A Recent E-mail Exchange

A couple of weeks ago, I got an e-mail from my friend Steve Forsythe. He had a graph from CNBC and a simple 6-word question about it. As usual, I couldn't just answer the question. No, I had to ramble on and on and on...

SF:

Kenny, are these stats on target?

KS:

Yep. We were #8 as late as 2007, but are #1 with a bullet now.

We had a lot of help: A red-hot market; a lending climate that--argue as one might--had its hand kind of forced into profit-driven products; and, ABOVE ALL, the sine qua non of cultural greed all contributed to this.

Start with the 17th century Holland tulip bubble, if you like, and take it down through every 80 years thereafter until the late 19th century (when you could adjust the cycle to every 20-35 years) and you find that each generation has its own get-rich-quick, "I'm-a-freaking-genius" scandal of over-valuation which always ends in an economic disaster. Each time (when left the hell alone), the economy rises--phoenix-like--to rebuild itself until another prosperity-fueled hubris starts the cycle over again.

Las Vegas had a lot going for us to land the part of the superstar headliner of the most recent financial debacle blockbuster. All of the sunbelt hotspots occupy the Top 5 Shame list in foreclosures, because that's where the most "irrational exuberance" Mr. Greenspan warned us of was centered: Las Vegas. South Central Florida. Phoenix. California (various markets) and Texas (various markets) were where the most idiotic speculation was taking place, and that's where most of post-crash calamity has occurred.

Everyone was getting into business (the speculation business, that is) with so little money down that there is now so precious little reticence in walking away from that investment as there is so little (or in some cases, no) investment capital lost. Crazy lending led to crazy investing. Or maybe a little of the other way around.

It was madness. Mass hypnosis almost.

The Republicans will (rightly) blame such government idiocy as the Community Reinvestment Act for the problem. It amounted to governmental meddling (however naively well-meaning) into the private sector and, worse, distorting every fiscal precept upon which finance, itself, is based. The Democrats blame (also rightly) that a hands-off (actually, a hands-on) approach to banking/investment deregulation escalated the problem. (Actually, the Democrats tend to blame the entire mess on deregulation which, in my opinion, is like blaming a lack of spare newspaper spread on the floor--instead of the dog--for piles of crap on the carpet.)

But the real culprit, as it always is, is us. The public. The fat, happy public. We half-smart numbnuts think we can make a fortune with nothing down (besides our own smarts, which are really on loan from a friend of a friend) to make piles of dough. That dynamic is compounded by people exactly like... well, me. When times were wildly optimistic, we borrowed on our paper equity and bought crap. Some of it on transient goods (man, I loved the CTS), and some of it on investments to make more money.

Being swept up in optimism is a wonderful thing. You could argue that it's what has promulgated the species for, lo, these 3.8 billion years (or whenever you ascribe life on this orb to have begun). It's what fuels procreation, for crying out loud. From that ill-advised coupling in the back room at that party in college to the random bar foraging in our 20s to the very marital bed, this innate brave slurping from the well of invincibility has always led us (although, let's be honest, sometimes inadvertently) to carry on the our gene pool.

So maybe this financial disaster is just another cycle of the human species on this planet. It's the story of our America. The story of every civilization since recorded history:

1. We struggle.
2. We overcome through hard work and sacrifice.
3. We pat ourselves on the back for such a good job.
4. We live well from having worked/overcome.
5. We think we're stinkin' geniuses.
6. We take (presumably) calculated risks to better ourselves based on our own (presumed) infallibility.
7. We fall on our faces because we forgot that it was #2 that got us where we're at, not #6.
   

So here we are. On the precipice of going down the same familiar path as the Minoans, Egyptians, Etruscans, Romans, Mayans and any other fabulous culture that rolled a 7 when they were betting on the Come Line. (If you're a craps player and I screwed up that analogy, forgive me...my acumen for gambling is limited to pulling a handle and waiting for coins to drop.)

I will say that there's another layer to this foreclosure thing here in Las Vegas that doesn't put the blame on the lenders or the speculators who gambled and lost. There are many, many people who neither took out idiotically usurious loans, nor over-leveraged themselves, but simply had the misfortune of buying at the wrong time (the peak) of the market. These folks are ethically torn between continuing to pay on a, say, $350,000 loan for a house that's now (and for the foreseeable future will continue to be) worth $186,000 or just walking away.

It’s a tough dilemma.

On the one hand, they wouldn't have such an ethical quandary if they were paying on a loan for a $243,000 house that was now worth--all of a sudden, two years later--$540,000. That happened, too. But I didn't see anyone lining up at Countrywide, guilt-ridden to hand the bank a bunch of money because their asset was now worth 82% more than they paid for it 24 months ago, and all they did to "increase that value" was cook on the stove and crap in the toilet.

In that sense, it's just like any other investment.

Still, I can't easily argue with folks who say, "Hey, this is my family and our future here. I'm not going to pour bad money after questionable money into this house."

So while I'm long on opinions about all this, I'm regrettably short on answers of what to do.

It's a mess. It's a gut-wrenching mess. It's a seemingly hopeless mess.

Then again, my grandma was an immigrant widow at 30 with 4 kids during the Great Depression living in a redneck Oklahoma town where they still lynched blacks if they were out after dark (not the most cosmopolitan place for such a lady). Despite those hardships, Saleema Mahfood Adwan worked three jobs, clothed four kids and wouldn't take a penny of relief from anyone, neighbors, relatives or—of all things—the government. (see stage 2 above)

All her children rose up to honorable adulthood and she lived a rich, God-loving life of 96 years without a complaint. Hell, whatever life she carved out for herself here was better than what the Ottoman Turks would have ceded to her if she'd have stayed in Lebanon.

Okay, I've written 22 paragraphs (and 1,043 extra words) when that first paragraph would have answered your question. And besides that, I’ve veered into all sorts of unrelated minutiae which none of you asked for.

It's all opinion and observation by me. And in the end, I may be as crazy as a bag of rats.

But, the answer is yes, we’re a soiled market to say the least (which, I believe, was your original—and only—question).