Mortgage Market Yields To Youth Baseball Parents
It is baseball season again for our family. With two sons playing, that equates to four games per week. And nothing better demonstrates the problems with America and the problems with our mortgage market than a simple observation that has been visible for quite some time.
Youth Baseball Exposes Societal Failure
Big John Carey is going to hit at least two home runs each game. Hands down, he is going to impress everybody watching the game as somebody that might actually be good enough to be playing in the next league up. He is a great kid, a great athlete, and I suspect the best player on the team (no offense Max).
Every game will be exciting, and I bet this team will win more than they lose. They look good and Alan Baker is a great coach. He is teaching them the fundamentals as well or better than any other coach my son has had up to this point. In most games, I suspect John will stand out as our MVP because it is obvious that he is THAT good. But at the end of the season ...
Everybody is going to get a trophy. Win or lose, attentive or distracted, each kid will be told he is a winner. He is the best. If a child practiced on his own, was on time to every practice, and worked as hard as a ten year old knows how, he will be told he is a winner. Of course, if he only shows up for practice, doesn't really pay attention, and is the least contributor on the team, he will also be given a trophy (just like John's) and he will told he is a winner.
While I am a firm believer in positive reinforcement, think about how it works when we "positively reinforce" everything. Good, bad, right, wrong...everybody's a winner. We work very hard as a society to brainwash our kids into believing this.
The Mortgage Market Is Managed By Youth Baseball Parents
I think our federal government recruited some youth baseball parents to manage the big players in the mortgage market ten years ago. They were pushed by Democrats and Republicans alike to make homes affordable to all. Fannie Mae is a good example of good parenting gone bad.
Fannie Mae was created in 1968 by splitting our from the National Mortgage Association (which was chartered in 1938 to boost a housing market similar to today's). It was authorized to buy and sell mortgages on the secondary market, thus bringing liquidity to a much-battered housing market (sound familiar?). By 1972, it had grown so large that is was buying loans not even backed by the FHA or VA and even went public by 1988. By 1996, this new public company recorded its 10th consecutive year of record earnings!
In 1999, the leadership and the mission statement changed. Apparently, profitability is a bad thing and it was time to start handing out trophies to everybody. No longer was this organization focused on providing stability to the financial markets, no, it needed to be ensuring home ownership rights for everybody. Lending standards changed and I think we all know what has happened since (you can get a good view of that by looking at the cartoon about the fall of the financial markets).
Somebody Please Tell That Parent His Son Has No Game
Plenty of articles have been written about the bailout of Fannie Mae a while back, but looking forward, we have to scratch our heads in wonderment at the solutions that are being presented now. Just yesterday, the Associated Press reported:
The Obama administration will announce Friday a plan to reduce the amount some troubled borrowers owe on their home loans, after months of criticism that it hasn't done enough to prevent foreclosures.
The effort will let people who owe more on their mortgages than their properties are worth get new loans backed by the Federal Housing Administration, people briefed on the plan said. It would be funded by $14 billion from the administration's existing $75 billion foreclosure-prevention program.
I guess this means we all get a "do over." My son now get's five strikes when he bats. Not John Carey. He will still be ruled by the three-strikes-and-your-out rule. And everybody gets a trophy.
Ironically, I have no opinion on the fairness of this. My frustration is based upon the impact I know that socialist actions in the mortgage market will have on the housing market. By stepping in the way of normal market cycles, we are only extending the problem. Supply and demand, peaks and valleys, and all normal market influences are healthy corrections in the market. When the government steps in and uses devalued money appropriated through future taxation, it has the ability to weaken and lengthen the problems that we are facing. Just to be clear, a five year cyclical event is going to turn into a 15+ year mess if we continue "fixing it."
Listen To The Coaches - Ignore The Parents
The coaches know the game. Tell the parents to sit down, shut up, and watch the game. Trophies will be given to the winning team and its MVP. Everybody else will enjoy competing in the game. That is their trophy. The team that loses the most needs to work harder to avoid repeating as loser next year. If they do not feel like changing their behavior, it is not the league's responsibility to give them a trophy.
I hope my analogy makes it clear that the coaches are the market, while the government is the parents. But just to make sure, I felt I had to add this to the end for those readers who might actually believe that any governmental organization could fairly allocate their money better than they themselves can. It's like letting the parents of the losing team rewrite the rules of baseball.
Discussion
Excellent comparison. But let's not focus only on irresponsible, troubled borrowers. The new zeitgeist affects all levels. CEOs and managers whose companies lose money still get big bonuses, companies that fail are bailed out, politicians who fail to represent their constituents stay in office, and every American, rich or poor, benefits from borrowed trillions. Those of us who work hard and save are the suckers in this new brand of baseball. We see our stock portfolios damaged by mismanagement, watch our taxes squandered, and will suffer the consequences of massive inflation when market skepticism catches up with massive borrowing, and the piper asks to be paid. But here's the sad difference: nobody's going to end up with a trophy. The coaches/market have drunk the Koolaid, too. The market now relies on government borrowing, spending and "fixing," as do all the government workers, contractors and, well, everyone. Being responsible, frugal and working hard in a house of cards is basically irrelevant. It's a whole new ball game. We have moved from the gold standard to the paper standard to the faith-based, vapor standard. I've been watching the REITs, which continue to pay dividends, but well above 100% earnings, and are traded well above normal P/E. Real property value? It's measured in dollars: pieces of green paper printed in Washington and traded on Wall Street. Those two umpires have been making the calls in a fever dream, and bailing one another out, for decades. Oh look, China's up to bat. Enjoy the game everyone.
Dear sir, There is so much wisdom and common sense in what you wrote.But this philosophy as been the standard Operating Procedure for our public schools for the the last 30/40 years. Grade on the curve, No child left behind, no failures, etc. Victor David Hanson has a great editorial "Failure is impossible in America now." It was applied to the auto companies and others that were "Too big to fail" Things must change or we will be just Cuba, Russia, N> Korea etc. Thanks for your daily articles..I am looking for something to replace the daily newspaper. NM
Do I understand this correctly? In your little league-mortgage market analogy, the little leaguers are people wanting to buy homes, and the trophies awarded at the end of the year are mortgages. You think only the better players and teams in your fourth-grader’s league should be awarded trophies; and by analogy, you think only the more deserving applicants should be approved for home mortgages.
Secondly, you argue that once a home loan is approved, no changes should be made to the loan after the fact that would make the mortgage more affordable so as to prevent foreclosure, which you compare to changing the rules of little league, giving weaker batters more strikes than stronger batters.
A fascinating comparison. I’ve wondered why it bothers some parents when every player gets a trophy. I am also baffled by the bitterness some people express toward the troubled homeowners who could benefit from legislation that would modify their mortgages. I can’t explain the resentment in either case, but it seems wrongheaded.
First little league: When you signed your kid up, you knew that every player would get a trophy. You could have instead chosen a league that doesn’t do so, or you could have formed your own league, with parents who share your disdain for universal trophy awarding. But you paid your fees and committed yourself and your child to the rules of the league, where trophies are handed out like goody bags at a birthday party. Thanks for showing up; here’s your identical sack of party favors and treats. And in fourth-grade baseball, that’s what trophies are, for participating, for completing the season.
People who run little leagues in such a way have decided that singling out the better players is not necessary to furthering the goals of the program, at least for kids below a certain age. The official mission statement of the federally-chartered Little League Baseball, Inc., states that the “program is designed to develop superior citizens rather than superior athletes.” Players are supposed to try their best, but the emphasis is on “developing the qualities of citizenship, discipline, teamwork and physical well-being.” Giving an MVP award to the amazing John Carey is simply beside the point. The fact is, young people will have plenty of time later to develop their uber-competitive side.
Anyhow, score is kept. Batters are called out. Teams win and lose. After all that, will it erode the character of the below-average players to give them the same participation trophy that John Carey gets? And does John care? Do you think he will slump home the day trophies are handed out, throw himself on his bed and wail, “What was it all for if those losers got the same trophy I did?!”
For the players, the little, gold-painted baseball statuette is a commemorative of having played on a team, memories of good times, and hopefully of hard work and personal improvement. Could such a small thing erode a kid’s sense of responsibility, dilute his competitiveness, teach him to ignore consequences? What a silly thing to fear.
Your article compares the evils of universal little league trophy awards to what you claim is Fannie Mae’s mission to “expand homeownership rights for everybody.” But you exaggerate. While it is true that Fannie Mae has been pressured in various ways over the years to expand homeownership, especially among certain populations, it has never been their goal to extend homeownership to everybody. In fact, part of Fannie Mae’s official stated mission is also to increase the availability of affordable rental property.
So your analogy doesn’t work. Try this one instead: Playing little league would be purchasing a home, and the trophy that every little leaguer receives is the good feeling that every homeowner gets from participating in the American Dream. Fannie Mae would be the entity charged with expanding little league participation in neighborhoods with low participation rates in order to reap the well-known benefits of little league participation for players and the neighborhoods, and the nation generally.
In this analogy, Fannie Mae would promise security for people who otherwise would not start a little league in what they consider a dangerous neighborhood. Unfortunately, many of the people starting little leagues in these new areas came in from outside the neighborhood and charged new members exorbitant fees, many of which would escalate over time. The wannabe little leaguers were so eager to join, and being quite unsophisticated, they agreed to what would turn out to be impossible terms. And all the while, Fannie Mae, and everyone else, failed to oversee these unscrupulous little league organizers. This went on until large numbers of little league players were falling behind in their fees and were about to be kicked off the teams for nonpayment.
So the entities that should have prevented this from happening in the first place, with preventative regulation, finally stepped up and offered to rewrite some of the fee agreements to reasonable rates such that many of the players would be able to afford to stay on the team, thereby ensuring that the players and the neighborhoods would continue to reap the benefits of local little league.
In reality, high foreclosure rates hurt housing prices for all homeowners. It is in everyone’s interest to prevent unnecessary foreclosures, and it is everyone’s moral obligation to prevent unjust foreclosures. You state in your article that you don’t have an opinion on the fairness of relief efforts. But you should. If you are at all familiar with the behavior of the subprime industry over the last decade, you know that many people were taken advantage of. Judith Kennedy, president of the National Association of Affordable Housing Lenders, said that while Fannie and Freddie nurtured unregulated subprime lenders, an estimated 30 percent of subprime borrowers could have qualified for safe, lower-cost prime loans. That is just wrong.
Finally, rewriting a problem mortgage is not like giving five strikes to the weaker batters. Letting some batters have additional pitches would be a direct disadvantage to the other team. Rewriting problem mortgages to prevent foreclosure is more like changing the rules of little league for safety reasons, such as placing new limits on the number of pitches certain age players are allowed to throw in a game. It prevents a serious harm, without presenting a disadvantage to other players or teams. How one can argue against fixing a serious problem that should never have been allowed to occur in this country, I do not understand.
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