RUSH: David in Hinckley, Ohio. You’re next on the EIB Network. Hello.
CALLER: Rush, this is a big pleasure for me.
RUSH: Thank you, sir, very much.
CALLER: Hey, I’m gonna get to this real quick. I’m not gonna mention any names. I have received a letter from a lender — a very large learned — in the United States, and what they are proposing to me in this letter is that they would refinance my house even with zero equity at 125% of the value of the home. Now, I think everybody understands: Even if the interest rate went down, you’ve gotta understand that would put a person underwater.
RUSH: Yeah, but you know what they’re doing, don’t you?
CALLER: Well, here, let me continue one more thing. What they’re doing is they’re doing is in conjunction with the home affordable refinance program which is HARP. Now, when you lose that home, here’s my question: Who owns it, the lender or the government?
RUSH: One and the same, but the lender.
RUSH: What they’re trying to do with this… In fact, I got a note from a friend of mine in the banking business after listening to yesterday’s program when we were talking about this Wall Street Journal piece —
RUSH: — in which the focus was, “Hey, it’s not what we don’t know policy-wise that’s retarding growth; it’s what we already do know. It’s not so much uncertainty over what’s coming; it’s a problem with what already exists in terms of Obama policy,” and the point that he made to me was that you can do everything in the world, but until there is consumer demand for anything, you’re not gonna have any kind of economic growth. So offering you that deal, they’re trying to get you and any number of people to take it so they can illustrate that there’s some demand going on in the market.
RUSH: No, no, don’t get me wrong. There’s demand in the marketplace. There’s demand for iPad. There is demand for iPhones. (There is demand for Two If By Tea.) But there is not a demand for borrowing money. We’re talking about investment in business growth, large or small, but primarily small business growth. Remember, now, we had the piece in the Wall Street Journal (gosh, the days are running together here) either yesterday or the day before, and it was a brilliant point. Everybody says that businesses are waiting to hire people or to invest in growth in other ways because they don’t know what’s coming down the pike policy-wise with health care or taxes. There’s uncertainty. And this guy’s point was: Yeah, that’s true, but there’s also a lot of certainty over how rotten current policies are.
It’s a double whammy. There’s uncertainty over what’s down the pike, but the devastating reality that the policies we currently have — that this administration has put into place — are not conducive to growth of any kind. So my good friend who still dabbles in the banking business but that was the primary business, sends me this note and says, “I think that too many pundits forget the intelligence of the American consumer. Business is not going to expand, invest, or grow without demand. Demand was slowed down by the consumer starting in 2007 as they saw the absurdities of the mortgage market,” and this friend of mine has two sons.
He said, “They played the refinance game constantly, and the mortgage brokers discounted their fees because they were repeat customers — and although only 3% defaulted, my sons began thinking of selling and monetizing their gains as they realized this ever-increasing valuation couldn’t continue. They’re just mere examples of a larger sample of Americans who, with each refinance of their home, took on more debt at a slightly lower interest rate but usually with a slightly — very slightly — increase in monthly payments. Suddenly, they took stock and they started to stop spending on other things. Bammo! Obama is elected. This same category of American smart consumer really pulled the plug on spending and withdrew from the consuming market, even though some of them voted for him.”
But even at then, it was not really a vote for Obama in ’08 as it was so much a vote against Bush. You know, just a vote for “change” coupled with the empty canvas Obama was. You could paint him to be whatever you wanted him to be. So now you hear the left-wing pundits from Paul Krugman to Robert B. Reich get on businesses: “Hey, why don’t you start loaning money? You’re sitting on all this cash! Why don’t you do something. Hire people,” as though, “Yeah, okay. That’s all it takes.” But the point is, there isn’t any demand. Before a business is going to go borrow money, there has to be consumer demand for the product.
Likewise, before somebody is going to ask for a loan to grow a business, there has to be a demand for the product or service provided that business — and if there isn’t, then all the rest of it’s academic. That has been the problem. You know, there is disdain for the American consumer throughout all levels of elite political circles — Republican, Democrat — and of course in Washington. The elite look at flyover country as flyover country in every aspect of their lives, and they do not understand (or they do not factor) the real sophistication and intelligence of the American consumer when it comes to demand. You can sit there and demand that the banks start loaning money or demand that businesses start hiring people, but if there isn’t any demand on the part of the consumer?
The consumer will tell you when there’s a recovery going on, and the reason I know that there’s no recovery going on is that there isn’t any demand. There’s demand for a few items (as I say: iPhones, iPods, and now Two If By Tea), but there’s not a demand for growing businesses. There’s pent-up, frustrated desire for demand. So all of this relates to the last caller we had. He gets this note from a lending institution offering 125% value, blah, blah, blah, at no interest rate or whatever. They’re just trying to create demand, to make it look like there’s consumer demand because they do know that with the illusion of consumer demand then they can then do stories on the illusion of an economic recovery taking place.
“The consumers are starting to now overcome the fear and beginning to take the risk,” when it really isn’t happening. Reality is what it is, and there are a lot of people who wish to ignore it because the consumer is not the smartest guy in the room. The consumer is always the dupe. The consumer is always the guy… In the eyes of the elite, the consumer is who you trick with your advertising plan. The consumer is who you trick with your marketing plan. The consumer is who you trick into voting for you or what have you. There’s a disdain that is present in looking at the consumer. That’s why all this pressure on businesses: “Hey! Hire people!” Things don’t happen in a vacuum.
RUSH: Dan in Raleigh, North Carolina, welcome to the EIB Network. Great to have you with us, sir.
CALLER: Thank you, sir. I want to use the housing scenario as just a microcosm of the overall problem. Regardless of the mortgage company or the bank and the regulation allowing no verification for qualification, regardless of all that, it came down to an individual at some point had to sign his name on the contract stating that he made money. Regardless of the mortgage guy saying you have to come up with 10% down if you want this $250,000 house because you only make X. If you made Y you wouldn’t have to come up with any money. Well, that individual had to make the choice at that point to lie about it to get the house that he couldn’t afford. So at a $200,000 house — and this is broad strokes — becomes worth $300 or 400,000. But the house (unintelligible) been at $400,000 because the income was never there. Now there’s exceptions to people —
RUSH: Okay, I’m running out of time. What is the point?
CALLER: Well, the point is the problem isn’t the government — hold on for a second — the government’s just a symptom of the people. I was considering running for Congress —
RUSH: Okay, I know philosophically what you’re saying, people get what they want, and so forth. In this case, yeah, they lied, taking lessons from the government. Even philosophically with all due respect I disagree with you. They showed up in the first place to lie because they were lured in there with a promise they’d get money knowing full well they had no ability to pay it back.
RUSH: Let me go back to the previous caller. I understand the point he was making. He was saying, “Look, you can talk about the government being involved in the housing mess all you want, but it wouldn’t happen if people hadn’t-a shown up and lied on their applications.” I get his point. His point is about these people’s avarice, their desire for a quick buck, their desire for wealth. I think he’s talking, in a lot of cases, about “flippers.” There was a lot of in the housing market: Go in and buy and sell it real quick and try to take advantage of the uptick in the market. What he was saying was that the avarice of these people that were lying on their applications drove the price of housing up artificially, and the thing that you have to keep in mind…
I understand that people want to defend the government here and I’m sure part and parcel of what he was gonna say to me is, “Look, you’re always talking about personal responsibility. How come, when it comes to the housing mess, you want to treat all these people that showed up to buy houses when they didn’t have any money to pay back mortgages as victims?” It’s a good question, but the reason is the government wanted these people to lie! Read the book “Reckless Endangerment.” I have read it; I recommend it to you. It’s a New York Times writer explaining all of this. Folks, this whole subprime and even lending outside the subprime arena was a giant scam rooted in — on the surface — social justice, fairness.
“Everybody should have a home, the American dream;” and under the surface it was get rich quick for people that worked at Fannie Mae, to an extent Freddie Mac, and people that worked on Wall Street. But my point is that these people walking in to get a loan (subprime or otherwise) yeah, okay, some of them lied. They wouldn’t have walked in the door in the first place if the government hadn’t wanted them in there. Remember, the government was demanding that lending institutions loan money to people who were not qualified. The government wanted people in there borrowing money, and they didn’t care if they lied. In fact, that is more true than you can possibly understand. They didn’t care if they lied. They didn’t care if they lied.
In fact, it helped out if they did. There weren’t any requirements in the first place. Even Obama (I’m blessed with a great memory) told La Raza that he knew most poor people were tricked into getting mortgages they couldn’t afford, and that was being said because at the time when all the excrement hit the fan here, of course, it was: Blame Wall Street, blame the bankers, blame the fat cats. The government was largely responsible for this — just like they were largely responsible for the levee failures in New Orleans and Katrina — all of a sudden become spectators. “Why, what happened here? Why, we had no idea this was going,” and yet they conduct all these investigations, exempting themselves from the inquiry.
So you focus on the bankers, focus on Wall Street people, and you turn them into “predatory lenders” when it was the government that got the people in the door in the first place! Then they’re telling these, “Yeah, we knew you were tricked! You were tricked into getting mortgages you couldn’t afford.” Every time I heard Obama say that, I about blew a gasket. Because people were not “tricked;” they were promised — and it’s a huge difference, and it’s why we’re sitting here in this mess today. People were encouraged to go assume loans that they couldn’t pay back. I know you think that makes no sense. It doesn’t make any sense, but there were all kinds of ways that the lenders were able to make money. I discussed this at great length yesterday.
There were all kinds of ways they were able to make money without the income stream of mortgage monthly repayments and send it down the road — and, remember, for the first two or three years, people were making their payments. They had these adjustable-rate mortgages and finally the excrement hit the fan, and we all know what happened when they couldn’t make the payments. They either walked out or were allowed to stay in the house. Now, another problem that nobody really addresses is that just like with the costs of medical treatment, the government’s involvement in housing simply ratcheted up the cost of housing to the point where it’s still not where it ought to be in relation to people’s ability to pay.
We are witnessing in the housing market exactly what happened in the health care industry. I’m sure you’ve heard the stories of people my age telling you that when we were kids you went to the doctor, they sent you a bill at the end of the month, and it was totally affordable. There was no such thing as insurance. I mean, even if you had to go to the hospital for surgery, you worked out a deal; you had a monthly payment structure, and you paid it back. The whole notion of insurance and massive costs didn’t happen ’til the government got involved. Hello, Medicare — and then later on, Medicaid. Now the same thing’s happening in the housing market or has happened a long time. So the government’s getting involved.
Now, folks, throughout our nation’s history, you’ve always heard of the “starter home.” Allowing for geographical anomalies (real estate values in places like San Francisco in the eighties, California and Boston, were over the top and made no sense whatsoever), for the most part throughout the country and throughout our history, the average cost of a house — a starter house — has been solid as a rock. I can’t remember the figure but it’s always been around $200,000 in today’s dollars. In real dollars. The people who were able to plop down 20% for a down payment was a steady percentage of the workforce who were able to buy a home because the price of a home was pretty constant. That has changed, and now the whole notion of a starter home for most people is out of the realm of affordability.
The housing market is not gonna be normal until the price of housing normalizes, and it still has a long way to go — and the biggest obstacle to that happening is the government being involved, just like they got involved in health care and started distorting values in any number of ways, either with subsidizing via FHA or subsidizing via subprime or what have you. Even if you want to claim that they had “the best of intentions,” I don’t care. The end result once again was to make a mess. What was the story yesterday? The housing situation in this country is as bad as it was during the Great Depression — and this is after Obama has had how many programs to help people with their mortgages, how many programs to keep people in their homes?
The more the government gets involved — and it’s not just because of these people running the government. It’s just structurally, the government does not facilitate efficiency. It does not lower the cost of anything. It does not improve the efficiency of anything. It’s, by definition, a series and a maze of bureaucracies made up of people who have to construct reasons to be employed. “This regulation must be followed. That department must be visited. This agency must approve.” It’s a never-ending cycle, and it goes on — and there’s value added at every level to the point that real value of whatever you’re talking about is distorted. If this ever happens to hotels, we’re sunk. It’s happened to health care, and now it’s happening in housing. It’s just a heartbreaking shame out there, is what it is.
RUSH: Here is Jim in Boiling Springs, South Carolina. Great to have you on the EIB Network. Hello.
CALLER: Good afternoon. Dittos.
RUSH: Thank you. Even the New York Times didn’t find out about this.
RUSH: (laughing) That’s how good we kept the secret.
CALLER: You were talking earlier about the lending, and I’m an appraiser here in South Carolina, real estate broker and a former real estate developer, and I price commercial and residential.
CALLER: And I also deal with the mortgage market since my daughter works for a good friend of mine, there’s no longer anything as a mortgage broker. The federal government made it illegal for mortgage brokers to be in business in April, and he’s a direct lender. But what I called to tell you is they are still making loans hot and heavy to unqualified people.
RUSH: I know. I did not know that until I read that in this book. I thought the process had been buttoned down, but it hasn’t, you’re right.
CALLER: Paul Revere, you are. I gotta tell you, man, it’s so depressing out here for those of us who are striving to be Americans, and it’s such a battle every day —
RUSH: I know. It is heartbreaking because we’re watching it happen right in front of our eyes, and people are asking, “What’s happening to our country?”
CALLER: I go to somebody’s house, I appraise their house, and I pray, I pray to God they don’t have a shotgun, because when they find out what the value of their house is worth since what’s-his-name got in the White House and it’s worth 60% less than what they thought it was worth, man, they want to kill me. I mean I’m not joking, either.
RUSH: How many of these people that you’re talking about actually bought a house because they really wanted to or because they were told or advised or they thought that that’s the best place to park money, that this is a great investment, it’s always gonna at least hold its value if not appreciate in value. How many people really are in their homes because they wanted to be, it was an active decision.
CALLER: All of them. All of them.
RUSH: All of them.
CALLER: I’ve never met anybody that didn’t dream for a house. I mean contrary to what we hear that renting is the best thing since sliced cheese, damn, pisses me off. I’m sorry, but it does.
RUSH: No, you’re the second guy who’s been ticked off today with that.
CALLER: Well, if people knew the trillions of dollars of personal wealth which generates the economy and pushes it forward — and I’m not a big economist, but I do know that real estate is the foundation of our economy for our country. It puts the money and the power of the economy in the hands of the little guy because he’s borrowing money, he’s paying — (crosstalk) — the banks are able to lend to other people, other people are allowed to do businesses, buy cars, buy whatever they need to drive our economy. If you kill the real estate industry, you’re killing Americans, plain and simple. And these people are having it stolen out of their back pocket. You know, I’m hearing statistics of 40 to 60% of the appraisers are out of the business in the past three years, and some of them were scumbags, needed to go, don’t get me wrong, but that’s a lot of money gone.
RUSH: I know.
CALLER: I’m hearing builders —
RUSH: It is an ongoing tragedy, and I just cringe to see what’s happening to our country every day, see evidence of it, so unnecessary. I am worn out trying to describe how I feel about it. By the way, they’re being stolen from their front pockets. They’re seeing it. They’re not being pickpocketed. Makes it even worse. They see what’s being done to ’em. They know it’s happening. Some of them may not be able to understand why, but they still know that it is. Thanks for the call, Jim. I appreciate it.
A reminder, a website that you’ve been paying attention to this past week, DirtySpendingSecrets.com, it’s a site continually releasing new and different spending abuses by the federal government. Their latest releases include the additional dollars that you and I are spending to upgrade federal workers from coach to first class when they travel on government business, $146 million every year is spent upgrade government workers from coach to first class. We spent some $3 billion to restore sand to beaches this past year as well. I don’t know about you, there’s a whole list of egregious spending going on, and this website chronicles it, all of it, the dirtiest of it. It’s well worth the visit. DirtySpendingSecrets.com is the website.
Now, there’s a petition, by the way, that you can sign where you can tell your congressman enough is enough. Sixty thousand people signed this thing this week. Don’t tell me that people are not aware of what’s going on and are fed up with it and are demanding change. I’ll tell you, the root to success for the Republican Party is there, it’s obvious, it’s being spelled out in letters that are as large and clear as any ever written. And this website proves, these numbers add up, DirtySpendingSecrets.com.
The wealthiest county in America now is suburban Washington County in Virginia. There is no recession in Washington, DC. The unemployment in the Washington, DC, area, Maryland, Virginia, DC area, like 3%. Classic statism here, folks. Classic examples of how tyranny operates. You’re losing the value of your house, and you are paying aggregately $146 million a year to upgrade federal employees from coach to first class. All of this is done on your dime, and they almost exhibit an entitlement to that.
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