What Happened to the American Dream? …who is John Galt?...  a small group of people will recognize that response as the opening line in Ayn Rand’s classic novel, “Atlas Shrugged”.  First published in 1957, it has remained a best seller, especially popular on college campuses.  She presents a story line that reads like today’s newspapers – an economy in turmoil with people desperate to return to more normal times, and politicians feeding off their fear. Stephen Moore, Senior economics writer for the Wall Street Journal agrees with the similarities. His editorial, dated January 9, 2009, can be found on my web-site,  by clicking here.

Today’s politicians mirror those in the book.  At every level of government, the call for more regulation, more stimulation, and more taxation is heard as the only way to improve our economy.  And when the implemented policy fails, the cry for even more drastic, regulation, stimulation, and taxation is the politician’s only solution. They have the morals of drug dealers, who sell more potent drugs to their victims as the way to ward off the negative effects of the previous dose. 

When my career in real estate began, more than 35 years ago, it was normal for a buyer to need a 20% down payment, a good credit history, and a two year work history.  Debt to income ratio standards were strictly adhered to. Banks and Savings & Loan Institutions were risking their own assets, and were fiscally prudent.  The American Dream, of home ownership, was not easily achieved, and to be approved for a mortgage, was evidence that the borrower was living a stable life.  Foreclosures were rare.

Enter the politicians – they have always found it politically rewarding to make dreams come true.  Over the course of time, policy changes with our regulatory system made it economically attractive for banks to meet standards set by Fannie Mae and Freddie Mac, quasi-government agencies created to increase home ownership.  As soon as they created a loan, meeting government standards, the government agency would purchase it from them.  They would be paid a fee for servicing the loan (collecting the payments).  Even better, as long as they followed the standards, they had no risk.  Then politicians, like Rep. Barney Frank, decided that more people could achieve the American Dream if we relaxed the standards.  Credit standards were reduced.  People with recent bankruptcies were often still eligible. Debt to income ratio standards were cut nearly in half. Overtime and bonuses could be counted as income, even though they were not likely to continue. Time on the job became less important.  No down payment? – no problem – buyers were financing their closing costs – causing them to have negative equity on the day of closing.  The hard work and sacrifice to own a home was gone.  When it was no longer easy or convenient to afford, they simply walked away.  Many bought a second home, before dumping the first one. Foreclosures soared. As prices dropped, equities disappeared, causing more people to walk away. A downturn in the economy accelerated the cycle.  Like the inflation, that will soon be coming, that will devalue our money, the American Dream has been devalued.  Congratulations Barney!

What’s Barney’s solution? … After calling Congressional hearings to place blame on everyone else, he recommends more regulation by his committee, more stimulation to encourage people to buy homes, more taxation to pay for his schemes.  More dependence on government.  How did we ever let this happen? ... Who is John Galt?