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.