I have listened for as long as I can without speaking out and realize that two simple solutions are the answer on the economy. The solutions are simple, but implementation is hard. When I was young, someone impressed me with a saying that has stayed with me my entire adult life: "if you don't know where you are heading, you will end up where you are going." I took that to mean if you don't plan and set the goal, you will end up going nowhere. What is missing from the current economic situation is the clear goal that should take us back to prosperity. Instead, we have a series of actions that, put together, are what they are: unrelated individual actions that could inflate a portion of the balloon, but won't create anything worthwhile. It is time to set the plan, which I can do very easily, and leave the implementation to those who can make it happen.
In the early 90's, when we were floundering as a nation, those who implement great ideas sought to bring us into the "information era." When Bill Clinton took office, it was reported that there were less than one hundred web sites in the world (most likely an inaccurate figure, but you get the idea). Now you can't go anywhere in the world without finding a room where the inhabitants have more than 100 web sites between them. The result was the dot com boom, followed by the stock market boom and bust. We still have the residual of all that was good about the era, the companies that were created, the technology and the wealth. The names that are part of our national fabric are a testament to that: Ebay, Amazon, Microsoft, Apple, Intel, E Harmony.com, etc.
After 9/11, when the economy was at a low, those who could, did it again. We had experienced the information technology boom, now it was time for the communication boom. We had come from the telephone up to the cell phone and then we paused.
In the beginning of the century, we exploded with communications from Blackberrys that kept those who could, typing through life; the iPhone, which created the first lines I had seen at a phone store since those lines that used to form outside the phone company on the last day you could pay your bill without having the phone shut off. Added to that, we now have texting (and if you do not know what it is, sit next to a teenager at a movie). Once again, the world was excited, companies were created, and wealth was being created.
Now it is time to do it again. We have moved information and the ability to keep in touch at record speeds, and now it is time to move people. We know how to move people around the world, across the nation, from city to city, but we have never found a way to get the masses into the city to work and shop and out again without massive jams, huge loss of productivity, physical danger and a stagnation of living and working.
I have seen some rudimentary solutions such as the changing of the lanes on the Golden Gate Bridge, adding more in the morning going into San Francisco and reversing it by adding more in the evening going out of the city. We need 21st century solutions to a 19th century problem and voila, the world gets excited, companies are created, technology is advanced and wealth is built. Fixing the roads and infrastructure is not the answer, but merely an unrelated action that won't inflate the economy. Let those who can, find the way to move people in a better manner and watch out for the explosion.
A second solution for this economy relates to my industry, the mortgage industry, which will once again start the real estate market moving in the right direction. First we need to educate those who lead so that they can either get it right or get out of sight. It seems Representative Barney Frank and Senator Charles Schumer never had an opportunity to meet my late mother, who knew how to avoid problems without ever allowing the problem to exist. My mother felt that you are what you eat, and she made sure my brother and I ate only what she felt we should by never creating an alternative. At a resort where we spent a week while I was recovering from a serious illness, we had a vegetable plate every day for lunch. We were never given a menu. The last day we were there, we saw two other young boys eating hot dogs and quickly questioned my mother. She whispered to us that their mother went to another place and bought the hot dogs and brought them back. My mother didn't drive, so she couldn't do it. Although we didn't understand it, we were better off, even though we didn't appreciate her slight of hand at the time.
A silly story can help illustrate what the two esteemed legislators haven't figured out. When a lender puts out a rate sheet and wants to pay a bigger fee to a broker who brings a client who will take a higher rate, a longer prepayment penalty or a higher margin, it is the lender who is at fault, not the broker. If your lender didn't have it on the menu, the broker couldn't have it. I am not forgiving the greedy brokers for hurting their clients. I am stating my mother's philosophy: don't create a problem and worry about the solution. Avoid the problem and move on. Now Rep. Frank is trying to create a whole new industry through legislation because he never figured out the real problem.
The mortgage industry, under the direction of the U.S. Government (President Obama's plan, Fannie and Freddie now owned by the government, Geithner's experiments and the banks under the yoke of the TARP rules), is taking action but hasn't come up with the vision. We need to get the real estate market moving and lowering conforming loan interest rates is an action that pokes up a part of the covering that is holding the real estate market down. It won't round out the real estate economy because they haven't figured out what caused the last excitement in the market. It wasn't just speculation, it was the fact that this nation is made up of capitalists of all sizes and shapes. People are always looking to improve their situation, they are not satisfied with the status quo, and they will work hard to make their lives better. Create more wealth and let them experience the excitement of accomplishment. When that isn't available, nothing happens.
What is holding the real estate industry back is not a mystery. It is simply the lack of the ability to move up. We do not have a move up market because we do not have a viable source of jumbo loans. People can buy to the limit of the conforming market, $417,000, or in some areas, as much as $729,750. Why sell your house if you can't move up to the next level? I am not here to tell you that everyone wants to move up, because many have looked to down size. Put in a vibrant jumbo market and watch how many will start moving up. The highest sale I have seen in an area where I have a house, $1,195,000 or thereabouts, was created by a trade. One family wanting to move up and one downsizing. They matched up their equity and created some owner financing and the job was done.
That, in my opinion, is the problem and in this case, I will even give you the solution. I do not want to give the impression that jumbos don't exist. We have a few portfolio lenders, those who use their own bank's money that are doing some variables for jumbos up to as high as $3,000,000 in some cases, but fixed 30 years and 15 years are missing, which is the bulk of the business. We do have a bank that has a fixed 10 or 15 year fixed at very attractive prices, but only in 19 states of this 50 state union. That isn't good enough. We need a 50 state solution with competitive fixed rates, which could be accomplished by the government putting mortgage insurance on every loan, as they do on FHA and VA loans. This would be for the benefit of the lenders, paid by the borrowers, and backed by the government. Eventually, either the lenders would give jumbo loans without the insurance, or private insurance companies could replace the government as they had in the past.
That's it! It is time to quit using individual unrelated actions and start creating and implementing a cohesive plan as we have done so many times before. Easy to write, hopefully easy to accomplish.