Look In The Mirror

Amid the growing world financial and credit crisis, the one thing we don’t seem to have a shortage of is finger-pointing. However, with so much blame to go around, nobody (especially politicians) ever seems to point the finger at themselves.

This point was emphasized quite clearly in a September 19th, 2008 Wall Street Journal article.

The article was about the surge in the number of foreclosures of million dollar plus homes. The beginning of the article talked about a man named Robert Provost, who in 2003 purchased a $2.5 million villa with its own boat dock in Sarasota, Fla.

Mr. Provost earned more than $250,000 a year working for an auto-sales chain and had an impeccable credit history.

Then he lost his job and missed one $10,500 mortgage payment, then another. This month, he put his house on the market for $3.4 million, but the listing has attracted very little interest. Mr. Provost expects to receive a notice of default- the first step to foreclosure in the next month or two.

I kept reading the article, looking for some reaction to this, and waiting to see if someone, anyone, was thinking the same thing I was. However, the only two quotes I saw from people trying to explain this phenomenon of million dollar plus foreclosures were an economist from Wellesley College, Karl Case, who said, “If you’ve got a lender who pushed them to the limit and you have some change in supply or demand, you’ll have foreclosures.”

Hmmm, “the lender pushed them to the limit.” Sounds a little like Flip Wilson’s old routine, “The devil made me do it.”

Next we had Tom Lawler, a housing economist in Leesburg, Va. who said, “Loans were unbelievably risky in every category. We’re seeing the results of that lending in the high end.”

Are you seeing where I’m heading with this? No one asked the simple question: What the hell is an employee (not a business owner) who is making $250,000 a year doing buying a $2.5 million house? Plus, the fact that Mr. Provost stopped making mortgage payments right after he lost his job tells me he went into this with no cushion. Whose fault is that?

Oh, and if you’re thinking that some unscrupulous lender talked him into this let me give you one more piece of info that I withheld till now: Mr. Provost’s job with the auto-sales chain was that of finance chief! No wonder he’s out of work.

Let me tell you what happened to too many people. They saw friends, neighbors and people on TV making what looked like “easy money,” just buying, selling and flipping houses. You didn’t need any money or income, because the prices would just keep going up (where, in fantasy land) and all you need to do is sell and use that money for the next purchase, or maybe even buy two. Why work for a living, when there’s such a sure thing staring you in the face?

As you know the bubble burst and many of these people want to be bailed out. What about the vast majority of people who paid and continue to pay their mortgages on time? Nobody was asking for a bailout when they were making money and they certainly weren’t going to share it with the homeowners who weren’t speculating.

Investing is a risk, whether it’s real estate or the stock market (I own 1,000 shares of AIG and you know what? This won’t be the first time I take a beating, nor will it be the last. I bought it. I knew the risk. Hell, life is a risk. If you want to be successful you have to take chances. Success is as much about failing as it is about succeeding. But when those chances blow up in your face (and sometimes they will), stop looking for scapegoats (that’s the job of gutless politicians), just look in the mirror and move on.

2 Responses to “Look In The Mirror”

  1. Teri says:

    Thanks Warren. I would add though, that there were many people who were encouraged by lenders to take on larger mortgages than they could afford. They weren't all million dollar houses. Some were $500,000 and customers should have only qualified for $250,000. Mortgage brokers and bankers made more money if they sold more loans.
    Then on top of that the same brokers encouraged Home Equity Lines and gave the customer a book of checks that they could use to buy cars, designer clothes or golf club memberships……
    I could go on and on but we all now see the result as the risk was passed on in nice little packages to others who were looking for higher yield and didn't consider the risk.

Leave a comment