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Jun-08-2010 05:09printcomments

The Unacceptable Face of Capitalism

What happened to Wall Street?
A view into the heart of Capitalism

(ENCINITAS, Calif.) - Before Congress and the eyes of the world the executives of financial giant Goldman Sachs admitted that they bet against America. They created financial instruments that they compared with manure so that they and their clients could place big bets on mortgages and housing.

For the winners there were fortunes to be made, even if our financial system was taken to the point of destruction and our children handed a debt burden of unimaginable proportions.

In his latest best seller “The Big Short” author Michael Lewis tells the stories of others who made the same bet against subprime and the financial institutions who pedaled them. Savvy investors who from their insider’s vantage point could predict the end game. They forecast the mass of foreclosures across the country, the broken dreams and busted businesses.

They saw the evaporation of life savings and the arrival of massive unemployment. They knew we faced a financial Armageddon and they placed their bets in the Wall Street casino. Big bets that paid off when the misery index was at its maximum and our financial institutions were forced to beg for a bail out to save our financial system.

This is the unacceptable face of capitalism. Power brokers who were supposed to generate the capital to drive the American economy are instead creating financial instruments of mass destruction. Worthless mortgages given triple A ratings because the big financial houses paid the agencies to do it. As simple as that.

A rigged game if ever there was one.

With all of our regulatory agencies asleep at the switch or outsmarted by the slick operators of Wall Street, the law abiding citizens of the country were left defenseless. None more than America’s homebuilders.

Big Builder magazine recently predicted that 80% to 90% of the nation’s private home builders will close their doors before the recovery arrives. A recovery that still appears to be a long way off.

One of the great mysteries for builders has been the failure of banks to conduct “workouts” during this recession. Unlike previous downturns when lender and borrower would come together to solve problems and mitigate the damage this time lenders have just rushed for the exit door. This time co-operation and patience has been replaced with arrogance and litigation.

Today’s hearings and media revelations are filling in the blanks and giving us the “rest of the story”.

The events leading up to the great bank bailout of 2008 are very revealing to America’s home builders.

Why did profitable and solvent builders suddenly lose their funding?

Why were projects suddenly being appraised and re-appraised until the lender got the number he was looking for?

Why were performing loans torpedoed for no apparent reason?

Why were builders the victims of “contrived defaults”?

We can now see the scale of the catastrophe created on Wall Street and what it meant for our industry. A trillion dollars lost on the subprime fiasco and the total undermining of housing markets all over the country. Do we need bank reform?

Of course we do, but streamlined and efficient regulatory oversight is more important.

It doesn’t end there. While the citizens of America have suffered mightily the culprits have not. Most of those responsible for this national nightmare are still in the positions they held, while others have left with big pay offs. This too is the unacceptable face of capitalism. We can only hope that the hearings now underway in Washington D.C. as well as the work of investigative journalists and authors will generate the charges that justice demands.

This November the politicians will feel the countries anger at the polls but that will not be enough.

Those who put their personal greed ahead of the national interest need to pay a price as well.


Mick Pattinson of Encinitas, California, is the president of a homebuilding company in California, and has held positions as President of the San Diego and the California Building Industry Association, and a member of the Board of Directors of the National Association of Housing. He also is now the founder and president of the Building Industry Coalition for Economic Recovery.

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W.C. Varones June 9, 2010 6:21 pm (Pacific time)

Pattinson, president of bankrupt developer Barratt American, complains that it's not fair that some people on Wall Street recognized the housing bubble and bet that it would burst, or that some banks stopped lending to overleveraged developers as the housing market cratered. The developer industry spent millions of dollars lobbying Congress to keep the housing bubble going with tax incentives, lax lending standards, and easy credit from an alphabet soup of government and quasi-government agencies including FHA, Fannie Mae, Freddie Mac, and the Federal Reserve. I didn't hear Mr. Pattinson complaining as he was getting rich from the funny-money-fueled bubble. In fact, Pattinson was a frequent contributor to the industry's lobbying PAC. The housing crash was the inevitable result of the greatest asset bubble in the history of the world. Any builders who were overleveraged at the peak of the biggest bubble in history have only themselves to blame for their demise. Pattinson's argument is equivalent to saying that Bernie Madoff's Ponzi scheme was a good thing, and the only problem was that investors stopped giving Madoff money to keep the Ponzi going. Pattinson should stop trying to shift the blame to those who recognized the bubble, and apologize for the wreckage that his industry has caused the entire economy.

Phil June 9, 2010 5:36 am (Pacific time)

"Of course we do, but streamlined and efficient regulatory oversight is more important" Same old same old - always asking for less oversight and regulation of an industry that wrecked a lot of natural resources in the last boom. Hope you all go under.

NLS June 8, 2010 10:52 pm (Pacific time)

Builders are against regulation except when they are for it. The industry is just as guilty in the downfall of the economy as Wall Street and has been the recipient of bailouts themselves. They lobbied to write of losses in the downturn against profits during the boom they helped to create, they lobbied for $8,000 tax credits for homebuyers, and now they have gotten HR 5409 introduced in Congress to get the U.S. Treasury to back builder loans. Like we need more new houses when millions of foreclosure are sitting empty????? It's really difficult to feel sorry for the builders Mr. Pattinson since YOU and your friends contributed to the mess we are in. Builders did predatory lending, got inflated appraisals and fed those worthless loans to corrupt Wall Street and now we are all paying the price.

Cindy June 8, 2010 2:41 pm (Pacific time)

Builders are hardly "victims" of this mess--in fact they helped orchestrate it! Builders, along with predatory lenders, coerced appraisers to meet the number or not get any work. Builders have in-house lenders and affiliated lenders and were engaging in predatory lending, as well as mortgage fraud. On top of that, many new houses are so poorly built they're more like a movie set. Fancy finishes but no substance, and lots of leaks. Let's see...a number of small builders have been convicted of fraud already, but KB, Beazer, and others pay fines and go on. The majority of them are never caught or held accountable because individually, these cases do not earn enough money to interest lawyers. And, arbitration clauses in contracts prohibit consumers from suing anyway. (Arbitration is also private, not a public record in most states, so it hides many of these complaints.) Builders lobby to reduce the ability to hold them accountable for environmental damage, shoddy construction, loan fraud, artificial bubble making, etc, tax breaks, and bailouts. All the while they are bellying up to the bar for their corporate welfare they're accusing their customers of wanting a nanny govt to look after unhappy consumers. They helped take out the economy, please don't insult our intelligence by calling them "victims."

Negocios Loucos June 8, 2010 8:10 am (Pacific time)

Bailouts in any manner is not Capitalism. Your opinion is contridictory and fails to understand the real situation. Or you are just a paid shill for some socialistic industry. Oh, I see you are. Well done.

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