I am a registered Layperson. I am not an economist. And I was, for a long time, shamefully ignorant of the complex workings of Modern Money. I still have a lot to learn, but I've been doing a little bit of research into the mess we're collectively in, and I've been trying to frame it in a way that my fellow Laypeople and I can understand. And so, I give you:
How To Bankrupt Your Country And Influence People - A Beginner's Guide
You too can use housing as a convenient means to send rich and poor alike scrambling to George Bailey's Building & Loan! Just follow these 25 easy steps!
1) Remember that investors are always looking for The Perfect Investment.
2) Remember that sex sells.
3) Have your Federal Reserve lower interest rates on safe government bonds and whatnot, effectively discouraging people from putting their money there. It's just not sexy enough.
4) Combine steps 1 - 3. Investors will stumble upon the city upon a hill, the whited sepulchre: housing. Housing is wonderful because everyone wants a house, and no one has the money to just BUY one, so they have to get loans. Furthermore, these banking types won't be able to remember a time when housing prices weren't going up. Right? Well, can YOU? I'm pretty sure it's always been increasing. Ask the secretary.
5) Refer to step 2. Chunks of mortgage interest are much sexier than Boring Old Bonds.
6) Banks will issue mortgages to people. Investment firms will buy lots of them from said banks. Presto! Safe and long term streams of income from people paying for their lovely homes every month. Chop this nice bundle up and sell it as shares to investors.
7) Even better, if people CAN'T pay their bills, the banks will have beautiful homes on their hands which will be worth more than gold, because the housing market never falters. We agreed on that, right?
8) It's a miracle drug! Demand will be insatiable! And a fun bit of serendipity: lawnmower sales will go through the roof!
9) Investors will want to buy more, and firms will need to come up with the goods, which means more mortgages will need to be given out. Hmmm. Bit of a puzzler this one.
. . . Ahh yes! I have it!
10) Give more people more loans. Begin to slowly lower your standards. It doesn't matter if people have fewer and fewer qualifications for them because . . .
a) This won't be like the old days. You won't really be dealing with this guy's mortgage for 25 years, because mortgages are being bought and sold like common stock. Transience = less responsibility. Loan away.
b) Other companies are going to approve that guy you just laughed out of the building. Are you really going to give up a sale to them? Where did you go to business school? The Carrboro Co-op? This is the real world! MAKE THAT SALE!
c) The mortgage brokers will get their money based on the loans they give, not on the payments the homeowners make, so their incentive will not hinge on being realistic. Don't even ask that client how much he makes . . . you'll only be disappointed. Ahh yes, much better. $500,000 sounds about right to me, too.
11) Standby for the teachers' pets to come out of the woodwork and question all of this. Have your rebuttals ready:
a) "The credit raters are saying these piles of mortgages are AS SAFE as that lame-o bond you bought from the Feds! Credit doesn't lie!"
b) "Damn the torpedoes! Everyone's doing it, so there must be something to it!"
12) Meanwhile, in another part of town, the actual people in the houses will be ancillary to all this trading and fun. No one will pay attention to them. Anyway, owning your very own home is the American Dream, when last I checked. They won't make a peep.
13) A catch, however: these people were never going to be able to pay up. So they won't.
14) People will start to get kicked out of the lovely houses. There will be a slight problem with this, as having all these gorgeous pieces of The Dream on the market sure do drive prices down. But wait . . . prices going down? Something doesn't add up. Did the secretary lie to us?
15) People facing foreclosure will start to take out loans they can't pay back, from companies with fun names like WaMu, to pay for the mortgages they can't pay.
16) Reality will start to set in. Now you're cooking with Crisco!
17) Somebody in a very tall building on Wall Street will decide the best plan is to stop giving loans to the unworthy.
18) The smaller banks, (in smaller buildings, not on Wall Street. More likely on Your Street), will have lots of mortgages from people that didn't deserve them and ain't payin'. Oh dear! They were going to sell them to the big credit and investment fellows on Wall Street who, as we learned in step 17, suddenly ain't buyin'.
19) The brokers and small banks will fall on their own swords and go under.
20) The large firms with the fun names will also be stuck. Not the least because they've been loaning people money to pay off loans they couldn't pay on houses they won't be able to keep. Soon, it will seem as though the money everyone had been having a grand ol' time with just does not exist.
21) The downtrodden masses will seek to renegotiate their loans. Unfortunately their leases are diluted by having too many proverbial cooks in the kitchen, and lots of cooks = too many to get any flexibility.
22) In an interesting twist of fate, the remaining companies will be 'once bitten twice shy' and now won't lend to anybody, under any circumstances, ever. Bad news for those who would have qualified in the old days. And for businesses who depend on loans to run. And for car manufacturers, who can't get people to buy anymore because they don't have the money. And for the service industry, which has fewer people to serve. And for all of the infrastructure and labor that makes all of the above possible, which suddenly has fewer people to supply. And for purveyors of pretty much any 'luxury' item that isn't food. It's a chain reaction, you see.
23) Remember the good old days?
24) Those low-interest bonds are looking mighty good right now, eh?
25) And . . . you're destitute! National crisis seems imminent. Enter the federal government, hopefully to save the day. They can fix this, right? Ask the secretary.
Congratulations! If you've followed this 25-step guide very closely, then you've successfully driven your economy into the ground. Try it at home and impress your friends!
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