Daily News Editorial
Sen. Charles Grassley had some words of wisdom for Estherville Rotarians Thursday when he said that downturns are a natural part of our nation’s economy.
He also said that bankers should share in some of the risk when they make variable-rate loans to people who won’t be able to make the higher payments that come with higher-rate mortgages.
Not that it’s going to be any help right now, but the senator was absolutely right.
Our current mortgage mess is a result of a bubble that has burst. For far too long, real estate has been considered as the “best investment” that a person could make. We in Iowa learned better in the 1980s. That was when banks considered farmland values when making loans rather than land productivity and realistic commodity prices.
When loans are made on speculation that real estate is going to increase in value, that’s all it is — speculation. You’d probably be better off going down to the slots and card tables at Emmetsburg.
Particularly hard hit were the people who took out interest-only mortgages. Even more incredible, some people took out home loans that did not even cover the interest. The “backside” of their loans increased as the principal grew. As a result, a lot of people were left holding the bag, making payments on homes that had more on the books than their market value.
Get-rich-quick schemes might work, for a while. But there’s really no difference between real estate investors who play hot potato with a piece of property until the price is more than its real value and the pyramid schemes that leave the last person holding the bag.
In the latest move Thursday, the Federal Reserve, seeking to ease a painful credit crisis, said Thursday it will make $75 billion in Treasury securities available to large investment firms next week. That comes just two days after the Fed made a three-quarter-point rate cut. In May, people should start receiving their economic stimulus checks.
Some people think such measures will reinvigorate our economy. Others think they’re just a finger in the dike that is going to inevitably explode.
While economic downturns are inevitable, Grassley is also right that there’s plenty of blame to go around.