How we got here

I had thought that, when the end to the era of irrational exuberance came, it would gradual. Or overnight, but at the hands of the Chinese once they'd discovered enough other world wide crap consumers to unburden them from their reliance on the vast American consumer maw.

Instead, the end seems to have come fast - and at our own hands, where "our" is our government, our financial institutions, our business leaders, and our regular old selves, who've been spending and not saving, and blithely going along with "it" without a thought given to whether "it" was going to do us much good in the long run.

We were happy to form into a collective Roadrunner, running right off the edge of the cliff and staying up as long as we didn't look down.

As is so often the case, and with a nod to Pogo's creator Walt Kelly, "we have met the enemy, and he is us."

One of the best articles I've seen about The Mess was in The Wall Street Journal a couple of weeks back. (Subscription may be required to access it.)

In the article, writer Michael Philips profiles a modest little house - not much more than a shack, really - in a small town in Arizona. In a tale that runs along the lines of "How a Bill Becomes a Law," Phillips lays out how the story of this pokey little house, condemned as "unfit for human occupancy" and about to be razed (as of the column's writing):

...is the story of this year's financial panic, told in 576 square feet. It helps explain how a series of bad decisions can add up to the worst financial crisis since the Great Depression.

In 2007, a local lender, Integrity (you can't make this stuff up)Funding, gave the owner a $103,000 mortgage - despite the fact that Marvene Halterman was unemployed, owed a lot of money, and had a history of drug and alcohol abuse. Not to say that Marvene Halterman is a bad person. She, in fact, comes across as rather warm-hearted. But the fact that someone was willing to lend her $103K against her house, even though the place was a dump and she was living in chaos and squalor - and on a small income pieced together from welfare, food stamps, and disability payments - says a lot about how we got here. (As Integrity's then-owner says of the go-go years, "If you had a pulse, you were getting a loan.")

Ah, yes, the less liberal reader is now thinking bad thoughts about Barney Frank, using him as the stand-in, the whipping boym for all those fuzzy-minded and warm-hearted mush-for-brains who encouraged really bad programs in the name of making us a "nation of homeowners." So, here I'd like to point out that Congressman Frank has a long and substantiated record of pointing out that everyone shouldn't own a home, that there are people whose lives are so chaotic and ill-integrated that they need to be renters. And that we should be making sure that there is an ample stock of rental housing available to those who shouldn't be homeowners.

That would seem to include Ms. Halterman.

But she did in fact, own her home for years, having paid $3.5K for it some forty years ago - when, even by the standards of the day, $3.5K didn't get you much house.

It was, however, enough house to secure a $36K home equity loan from Integrity in 2006, after Integrity wooed Ms. Halterman in with a telemarketed call. And, ever helpful, Integrity helped her line up a $75K credit line elsewhere.

Which Ms. Halterman used to pay off some debts and get by for a while.

Tapped out, she approached Integrity in 2007 for some help. Integrity granted her a $103K, 30 year mortgage, with an adjustable rate that started out at 9.25%, but could grow to 15.25%. While one real estate agent says that the house was worth, at best, $63K, it was appraised at $132K.

Integrity had every incentive to grant the mortgage - and every incentive to unload it.

At closing, on Feb. 26, 2007, Integrity collected $6,153 in underwriting, broker, loan-origination, document, application, processing, funding and flood-certification fees, mortgage documents show. A few days later, Integrity transferred the loan to Wells Fargo, earning $3,090 more, Mr. [Barry] Rybicki [Integrity's then owner] says.

For her efforts, what Ms. Halterman realized from the closing was $11K - not much more than what Integrity made off of the transaction.

For his part, neither Rybicki nor his loan officer ever actually went and looked at the house.

When shown a picture last month, he said: "Wow."

Yes, wow.

But the problem was no longer Integrity's little local problem. Nor was it that of Wells Fargo's for very long.

They palmed it off on HSBC, which packaged it up with a bunch of other subprimes to create an "instrument" - one of those instruments we now know to have been instrumental in the downfall of our economy.

But at the time, that instrument looked pretty god - at least to Standard and Poor's and Moody's, which gave it a triple-A rating.S

So money management firms and pension plans bought it. (Hey, S&P says triple-A. What's to lose?)

As it turns out, that triple-A rating isn't worth much more than the paper it's written on, as the little blue house once appraised at $132K sold post-foreclosure for $18K - purchased by the neighbors, who are going to tear it down.

Meanwhile, the money that Ms. Halterman made on the deal was long gone - and all she had to show for her troubles was a falling apart house and roughly $900 in monthly payments she could ill afford.

And so it goes, "widening, widening in the gyre."

Integrity's former owner, by the way, has shifted careers from mortgage banking to venture capital, where perhaps he'll be better at spotting a bad investment.

Today is a BIG DAY for the country.

The problems we face our daunting, and there's only so much that one man can do. But, as we have seen time and again, it absolutely matters who that one man in charge is. And that leadership is important.

I have no illusions that Barack Obama is going to fix everything that ails our nation, let alone fix everything overnight.

But I'm with the 76% of Americans who think he's a strong and decisive leader; the 80% who say he "inspires confidence, can get things done and is tough enough to be president."  (Source: December 31 CNN poll.)

And I'm with the 83% who approve of the way he's run his transition. (Source: January Gallup Poll.)

Good luck, Mr. President.

Pink Slip'll be rooting for you.