By Kenneth Kowald
Last month, I noticed “for sale” signs for two houses on a street in the Old Forest Hills section. One house for sale on any street in that area is unusual.
Since this is not a section of the borough — like southeast Queens, where foreclosures are at an allâˆ’time high — I assume the sales are an aberration.
Or are they?
The economic crisis we are in, the worst since the Great Depression, has touched lives in all economic categories. Those hurt most are the ones who were sold a bill of goods about being able to buy a house for practically nothing and expect to see that property increase in value to an extent beyond any reasonable person’s expectations.
My wife, Elaine, cannot forget a TV news report she saw months ago, before we reached the depths of this recession. A single mother, who made $40,000 a year, took out a subprime mortgage for $400,000. When the rates went up, she was out of luck and out of a house.
At Newtown High School, I learned in economics class that you should spend about a quarter of your income on housing. What was this woman thinking? Her mortgage had to cost her much more than a quarter of her income before her rates went up.
She and others like her were assisted in this wild move by what obfuscator Alan Greenspan said was “infectious greed and malfeasance.” Greenspan is the one who made it seem what he called “irrational exuberance” in the stock market was akin to teenage pranks and could be ignored. The government, with support from Greenspan and his ilk, changed the rules in the late 1990s so many bought homes more for the “can’tâˆ’miss” investment than for a place to live.
Greenspan said, not long ago, that the almost incomprehensible system of securities based on subprime mortgages showed that “the financial system as a whole has become more resilient.”
When people saw and heard the ads for subprime mortgages, why wouldn’t they believe they could get something for nothing? It looked too good to be true — as it would turn out to be, unfortunately, for too many Queens residents.
Some spoke out against this endâˆ’result of the mania for deregulation, which began in the Carter administration. Warren Buffett called the “new” instruments “financial weapons of mass destruction.” Paul Krugman, winner of the 2008 Nobel Prize in economics, wrote that “the vast riches achieved by those who managed other people’s money have had a corrupting effect on our society as a whole.”
I am not nostalgic for the good old days, much of which were hard, but I remember my father had what we would today call a mantra. He was paid in cash and we used a bank for a savings account or a Christmas club. I did not see checks until I opened an account when I started working.
But when my mother would say, “Charley, I would like to buy” whatever, he would answer, “If you’ve got the money, get it.” The only credit card I remember from those days was a Macy’s card, and while my mother shopped there, she never got one. The only debts my parents had were the mortgages on the house they bought in Elmhurst. They paid those costs in cash on time every month when my mother went to the bank on Vesey Street, near what is now Ground Zero.
The Obama administration has to repair the incredible damage of the last few years. It must help those who are trying to keep their homes. Too little has been done about that, as we can see in Queens, where the foreclosure rate is the highest in the city. Any plan must also protect our neighbors who are responsible renters in foreclosed property.
Above all, the new administration must set an example so people can learn there is no easy and legal way to wealth. It must make sure that those who run the businesses in our country are regulated with sufficient attention to their honesty and probity.
We have deregulated ourselves into the most horrible economic slump since the Great Depression. With caution, intelligence and proper enforcement, we can regulate ourselves out of it. Too many people in this country are waiting for help. We all need it as soon as possible.