published 12:00 am Tuesday, September 30, 2008

Mitchell: See what happens when we’re not paying attention?

 According to RealtyTrac, for every 5,238 Mississippians making mortgage payments on time in August, only one was so far behind that legal action was being taken to cancel his or her loan. It was the fifth-lowest rate in the nation.

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There is a foreclosure crisis in parts of California and more opulent areas of Arizona, Nevada and Florida. There, rates are high as 1 per 200 homes. Specifically, the crisis is centered where housing prices exploded to stupidly expensive — too many trying to make too much too fast — and “innovative” financing was created to help houses sell at all. Elsewhere across America, the pinch is stronger than in years past — but there’s been no meltdown.

All this points to a problem for thinking people. Everybody is asking what caused today’s mess. It’s hard to accept the “combination of factors” rhetoric because we’re so accustomed to the naming of a lone culprit. On TV, finger-pointing is the name of the game. A quick fix — by the architects of the disaster — is under way.

Pause to consider some “undeniables:”

•Government is not just now getting into the housing market.

For one thing, government-backed loans have long existed for veterans and for farmers. Fannie Mae and Freddie Mac were “independent” in the same way the U.S. Postal Service is “not a government agency.”

For another, starting during the Carter Administration and continuing since, Congress has, via the Community Reinvestment Act and myriad other programs, increasingly pressured truly private banks to take on more risk. Translated, that means making loans without nearly as much collateral or proof of ability to repay as the bank, left on its own, might have deemed acceptable. Still, as long as a basic balance of cost-to-value was maintained, the economy chugged along.

•Congress happily derailed the train.

As Democrats tell it, Republicans favored tons of “deregulation,” resulting in too little oversight that allowed hedge fund and derivative financiers to go buck naked wild, buying and selling mortgage “bundles” — paying more for paper than it was worth.

As Republicans tell it, the principals in Fannie and Freddie — and many other rats who left Wall Street with tens of millions — were Democratic operatives — incompetents who cashed in on their contacts. They list Franklin Raines, who was President Clinton’s budget director and left with $50 million, Jamie Gorelick of Clinton’s Justice Department, who left with $26 million, and Jim Johnson, who served on Barack Obama’s vice presidential search committee while making millions as Fannie Mae CEO.

While much is made of the fact that Obama — at $126,000 — is No. 2 on the Fannie and Freddie donee list, he was far from the only benefactor. A tally shows people now serving in Congress have received a total of $4.8 million, with 57 percent going to Democrats and 43 percent to Republicans.

•Greed trumped other considerations.

One of the things that sent housing prices through the roof in the states now dealing with more foreclosures than Mississippi was people intent on immediate and outrageous profits. In many ways, the housing market has been played as an old-fashioned pyramid scheme.

Remember those miracle cookies from the 1980s?  Homemakers could buy a few boxes cheap and sell at a profit, then become a distributor by signing up more sellers and profiting from their sales, too — then continuing to get a cut as the new sellers became distributors. On and on.

As long as the cookies are selling, such systems work. But when the sales stop, so does the churn of money to those at the top of the pile.

Same thing, but this time the entire economy of the United States and much of the world was been put at risk of collapse.

•There’s not an instant Republican or Democratic cure.

The persistent “gotcha” games played by politicians and egged on by the national media are a constant and harmful diversion. Conflict sells on TV or there would be fewer, not more, shouter shows. It’s cheap and easy journalism to couch everything in terms of winners and losers. The problem is that no one is left to mind the store — to assure basic, solid controls are in place. We’ve all been distracted.

The best cure — despite all the hoopla — would be a return the basic, logic banking principles of yesteryear. Meanwhile, we the people have a big price to pay for not paying attention.

(Charlie Mitchell is executive editor of The Vicksburg Post. Write to him at Box 821668, Vicksburg, MS 39182, or e-mail