Tuesday, October 30, 2007

Empire of Lies, Kingdom of Magical Thinking

We in the U.S. live in an Empire of Lies. Nowhere is this more painfully visible than in the real estate industry.
The real estate/building industry inflated the bubble with an interconnected chain of lies, deceptions and deliberate statistical legerdemaine.

The American public willingly accepted a free pass to the Kingdom of Magical Thinking, where they could indulge their fantasies of gaining great wealth by doing nothing more than owning a house.

So what's different about this real estate bubble? The lying and deception are the systemic props holding up the entire rotten structure. Let's take a look at the dominoes of cascading lies:

Magical thinking was essential to the bubble's inflation. Want to get rich without doing anything? Buy a house or three, sit back for a few months and then sell them for a huge profit. Rinse and repeat. This was speculation, not investment. And of course the real estate industry supported this speculation because the churn of transactions--sales, new mortgages, and the packaging of mortgages into MBS and CDOs--creates the fees and the profits.

"Buy and hold" investing generates virtually no profits for the industry. Turnover and churn create the big profits, and magical thinking--of getting something for nothing--drove the speculative frenzy which generated all the fees and fat profits.

What happened to personal and business responsibility? Both are missing in action. No need to read the loan documents because we're going to flip this baby in a few months. No need to explain the loan re-sets; the buyers wil be out of this place long before the mortgage re-sets. Since housing only goes up, all these mortgages are low-risk. And so on.

The mainstream media and government regulators were complicit in accepting and not questioning the interconnected lies. "Asleep at the wheel" is being charitable when you consider the vast sums spent by the real estate industry for print and broadcast advertising. We as a nation have had to rely on the blogosphere to dig beneath the self-serving industry hype for the truth--a skepticism that was once the hallmark of solid journalism.

Welcome to the Kingdom of Magical Thinking. Here in the Empire of Lies, the Kingdom of Magical Thinking is only open for a limited time. Now that the gates have closed and the speculators, mortgage brokers and investment bankers have been pushed back out into the real world, we hear a deafening hue and cry that someone must be to blame for their losses.

Yes, someone is responsible: every speculator, appraiser, realtor, lender, investment banker, rating agency, regulator and media outlet which generated, accepted, and then passed off the lies as reality is responsible. Lies can only be sustained for so long, and the Empire is crumbling a bit more each day. Who's responsible? Collectively, we need only look in the mirror to find the culprits.

Is there anything you can do? Yes, there is. And it takes about one minute.Go to Citizens For Financial Responsibility Petition and fill in the few lines of the form. (Read the petition first of course. You will probably agree with all of it.)

The citizen who has spent time and money to create this worthy petition, Karl Denninger, reports that 31,000 people visit his blog every month and only 4% have signed the petition. Well, this blog also gets about 35,000 to 40,000 unique visitors a month. If every one of you took a single minute and signed the petition, that alone would create a heads-up in Congress.

(Non-U.S. readers, just use this address:
1601 Pennsylvania Avenue, Washington D.C. 20510
This is the address of the 24-hour-per-day vigil for peace, justice, and global nuclear disarmament in Lafayette Park across from the White House)

I know, because one of my cousins has been a high-placed congressional staffer for decades. If you want even more impact, type up a short personal letter describing your outrage at all the financial lies and lack of Federal agency oversight, and send it to your Senators and Representative.

One personal letter is literally worth a hundred form letters or a thousand signatures. But do whatever you can, and whatever is comfortable. Surprisingly, I often get a thoughtful letter back--sure it's a form letter, but some staffer actually read your letter. That in itself is a small victory.

U.S. Senate (look up your senators' addresses)

U.S. House of Representatives (look up your representative's address)

I promise signing the petition is quick and painless. You will feel better having done it.



Thank you, Bruce H., ($25) for your much-appreciated generous donation to this humble site. I am greatly honored by your support and readership. All contributors are listed below in acknowledgement of my gratitude.

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