Book Review
Title: "Financial Fiasco: How America’s Infatuation with Homeownership and Easy Money Created the Economic Crisis"
Author: Johan Norberg
Publisher: Cato Institute, 2009; 208 pages; $21.95 list ($14.93 on amazon.com)
Somewhere I once read a description of homeowners’ habitual equity-tapping before the bubble burst so vivid it embossed an image permanently on my brain.
The exact words I don’t remember, but my mental image is of a scientific laboratory full of cages containing miniaturized homeowners, each pressing away at a lever on their mini homes to get their addictive fix of cash from their homes. Some of them go so far as to resemble Homer Simpson after scoring a doughnut, tongues lolling out as they drool, "Moneeeeeey. Goooooood."
That image came back to me afresh when I first read the title of Johan Norberg’s new book, "Financial Fiasco: How America’s Infatuation with Homeownership and Easy Money Created the Economic Crisis."
It was appropriate that the mere title of "Financial Fiasco" would start out sparking some imagery, because the meat of the book continued to do so as I read on. Sure, "Financial Fiasco" is essentially another of the whodunit genre that looks to place blame for the economic catastrophe we’ve all just lived through. But it sure is fun reading! No joke — this economic deconstruction starts out a chapter on the bailout of Wall Street: "If we don’t do this," said the balding and bearded Federal Reserve Chairman Ben Bernanke as he riveted his usually kind eyes on the leaders of the Senate and the House of Representatives, "we may not have an economy on Monday."
Can you visualize it? I could. And that’s the primary strength of this book. It is so alive, so engaging, and so obviously written with a historian’s aptitude for storytelling that even a non-academic would actually read it — and enjoy reading it, to boot.
When Norberg describes former Federal Reserve Chairman Alan Greenspan, it’s not with a list of titles and accolades, but as a "former jazz-band saxophone player … with a bad back, who prefers to read and write lying down in his bathtub."
Unfailingly rendering human the personae we all have come to know and love (or not so much) as playing leading roles in this economic melodrama, Norberg concisely, yet richly, tells the tale of how — in his opinion — government tangled with Wall Street tangled with the voracious appetites of individual consumers to manifest the recent collapse of various banks, the housing bubble and burst, and the general recession. …CONTINUED
Norberg calls the federal government out — including administrations ranging in ideology from Clinton to Reagan — ideologies ranging, that is, on all points but the emphasis on promoting homeownership at all costs. From the mortgage interest deduction, to the elimination of capital gains tax up to $500,000, to the heavy subsidization of mortgages through Fannie and Freddie, Norberg pinpoints various ways in which the government "distorted" the housing market.
Along the way, he highlights much lesser known, but fascinating, insights and implications. For example, rather than just pointing out how housing inflation was much greater on the coasts than in the "flatland" of the central states, Norberg goes on to explicate that much more than simple desirability of coastal real estate was at play.
Rather, intensive land use restrictions and regulations caused "home prices to (rise) by more than 130 percent in heavily regulated states such as California and Florida between 2000 and 2006 … (while) the unregulated cities of Atlanta, Dallas and Houston each grew by at least 130,000 people (during the same time frame) without prices taking off."
Norberg goes on to finger the Federal Reserve for setting mortgage interest rates so low that money was bound to be funneled into real estate — to the exclusion of other asset classes.
He also points out a fundamental foreclosure-promoting dilemma created by the banking system’s securitization of mortgages: the household with mortgage troubles could no longer just call up the bank and work things out, because their loan had been sold and packaged and resold so often that there’s no one left to call!
And, unlike some of his fellow economic finger-pointers, Norberg assigns consumers our own fair share of the blame, for the house-flipping, adjustable-mortgage-taking, multiple-home-owning and purchasing of homes grossly unaffordable vis-à-vis our incomes — all behavior that, though promoted and facilitated by the government and the banks, was actually committed by homeowners themselves.
Norberg spends the final two chapters of "Financial Fiasco" pointing out that the calls for regulation to fix the nation’s finance woes fail to realize that misguided regulation is, in part, what got us into this mess in the first place, and outlining the disaster potential of the various purported governmental cures and bailouts.
In fact, Fiasco’s conclusion brings to mind an image of caged, suited bankers, pressing a lever on mini-versions of Fed, Fannie, Freddie and the Troubled Asset Relief Program for millions and millions of dollars.
If you like your historical economics replete with facts, stories and images that alternatively make you smile, shake your head and wince, grab this book — you’ll learn more than you thought possible in a couple of hours, painlessly.
Tara-Nicholle Nelson is author of "The Savvy Woman’s Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Ask her a real estate question online or visit her Web site, www.rethinkrealestate.com.
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