I’m going to go out on a limb and make a declarative statement about who, or rather, what, is to blame for the worldwide economic meltdown that all but obliterated the planet’s finance and real estate industries.
Jargon.
I first began to feel this way when the nation was on the brink of what some believed at the time would be America’s Great Depression II. It was mid-October last year. As editor of Real Estate Southern California I was attending a real estate conference, where Stuart Gabriel, director of UCLA’s Ziman Center for Real Estate, summed up the feelings among many top economists and financial experts: The U.S. earlier that month had narrowly averted another depression thanks to the Congress’ approval of a massive $700 billion bailout plan, along with other measures geared to prop up the nation’s banking system and eventually aimed at digging the housing industry out of a pending pandemic of foreclosures.
During that conference, hosted by a group called NAIOP (the National Association of Industrial and Office Properties), something in my gut told me that, maybe, it was jargon, and the insane parade of financial acronyms that contributed to the jargonistic confusion that was to follow, that was playing a role in the meltdown.
Now, I’m no conspiracy theorist. However, confusion and chaos—either intentional or as a result of people’s inexplicable need to neatly categorize everything under the sun into nice, neat unintelligible gibberish—can rarely be tied to good decision-making.
Can you say (or, better yet, understand) TARP, TALF or CMBS? And if you know what those mean, try this one: P-PIP. And those are just a few better known acronyms, which even as a veteran real estate reporter, I had to struggle to digest like they were “toxic assets,” another lovely term that continues to plague us today.
At the time, we were all learning that a goal of TARP (the Troubled Asset Relief Program), would be to purchase “troubled assets,” such as collateralized debt obligations (if you aren’t familiar with the term, think of CDOs as the grease that some slick prankster put on the playground slide just before you got on it and bought a home). To add to the confusion, TARP was to be run out of the U.S. Treasury’s new department, the Office of Financial Stability (OFS), and the program was made possible by the passage by Congress of the Emergency Economic Stabilization Act (EESA).
It’s not so say these programs are bad ideas, and by poking fun at them, I’m neither intending a criticism of the Bush or Obama administrations, nor HUD, FHA, CBO, SEC or the Fed. I’d also like it known that if you are reading this and you are with MBA (Mortgage Bankers Association), or CAMB (California Association of Mortgage Brokers), that I’m neither blaming bankers nor mortgage brokers—as a whole.
That being said, it’s important to note that right before the crash of the real estate and financial markets, home buyers were being beset by a wide new world of mortgage terminology that even the educated and informed had trouble understanding: Option ARMs, mortgage resets, good faith estimates, loan-to-value, mortgage backed securities, negative amortization, pre-qualification, teaser rates, underwriters. To be sure, many of these terms were out there long before the meltdown, but during the home buying frenzy that unfolded for nearly five years in the early part of the millennium, consumers were bombarded by them to the point of dumbfounded confusion.
It was as if consumers—and the barrage of jargon that followed the meltdown then afflicted politicians and taxpayers and led to a bailout plan that likely has enough acronyms to consume the entire alphabet… twice—were being forced to learn a whole new language. A lot was lost in translation.
My point is that a little simplified, common-sense language probably could have stopped a lot of bad decisions from being made: “I cannot afford that,” said the consumer to himself. Or “You cannot afford that,” said a friend, financial adviser or mortgage broker (again, I don’t believe mortgage brokers as a whole are to blame, as many upstanding brokers worked hard to educate buyers and dissuade them from making bad decisions). Or “We have too many risky loans,” said the bank president to herself. Or “They have too many risky loans,” said the fund manager who was overexposed with a large percentage of mortgage related securities. Or “That’s a bad bet,” said anyone with some influence at some point in the worldwide feeding frenzy.
And here’s one of my favorites: “Is that home really worth that much?” To be fair, I still believe a home is a great investment—and if I weren’t unemployed (I need to reveal here that the loss of my last job is due to the real estate market crash), I would most definitely be in the market for a home right now. But it seems amid all that jargon, and the madness that followed, that either a lot of people got into homes that were over-valued (two years ago there were homes in the worst parts of Compton and Long Beach selling for $450,000 and up), or they were mislead or hurried into a buying decision thanks to a bad mortgage product or due plainly to a lack of understanding on the part of homebuyers of what they were getting into. And there were some folks, even knowing they couldn’t afford a home, who lied about their income to take advantage of that frenzy, hurting themselves and the American taxpayer in the end.
Now, post-meltdown, we have a host of new jargon—actually it’s old jargon that just hasn’t been used in quite some time—much of it aimed at getting home-owners out of trouble: forbearance, short sale, deed in lieu of foreclosure, recourse and non-recourse loans (check out Realty Bites on Friday to read about recourse loans and the potentially scary financial situation many people are getting themselves into to avoid being foreclosed upon). Those terms don’t even skim the surface of the sea of jargon that lies out there in wait for homeowners in trouble.
And there’s sure to be even more jargon shoved down our throats, as the government and the financial industry continue to try and get us out of the fine mess they, and/or we, got us into. And amid all that noise and haze of acronyms that read like regurgitated alphabet soup, there will be some small, unheard voice in many of us, asking, in plain, simple English: “Is this a good idea?”
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