The Greed Factor

When I was growing up it was expected that you would pay your bills. If you wanted something and couldn't afford it, you either didn't get it or you saved to buy it.

I remember my mother going to department stores and making payments on something called "Lay Away". I sort of figured out that you had to make payments to the store until you had paid enough to take whatever you bought home with you.

There was a toy store a few blocks from my house when I was a little kid--around eight years old. I remember going in and giving the lady money every week out of my allowance (I think it was 25 cents per week). Eventually I paid off the $1.25 debt and took home a silver colored pistol that was also a movie projector. In retrospect it was a flashlight shaped like a gun that projected a small loop of celluoid pictures. But it was my first credit purchase. And it was all mine.

Just as I finished college Visa and Master Charge were introduced and I got one. And I bought my first new car with a loan from a bank just as I started law school. I had never had real credit, and the bank took a risk on me I guess. Maybe the fact that the Judge I clerked for in law school vouched for me helped me get the credit.

In August 1976 I borrowed about $8,000 from my mother to help make the down payment on my first house. I promised to pay it back when I got my Christmas bonus from the law firm where I worked. In January 1977 I repaid the money to my mother. She said she was totally surprised. She thought she'd never see the money again. What kind of son did she think she raised?

I worked in the commercial loan workout area of a couple very large banks. We dealt with people and businesses that had defaulted on their loans. We did not make residential loans, but we often had homes that were used as security for commercial loans. I always dealt fairly with our customers, and I expected them to reciprocate. I did not ask more of someone than they could do. But I expected them to do what they could do, and not just do what they wanted to do.

In the past few weeks I have seen the names of many Key West residents (many very wealthy individuals, many professionals, many socialites) names appear on our mls Hot Sheets as they either listed their homes or investment properties for sale or reduced the asking price and offer the properties as Short Sales. A Short Sale is the offering of a property at a price where the lender must agree to accept less than is owed to permit the sale to close. The seller expects the lender to forgive the balance of the debt. Congress recently enacted legislation that allows the IRS not to treat debt forgiveness such as occurs on Short Sales as a taxable event in most cases.

A lot (I mean a lot!!!) of locals helped fuel the fire that drove up prices here. Landowners, apartment owners, commercial property owners, property developers, and local investors took every opportunity to gouge as many dollars out of residential and commerical tenants. They bought and sold properties taking quick profits because they could do so. And in the process the cost of residential apartments increased by at least 50% since 2000. The costs of commercial space on Duval has driven many small businesses out of business. Many of the commercial landlords just let their property sit vacant rather than negotiate reasonable rents because they know in the end some poor fool with a good business plan will take the space at an exorbitant rate.

But here's the kicker. Local investors that own numerous properties are now listing non-performing properties on the market as Short Sales. Many locals including business professionals are doing the same thing. I'm talking about professionals that charge hourly fees in the hundreds of dollars to people like you and me. I recall one such investor who bragged about making $100,000 on a contract he flipped on a Pritam Singh real estate deal in Marathon about 3 or 4 years ago. This person has several Short Sale properties on the market today. That is the truth! And it is outrageous! Take the profits and let the bank and ultimately the American public absorb the loss through higher interest rates or fees in the long term.

It really angers me that some of these Key West investors who made so much money on the market up-tic look like they may avoid any financial responsibility for their own greed on the down side.

I think we were better off as a country when people like my mother had to live within their means and pay for what they wanted on lay-away. The abuse of credit and the avoidance of personal responsibility for one's own actions is driving our country to the poorhouse. Of course, we'll be going in style in an unpaid for luxury gas guzzler.