Another Opinion On Reason For Housing Melt Down

April 30, 2008

The Facts

Mike Jackson, CEO of AutoNation, is a guest on CNBC’s Squawk Box this week. In a segment called the Root of All Evil discussing who should be blamed for the housing crisis, Jackson gave his opinion. He said it was a “reckless abandonment of credit standards by the housing industry”. He went on to say that in 04 and 05 they were building houses like crazy, and then they ran out of buyers. So they had to slow down the building or change something. They decided to drop their credit standards. He quoted things like “no money down, no equity, no credit checks, no proof of income, no proof of a job; here’s the keys”.

My View

Depending on which class of people you belong, you will either blame the mortgage/financial industry or the homeowner for what happened here. Only a very few will point to both. Just like the illegal drug industry; who’s to blame, the drug addict or the supplier? It all depends on who you ask. But we all know since the mid to late 1950′s when time payments (or credit, if you prefer) was extended to the consumer, consumers have used that tool to obtain things they otherwise would never have been able to afford. And don’t think for one moment that the “supplier” of those goods don’t know that fact also, and will certainly take advantage of it. When was the last time you went to buy a new auto and the salesman immediately gave you a trade in price on your auto and quoted you the price for the new auto? It’s been a couple of decades since they’ve done that. The first question they ask is “how much do you want your payment to be”, or “what kind of monthly payment can you afford”. In other words, “tell me what you want and I’ll make it happen”.

One other thing Mike Jackson said. He said they were all having a good time; the developers, builders, real estate agents, and originators of the mortgage. Although Jackson did not include them, there’s no doubt that most of the borrowers were also having a good time; until those big payments came due. The only difference is that all those Jackson mentioned didn’t have to pay a consequence for their good time, but the borrower did.