Implicitly, you know it. I know it. We all know it.
Trust. It’s pretty scarce right now. It has been for at least two years and probably ten or twenty. If you find me cynical, then get ready for the ten-year anniversary 9/11 coverage on your favorite cable network(s). That’s 45 days away. That event didn’t make us a distrustful lot?
I can’t take sides in this political incompetence. I have my lefty-streak, and it runs pretty deep, but this is so far past the sandbox in terms of how to play nice. The most adroit commentary I have heard came from (who else?) Jon Stewart when he challenged President Obama’s Educator-Speech conclusion as being painfully similar to his own mother turning to him when the family was late to go somewhere 40 some odd years ago and his father was stuck in the bathroom. Mom to seven year-old son, “can you talk to him? Can you get him out of there?” “Mom… I’m seven.” I mean, Obama wants me to call my congressman and whine? Like Lamborn would listen to me… whining? That the solution to the whining and whining and posturing and posing was… whining and posturing and posing?
The real damage done is that the economy of trust is gone. I can make a measurable economic argument for the value of trust or a rhetorical political argument for the value of trust or a historical, analytical argument for the impact of trust… but I can’t point to a present-day example of where trust runs deep and makes way for a promising future.
In 2008 when this economy was really melting down, the central issue was one of trust. Banks didn’t trust banks. Banks didn’t trust their own processors who didn’t trust originators who didn’t trust REALTORS who didn’t trust appraisers who didn’t trust buyer’s opinions of value. Countries didn’t trust countries and politicians sure didn’t trust other politicians… especially of another party. How far away from October 2008 are we really, today? Trust was busted then. It’s really busted now.
My chief complaint with the Obama administration’s almost three years flies in the face of most N.A.R. political action funds and sounds like something sputtered by a Hollywood celebrity (“I’m a Texas Ranger”), which is that the administration didn’t go far enough in prosecuting the crimes of the Thunderclap Real Estate Market. Banks (especially their top investors), in my humble opinion, got exactly what they wanted out of the post 2008 financial meltdown: they only have to lend to perfect borrowers, and make deals fly that guarantee them highly favorable returns. No one of note was incarcerated, fined into penance or made an example of in the shockwaves of the collapsed Thunderclap Market, where making bank went from being a breeze to a near impossibility. The message to the consumers and market participants: you’re pawns in this game. We need these “experts at making money” to stay viable and keep making money.
For a moment, compare the degree to which Angelo Mozillo’s misdeeds were penalized to Bernie Ebbers’ misdeeds. Mr. Mozillo ran Countrywide, and to date, has paid the largest fine ever administered by the SEC, $22.5 million last October. Nice work, SEC. Except he cashed out over $140 million in options before stepping down from Countrywide. He got to keep six out of seven dollars! On a per capita basis, it’s like fining an NFL player $100,000 for hitting with their helmets when they make $750,000 a year. Do you recall any pictures of Treasury Officials swooping in on a Manhattan high rise with a disgraced Mr. Mozillo in a trench coat, looking sleep-deprived and scared, while being pushed by the head into the back of an idling Ford Crown Victoria by a bunch of dudes in suits wearing black sunglasses? No? Oh wait. That was Bernie Ebbers. Granted, Mr. Ebbers was convicted of the largest accounting scandal in American history, but then, Countrywide wasn’t an accounting scandal? What were “choose your payment options” and loan requirements to fund and open a HELOC with each closing? How many years is Mr. Mozillo serving? Zero. Ebbers? Twenty-Five. Mr. Ebbers helped defraud investors to the tune of $100 billion. Ouch. Mr. Mozillo and others brought an industry that accounts for 1 in 10 dollars of the US GDP to it’s knees. Wait…. Mozillo only paid $22 million? That paid for what, 10 seconds of debt service? It isn’t cynicism to say that if you make enough money you can truly buy your way to freedom. Mozillo cleared more than $115 million in stock, bonuses and royalties when leaving Countrywide AFTER paying his fines to the SEC.
Is Mr. Mozillo or Countrywide a lone culprit (did you catch that pun? It was good)? Hardly. They’re just graphic and easy to understand examples of an entire industry that had gone haywire, an industry that was so powerful, it was returning tax dollars to the treasury that were basically a charade upon a charade, illusory units and collateral leveraged beyond logical comprehension. Here’s a fact of the real estate nuttiness I saw firsthand: I closed 37 sides in 2005, and 18 were listing sides. Nine foreclosed or short-sold within the next six years. Two of my 19 buyers foreclosed (to date, my only two). If building home ownership was a bipartisan goal (oops… it was), was it worth it at the expense of two in seven deals defaulting into deficiency-land at the height of Thunderclap? I will exonerate myself by saying “these weren’t my buyers. They were someone else’s.” But my job was to get my seller’s maximum dollar. My job was to get my buyer’s a home. I couldn’t control how much they put down or how they refinanced in the next two years. That wasn’t that hard. Getting some one a good deal that withstood ten years’ time: now that was hard. Most gains made after 2003 are cleared from the books in most neighborhoods in Colorado Springs. Our values are at 2003 values, yet the cost of living is decidedly 2011. And that “2003 figure” assumes anything you did to improve your home, re-landscape, new kitchen, new windows, new furnace… it’s worth nothing to not-so-much. Your home-ownership dollars… thanks for keeping your house out of condemnation and fit for habitation.
The issue at hand in Washington is Trust. There is a reason President Obama and Representative Boehner don’t dare say in their public, televised statements “the American people must trust that we have their best interest in mind” because the collective spit-take would be like a giant CO-bomb that would raise the earth’s temperature 5 degrees in an instant. The ability of the consumer to rationally understand both sides of a situation, whether complicated or not, has become impossible. People are locked into their polemic views and seek only the thoughts and opinions of others that enforce and support their own limited and exclusive worldview. John Kenneth Galbraith said 50 years ago that we are apt to cling to thoughts that are comforting and familiar “as if to a raft at sea”. Perhaps never in our history has conventional wisdom been so divided. You have to go back at least 110 years to the time of Tamany Hall and possibly to the Civil War when Americans treated opposing viewpoints with such vile cynicism. Vile Cynicism and Trust by the way are diametrically opposed.
This extends to all corners of daily civilization. Only history majors flaunt the word “civilization” and that’s a shame, because afterall, shouldn’t we aspire for collective civility? But in real estate it’s not uncommon to see buyers close to closing, cash in their chips on a short-sale, a miscommunication, an unresolved inspection issue, or even a wire transfer that is pending and not fully accounted-for, and twist it into some macabre rationale for walking away. If the buyer’s don’t do it, the agents will do it for them (guilty as charged, officer). It is not uncommon to see sellers entrenched in their price waiting for buyers to come to them, not improving their properties, nor improving their prices, but establishing a value of what they want, defending a mysterious territory of dollars that they are unlikely to ever obtain, and persistently operating from a basis “of at least I can control this”, even if that control is really just an illusion they’re pulling over on themselves.
Wall Street loves stability. Wall Street despises uncertainty. Yet Wall Street is about being smarter than the other guy/gal as to what company/future/bond/security instrument has an advantage in the unfair world of macroeconomics. However… what Wall Street truly covets is certainty of return, in short, a guarantee. We are four days away from an arbitrarily scheduled, non-constitutional deadline that has been extended twice already and has been renewed over 100 times in the last 60 years without such present-day theatrics. If that last statement makes you squirm just a bit, ask yourself this: is it because you can’t see the outcome? You can’t control the outcome? You’re not in charge? You don’t trust what others might do? That’s what makes me squirm.
Getting beyond whatever a handshake means, when written contracts and sworn oaths mean nothing, trust – and the lack thereof – is the central issue crippling our economy. The real estate market, the economy, and yup, the United States of America, a country founded on commercial interests (Hello, Boston Tea Party) recovers when trust returns to the marketplace. It doesn’t get better when Washington stops spending money. It doesn’t get better when congressman are called. It gets better when there is a trust in the system. It doesn’t have to be Wall Street. It doesn’t have to be Main Street. It doesn’t have to be King Soopers. It just has to be clear. Implicit. Instinctive.
Congress, please do what is in the public interest and govern.
Mr. President, please do what it is in the public interest and lead.
Citizens, please put aside your distaste for other people spending your money and your need for doubtful future entitlements and focus on the present, and find the glory in compromise. There are such things as win-wins. They’re not mathematical formulas (Buffett’s 3% tax on the GDP? Huh?). They’re usually-idea based. Like this thing called America. If you like the word “Freedom”, please understand that it is not something you have a 100% vested interest in, but 315 million other people also have an interest in.
You’re needed. 315 million people need you. No one is going to “win” this thing but everyone stands to lose. If that’s not clear, then we need to send you back to the sandbox in Kindergarten so you can re-learn this thing called “trust”.