By Mike Buffington
Greed killed the housing beast
At the end of the movie, “King Kong,” one of the key characters utters one of the most famous lines in movie history. As King Kong lies dead in the street after being shot from the Empire State Building, one observer says, “The airplanes got him.” Main character Carl Denham replies that it wasn’t the airplanes.
“’Twas beauty killed the beast,” an allusion to Kong’s affection for the character of Ann Darrow whom he had tried to protect.
That classic line came to mind this week as I read through a fascinating three part series in the Washington Post about the rise and fall of the housing bubble. The articles are an insider’s look at the “wave of easy money” that fueled the explosion in mortgage loans and then how it all came crashing down.
It wasn’t bad loans that killed the housing boom.
‘Twas greed that burst the bubble.
Like the allure of beauty, greed is one of life’s most powerful forces. And it was greed that drove the mortgage crisis over the cliff, leaving behind the economic debris of foreclosed homes, failed financial institutions and a real estate market that is but a shadow of its former self.
While some of the fault lies with people who took on mortgages they couldn’t afford, more of the blame lies with greedy lenders who did 100 percent subprime loans with little verification of income to people they should have known couldn’t pay. They were aided in that by greedy real estate sellers and developers who helped push people into homes they couldn’t afford.
All of that money appeared easy pickings and gave rise to neophyte real estate brokers and developers who jumped into the market with little background about what they were getting into. Greedy for a quick buck, they took on projects they couldn’t afford.
All of which brings to mind another famous movie, “Wall Street” from 1987. In his famous speech to stockholders in the movie, Gordon Gekko (Michael Douglas) says, “Greed is good. Greed is right. Greed works.”
That line came to personify the 1980s and indeed, it has been the tone of the last quarter century.
But tell the 478 homeowners in Jackson County who’ve lost their homes due to foreclosure since January 1 that “greed is good.”
Tell that to those in the financial and real estate businesses who’ve lost their jobs over the last year as the housing bubble popped.
Tell that to underfunded developers who have gone bust in the housing crunch and to the hundreds of people formerly employed in the construction and landscaping businesses.
Tell that to local government officials who built budgets based on the bubble’s growth curve and who now face major revenue shortages.
Greed is not good. Greed muddles the thought process and leads otherwise intelligent people into making stupid decisions. Greed is contagious in business and fogs financial planning. It distorts markets. It makes government officials stupid.
Nobody knows where the current economic crisis will go over the next 12-18 months. The fear is that we’ve not yet hit bottom and that there will be additional pain in the markets as falling housing values ripple through the financial sectors.
And while Jackson County has escaped some of the decline seen in other states, we have not totally weathered this storm. Just this week I heard that one of the county’s premiere real estate developments is facing a shortage of homeowner dues so severe that it may have to close its community pool early.
But what is really outrageous in this mess is how so many in the financial and real estate sectors have attempted to shift the blame. According to their spin, the economy really wasn’t hurt by the real estate bust, it’s all “the media’s fault.”
Funny how the messenger gets the blame when things go bad. Back when the real estate market was booming and newspapers were doing story after story about the rapid rise in housing values and construction, nobody in the real estate or financial business complained that the media had exaggerated the boom. In fact, many top guns relished all the media attention during the housing upswing.
Now in the bust, those same people attempt to deny any fundamental problems and blame the media for the economic downturn. If only the newspapers would stop writing about it, they moan.
Let’s be clear, the media didn’t cause this economic downturn and housing bust; it was the greed of insiders who drove the market over the cliff with practices that should never have been allowed in the first place. The housing boom was largely a false economy created by greed and a get-rich-quick mentality.
‘Twas greed, not the media, that killed the housing beast.
Mike Buffington is editor of The Jackson Herald. He can be reached at email@example.com.
Jackson County government: Tail is wagging the dog
It’s a wonder that there are so many candidates running for the Jackson County Board of Commissioners. Who would want the job given the slowing of revenues and a county bureaucracy that continues to expand with a spending binge?
The next board of commissioners is likely to be faced with a difficult county budget and pressure from county administrators pushing for a tax hike. Whomever gets elected will have a difficult job.
But here’s a pledge everyone running for the BOC should be forced to make: No additional taxes! That means no additional millage and no backdoor tax hike through higher property valuations.
The question all BOC candidates should be asked by voters now is this: Do you, Mr. Candidate, have the guts to say “No” to county manager Darrell Hampton and his army of bureaucrats who demand more and more from taxpayers?
The current BOC lacks that courage and has simply nodded as the county government has exploded spending in recent years. Although Jackson County has been growing, the rate of government growth has far exceeded the rate of population growth.
Over the last decade, Jackson County’s population has grown around 57 percent. In that same time, the county’s total assessed property values has gone up 200 percent and sales taxes have climbed 104 percent. Yet despite higher property values and sales tax income, the millage rate hasn’t gone down and county government spending, excluding capital and debt expenses, has jumped 160 percent.
What changed? In 2000, we “professionalized” our county government by going to a strong county manager system of government.
That system has some benefits, but one of the downsides has been a series of county managers who have hiked county employee wages and benefits and expanded the county’s bureaucracy. Mr. Hampton is just the latest such bureaucrat to occupy the manager’s seat and like his predecessors, he is driven by bureaucratic urges to grow local government even in slow economic times.
Current county budget plans, for example, look to add more staff and hike wages around four percent despite the obvious problem of declining revenue due to the housing bust.
In addition to being a typical bureaucrat, Mr. Hampton also enjoys playing cat-and-mouse with the public. He has hosted a series of “retreats” with the BOC, both in the county and out of town. These BOC meetings are designed to hide BOC discussions from the public and are scheduled at times when Mr. Hampton knows they cannot be covered by the media. In addition, some of these meetings were called to discuss one topic, but other more controversial topics were discussed as well.
And members of the BOC have just gone along with all this without a peep of dissent. The tail is wagging the dog.
So the next board of commissioners will have some difficult decisions to make, both in cutting county spending and in reining in county officials who seek to protect their own bureaucratic kingdoms.
And until the county has a strong BOC that will do that, taxpayers will suffer the consequences.