Why Georgia, Why?!?

In his morning op-ed, New York Times economist Paul Krugman turns his Noble prize-winning, piercing brown eyes to Georgia’s growing army of failed banks and wonders “What’s wrong with Georgia?”

I’m not sure how many people know that Georgia leads the nation in bank failures, accounting for 37 of the 206 banks seized by the Federal Deposit Insurance Corporation since the beginning of 2008. These bank failures are a symptom of deeper problems: arguably, no other state has suffered as badly from banks gone wild.

To appreciate Georgia’s specialness, you need to realize that the housing bubble was a geographically uneven affair. Basically, prices rose sharply only where zoning restrictions and other factors limited the construction of new houses. In the rest of the country — what I once dubbed Flatland — permissive zoning and abundant land make it easy to increase the housing supply, a situation that prevented big price increases and therefore prevented a serious bubble.

What makes Georgia so special?  According to Krugman, it basically boils down to a lack of consumer protections, which allowed “homeowners to treat their homes as piggybanks, extracting cash by increasing the size of their mortgages.”  Texas, with its similarly sized, limitless growth, mega-opolises, has such protections in place and isn’t feeling quite the level of bank-failing pain as the Peach State.

Krugman’s Monday morning lesson?  While all the focus in the national press has been on breaking down the country’s largest banks, good old-fashioned predatory lending was also a major contributor to the greatest of recessions.

Thanks to Judy for pointing out the Op-Ed!

71 thoughts on “Why Georgia, Why?!?”

  1. A bank in Myrtle Beach, SC, failed last Friday. It was the first bank failure in South Carolina in over 10 years. I think that speaks volumes about the difference in laws, regulation, and enforcement.

  2. It’s not very illuminating to attempt to sort it out on a statewide basis: So many of the much larger banks that either went under (WaMu) or were quickly sold (Wachovia) or aided by the federal govt (Citibank) were effectively operating on a nationwide basis.

    The GA bank failures are a drop in the bucket compared to those.

    1. Not to mention Fannie and Freddie, which enabled much of the idiotic lending in the first place. Barney Frank, call your office.

  3. Nowhere in the article does it place any of the blame on the home buyer. Krugman looks to put fault squarely on the shoulders of predatory banks and lack of consumer protection. Sure, some of the problem lies with them, but come on…most of it should lie with those signing the loan papers.

    This is yet another example of people not taking responsibility for their own actions.

    1. How does one effectively make home buyers take responsibility for their actions? Fewer safety nets?

      Sure people SHOULD take responsibility for their actions, but here’s a great example showing that they sure don’t, and as a result put the whole dang economy at risk.

    2. You know, Token, to a degree, you’re correct– except (and you knew there was gonna be an “except”, right?) that a large number of the failed mortgages were not your basic fixed-rate, set term, straightforward transactions. They were mostly those lovely “creative” loans that the banking industry’s deregulation opened the doors wide open for, and it became a free-for-all of financial instutitions pushing the envelope any way they could to get people in a property, even if that meant they had to fudge the numbers to do it. Too many of the people who were being sold these loans (both first-time and re-financing) simply did not understand what they were getting into, and didn’t get it properly explained by the loan officer drawing up the transaction. I can’t tell you how many elderly people whose homes were PAID FOR, but who were sold a song & dance that refinancing could give them some money to cover their medical bills and other necessities, but ended up losing their homes because they were in a 5-year variable with a balloon payment due at the end of that term, and they had not clearly understood the terms of their new mortgage. Same thing with people who were low-income (a segment of the population who aren’t customarily highly educated– especially enough to understand “financialese” when they’re being told that they, too, can afford a $250,000 home on a $1500 monthly salary & no downpayment). While the law does indeed say that those who can read must read, it also says that if there any terms in a contract that are ambiguous or otherwise capable of being construed more than one way, any misunderstandings that occur as a result will be construed against the maker of that contract (in this case, the banks). Far more of these transactions bordered on fraudulent than the financial institutions want to admit, because it would mean admitting they got caught with their hands in the cookie jar. Certainly, there are many consumers who knew enough to know better– but the anecdotal evidence I’ve seen, as a consumer protection attorney, tells me that most of these people should not shoulder “most” of the blame.

      1. Fraud is one thing. If the loan was induced by fraud — generally outright lies — then it is generally voidable by the borrower.

        Fraud occurred in mortgages, sure. But by and large, we are not talking about fraud. We’re talking about people borrowing more than they should have. Many of these loans were simply variable rate loans with “teaser” rates up front, meaning the borrower merely needed to understand that rates might rise in the future. That’s not exactly rocket science. It’s not “financialese” either. If you don’t understand that rates vary, then you are not fit to be considered an adult. In fact, if you are 35 or older now, you should know that interest rates were in the double digits in the late 70s. It’s not as if there was no reason to expect rates would be 3 or 4% forever. Mortgage rates have historically hovered around 7 or 8%.

        Nor is a variable rate “ambiguous” such that it is construed against a bank. It’s a perfectly clear contract term — rates can float, and if the rate goes up, so does your payment. I think most borrowers basically knew this, but were betting that rates would stay low. They lost. That’s tough luck. But it’s not predation.

        1. Thank you, DEM. As Meat Loaf so famously sang, “you took the words right outta my mouth.”

        2. But again, what can actually be done to get people to make better decisions?

          You certainly have a point that a big, fat chunk of this problem lies firmly on the shoulders on those who signed onto mortgages with no foresight, but I don’t see what can be done about them. Assigning blame can’t fix the economy.

          I’m not opposed to advocating more personal responsibility, but I don’t understand how that’s antithetical to requiring additional layers of consumer protections.

          As I see it, people are always going to have a ‘threshold’ of understanding and we need a certain level of protection – not just for those folks, but for you and me – to guard against insane inflations in various markets.

          1. DM,
            See my original post. I’m not saying personal responsibility and consumer protection are not antithetical. My point was that Krugman never mentions the fact that the home buyers are a (major) part of a multi-faceted problem. He focuses solely on the lenders and banking industry, giving the impression that they are the only ones who caused the mess.

            1. Why is assigning partial blame to consumers an essential piece of an op-ed on looking to identify failures in the economy to prevent future financial crises?

              1. Because not all of the op-ed is about failures in the economy to prevent future crises. He also addresses mortgages with delinquent payments, which is directly related to the consumer.

          2. If you make people bear the consequences of bad decisions, they are less likely to make them in the first place. If, on the other hand, you bail them out and tell them it’s all the lender’s fault, you’re likely to get the opposite.

            It’s a moot point, anyway, I think. Banks have already changed lending standards out of self interest — it is now clear than making liar loans, etc., is far riskier than previously thought. Many of the mortgages that made the crisis worse aren’t around any more. A lot of lenders are even requiring heftier downpayments, as I understand it.

            1. And if you make businesses bear the consequences of bad behavior and rampant greed, then they are less likely to develop practices that skirt the law and ethics.

              1. Well, the banks that are the subject of this post are all out of business. What more do you want?

        3. I don’t doubt that there were a ot of people who fit into the simple category you outlined, DEM– and I said as much. What you & others who insist upon placing the onus of blame upon the consumers seem to overlook is that, at least in this state, the banks & loan institutions were pretty much allowed to run rampant, and they did. Fraud can be (and was) perpetrated in many ways– especially when there are loan officers giving verbal assurances that conflicted with the express terms of the contract. You’re quite wrong if you believe that a financial institution simply gets to tell a consumer “tough luck” when there’s a pattern of practice that indicates that institution’s employees were doing those things. Further, when a financial institution’s contract fudges the due dates and terms that apply to the variable rates, cloaks them in jargon that the ordinary consumer doesn’t understand, fails to fully explain those terms prior to the consumer’s becoming financially obligated, inserts clauses into the contract after the consumer has signed it (but then files it as the one the consumer signed)– well, then there’s plenty of ambiguity to go around. I’ve seen plenty of these kinds of mortgage contracts, and quite frankly, they were baffling to get through even to me until I’d read them a couple of times. The standard for reasonableness isn’t construed according to the most informed consumer’s understanding, but the least sophisticated consumer’s. You’d be surprised at the number of working-class folks who are at least high school graduates who now find themselves caught in this morass. What’s worse is that very few banks are complying with the government’s loan modification guidelines– and it’s because they don’t have to. Too many people see the folks who’re losing their homes as leeches who deserve what they get; I don’t disagree that some of them fit that description, but by no means do most of them fit it. If I didn’t work where I do, I might be inclined to agree with you more than I do, but I know what we see & hear every day. It’s not that I don’t see merit in your points, either– but I do get tired of waht just seems like the “blame the victim” mentality of people who, but for the grace of God & some higher education, could be right where the people they’re so quick to condemn find themselves.

          1. Fraud can be (and was) perpetrated in many ways– especially when there are loan officers giving verbal assurances that conflicted with the express terms of the contract.

            1. Messed up the prior post. Some of what you are describing is clearly fraud. Some isn’t. In Georgia, if you reply on a banker to describe a contract for you, but don’t read the contract yourself, you have no viable fraud claim. Most closings even require one to expressly disclaim reliance on verbal assurances that might conflict with the loan documents.

              Again, a lender that commits fraud should be shut down. I think we agree there. But I don’t think lenders have any obligation to screen adult borrowers and make sure the loan is “right” for them, or to advise the borrowers on financial matters. And it is not the grace of god or formal education that saved me from an ARM or interest-only mortgage. It is not hard to understand those are bad, very risky deals. It just takes discipline to say, I want a nice house, but not that bad. I’ll wait until I have 20% down and cannot afford a boring old fixed rate.

              1. Until I got first-hand experience with the hard-sell, high-pressure tactics involved in low-income and 2nd mortgages, I pretty much thought as you do. You seem to be missing my point about the law, and that’s a fairly big thing: while Georgia law does in fact require you to read the contract, if your banker obscures material information on it, or gives you express verbal representations that conflict with the written terms of the contract, the law does not give the banker a “Get out of jail Free” card. I think if the public realized the true extent of the rampant fraud that went on between 2000 – 2006 in the banking sector (which carried over into the built-on-a-sand-foundation securities market on Wall Street), there’d be rioting in the streets. Literally.

              2. And banks doing everything from brushing over inconvenient facts like balloons in a loan doc to flat out lying happens everyday.

                Sure, people should be responsible but institutions like banks should also be responsible and forthright and should offer legitimate products or they should not be in business. The public should be able to trust the products they are buying or a company should not be allowed to operate. Responsibility is a two street but only the consumer is left hanging these days.

              3. You seem to be missing my point about the law, and that’s a fairly big thing: while Georgia law does in fact require you to read the contract, if your banker obscures material information on it, or gives you express verbal representations that conflict with the written terms of the contract, the law does not give the banker a “Get out of jail Free” card.


                I am not sure what you mean by “obscure.” But in some cases I would agree with your point; for example, actually hiding the terms of a contract, or trying to insert them after the fact.

                As for the verbal representation issue, we disagree. There are many Georgia cases holding that, absent a fiduciary duty, verbal representations that conflict with a written contract aren’t actionable. As far as I know, there is no fiduciary duty between a bank and a borrower. And, like I said, at many closings the borrower has to specifically disclaim reliance on verbal reps.

                Again, the main problem in these cases isn’t obscure language hidden in clause 57 of a mortgage. The issues go to the heart of the deal — the interest rate and repayment schedule. No one is asking borrowers to read every line of a contract. But if the borrower doesn’t understand that an initial teaser rate might go up in the future, or that interest rates can reset in an ARM, I can’t see why that is the bank’s fault. If people are out there buying houses and are that clueless about basic finance, I really fear for this country. Some degree of ignorance is surely excusable. That level isn’t.

              4. DEM, it’s not that there aren’t any cases that stand for the premise you’re stating– there are, but only in certain contexts. Further, you seem to be confusing fiduciary duty with the ordinary duty of ethics; no business is excused from exercising that duty, regardless of whether there’s a fiduciary relationship. Finally, the kinds of cases I’m talking about are brought under UDAP laws, which assign a greater onus on a business to avoid unfair and/or deceptive acts and practices in its dealings with the consuming public.

      2. It wasn’t banking “deregulation” that led to these loans. Banks were not making these loans prior to the govt. stepping in and essentially saying “Hey banks, go ahead and make these loans, we will insure them for you.” The Banks then started making bad loans. So, you see, it was not “deregulation” that led to these loans. Banks were not making these loans in the free market because they were not good risks. Only when govt. interferred with this market, that these loans were made which led to this mess.

        1. Walrus, please prove this. This is a major Limbaugh talking point, but I have never seen the proof.

          Deregulation led to securitization which led to a lending craze because the risk pool for securitized mortgages has to be large for the investment to be profitable.

          1. I don’t think deregulation led to securitization. There was no law against pooling mortgages and selling bonds in the first place. At the time, and for years afterward, it seemed like a great idea. But, like many things, long experience proved otherwise in some cases. If, for example, you had a pool of mortgages with 20% downpayments and 30 year fixed rates, I still see nothing wrong with securitizing them.

        2. Sorry– don’t know how i missed this one. Walrus, all I’ll say, in addition to what Nell said, is I think you should re-read your post, particularly the 2nd & 3rd sentences, and then decide whether you stand by this statement. I’m not knocking you personally, because I think you mean well, but I hope you don’t really believe that– because it’s complete, utter nonsense.

            1. I have to agree with cuba and Nellie, Walrus. I don’t know if you’re just repeating something you’ve been told or are misunderstanding things, but your assessment lacks a bit in reality.

            2. I think even free market wizard Greenspan said deregulation was a bad idea, and he was the one overseeing it.
              In light of recent events, it seems pretty clear that the government can’t force banks to do anything.
              Anyone can say apples are oranges, but it sounds as if your trying to make them into pears, grapes, plums and prunes.
              As much as I hate to, I have quote Queen Ayn on this one, “Check your premises!”

              1. Are you guys really that uneducated about this situation? Check out the Community Reinvestment Act enacted by Jimmy Carter and Amended several times all the way through the Bush II era. While there are some differing opinions as to the effect of this act, the fact is that this act pressured banks to make loans they otherwise would not have made. The govt. felt like everyone should be a homeower and pressured banks to make loans to individuals that had no business being homeowners. Is this the only cause of the problem? Of course not. But it certainly created a situation where people expected that they could own a home when they had no business owing a home. Were there banks that took advantage of this? Absolutely, but that does not change the facts.

            3. Walrus, the CRA first only applied to federally insured banks. Mortgage companies and investment banks were exempt and in late 2004, CRA regulation was significantly relaxed for small and mid-sized banks. Only about 1 in 4 sub-prime loans generated where subject to CRA regulation. So enlighten the uneducated – how did CRA bankrupt Ameriquest (over which it had no jurisdiction), how did CRA force Lehman Bros to leverage themselves over 30 to 1 debt to assets? How come the CRA took 25+ years to cause any trouble?

              Fact is, your’e simply repeating a talking-point (and a ridiculous one at that), which is why your calling other members of the board uneducated makes me giggle.

              1. Read the article above and then come talk to me. It’s a reasoned article that answers those exact questions. I don’t intend to reinvent the wheel by spelling it out here, nor did I state that any bank went under because of the CRA. Your statement about simply using a “talking point” is so tired. Anytime someone doesn’t want to put the effort into researching something, they just claim that the other person is just using “talking points.” YAAAAWN, so very tired. If you care, take some time to read that article.

              2. I think what you mean is “researching only your argument” and disregarding anything that contradicts it. Please, please, please beg the question.

              3. Really!! Because I even stated in a previous posts that there are differing opinions about the effects of the CRA. Seems I was being pretty fair. Again, you guys asked for proof and I offered an article to read. What proof to dubunk my point have any of you provided?

              4. Boy, I love the intranets:
                See this,

                And this quote from it,

                “Neither the CRA nor its implementing regulation gives specific criteria for rating the performance of depository institutions. Rather, the law indicates that the evaluation process should accommodate an institution’s individual circumstances. Nor does the law require institutions to make high-risk loans that jeopardize their safety. To the contrary, the law makes it clear that an institution’s CRA activities should be undertaken in a safe and sound manner.”

              5. What the Federal Reserve (Govt.) says a law should or should not do, and the practical effects of it, tend to be very different things.

              6. And, which is kind of the point here, the same can be said for banks and how they operate.

    3. Banks must be responsible, too. Many people are simply not that bright. Others are desperate. They shouldn’t be taken advantage of by bankers turned criminal.

    4. When you buy a house, the bank has to approve the loan and the appraisal. When you sell a house, the bank has to approve the sale. Sounds to me like banks should shoulder the vast majority of the blame here. Not only did they have power to say no to risky borrowers, but they also had the power to set and/or manage property valuations. Failed banks not only made loans to risky borrowers, BUT THEY LOANED MORE THAN THE UNDERLYING ASSETS WERE WORTH. Customer protections aren’t necessary if bankers don’t make stupid bets.

  4. My father began building DeKalb in the early 1950s and there were just common sense approaches that lenders made for purchasers that need to be re-enacted. One item was the 25% rule….your note (including escrow) could not exceed 25% of your monthly income. The option was to put more cash into the purchase to bring the amortization to your favor.

    The lenders must treat their loans with a lot more respect. Quality mortgages instead of quantity mortgages would have kept this part of the consumer protection out of this article. The purchaser is a responsible party…at all times…however, the purchaser is simply taking advantage of great opportunities by their fiduciarial friends at the loan office; opportunities that were too good to be true….and never would have been approved via a lending board during the rational days of S&Ls and the lending branches of most banks.

    A home is to live in…not be used as an investment instrument to be purchased in the morning and then sold in the afternoon with bogus valuations in arms length transactions that have caused irreparable harm to this last batch of final purchasers. To see the end results of such greed among speculators, developers, builders, appraisers, realtors and lenders….


    ….laws have been broken. The penalties are not wrist slaps but people serving very serious time in prison and having to put out enormous sums of cash. Disbarred lawyers and realtors, brokers and appraisers found guilty lose their license as well they should. There is something terribly wrong when the Security Deed is worth more than the sticks and bricks. If the Georgia Banking & Finance Commission chooses to ignore the reasons that bad lending practice with banking/lending facilities built on a foundation of intangible proceeds that are now going away…should they not intervene during the recovery of housing & lending….I suspect we’ll be doing this again once we’ve topped the bell curve.

    There is no room for a “wink and a nod” loan for unqualified borrowers….single family, commerciall, builders or developers. Not one of us is guaranteed the American Dream….we all have to work towards it and during that period of income, the lenders qualify their mortgages based on the realities of the applicant…not the potential. Lending practices of the post WWII era served this country very well….what we have here today is the worst example of poor legislation via lobbyists that have almost toppled our institutions and have put millions of good people into terrible financial jeopardies.

    The houses that my father and I have built over the years are homes. They were meant to grow families, enjoy the benefits of good neighborhoods and then one day sold to recover the principal and reasonable advance in values. The actions of the last 15 years allowed our DeKalb homes that were sold in the 50’s for $5000 each, were on the market 36 months ago for 40 times the orginal value. Now that reality has settle back in, the homes are still on the market….but now only at 5 to 6 times the original sales value.

    Wolves guarding the hen house under the Atlanta dome have helped to put our State at the top of the failed bank list. Peculiarly enough, these are the same electeds that are hosting “Stop Foreclosure” seminars as we go into the next campain cycle.

    1. Well said, Dan. I do hope you’re wrong about the cycle beginning again once the bell curve is topped, but I can’t disagree with most of what you’re saying.

      1. Me too. A wise man (not be construed as a wise guy) allowed that these corrections take place about every seven years. Of course, he said this back during the more moderated lender transactions of the 70’s during my 1st recession as a builder. Since the same rules have been outdated for the new method of mortgaging and qualifying….we missed a couple of downturns. Of course this downturn is the mother of all recessions (for the real property end).

        The wise man…..George West, the headwaters of West Lumber Companies as well as First Federal Savings & Loans. Those were interesting times, but regulated by a variety of tiers to climb before getting that loan….or a draw on borrowed money. During the 70’s I do recall that the quality of the structure meant quite a bit to the lenders….especially the FHA/VA loans that required their own building codes and the usual visit for a draw on the construction loan by the VA inspector PLUS the construction loan officer before you moved onto the next phase.

        Slow? Not really…it was something to factor into the weekly schedule. These inspectors were the meanest guys ever born….my guy was a Navy SeaBee (my father was a SeaBee too…but that didn’t cull any favors) with a scowl, a chewed up cigar and a pork-pie hat. If you met the VA codes, you were allowed to live another week.

        However, if the guy caught anything out of compliance that was covered up….expectations to survive the business was slim. I was busted enough times for small items that just didn’t meet his standards on the occasion….I can recall his usual, “Turner, you might as well go home and get a good nights sleep because you have a lot of work to do before I’ll come back!”

        These guys were responsible for the Fed money being used to cover a structure to live the mortgage life (expectation of 60 years)….they were tough, serious and….we could use a thousand of these guys on the job now.

    2. however, the purchaser is simply taking advantage of great opportunities by their fiduciarial friends at the loan office; opportunities that were too good to be true….and never would have been approved via a lending board during the rational days of S&Ls and the lending branches of most banks.


      A loan officer is not a fiduciary of a borrower. He’s not looking out for you; he is there to make you a loan.

      Yes, the “opportunities” were too good to be true. Which tells you that they should have been avoided to begin with. The old maxim is that if it is too good to be true, then it probably is. Yet borrowers routinely disregarded this. I don’t feel sympathy for people who signed up for dumb mortgages — interest only, teaser rates, etc. The lending decisions were stupid, too, of course. But the bank isn’t there to advise the lender about how much risk to take.

      The fact that dumb lending decisions were made all around has nothing to do with S&Ls, which imploded in the 80s by making some of the dumbest financial decisions of all time. It is an issue of the securitization of the mortgage market, which decoupled loan origination and risk. Maybe this should have been forseen. But for the most part, it wasn’t. By anyone.

  5. Prediction: this discussion will turn ugly (or interesting, depending on your outlook) before the end of the day, as we all line up in our ususal spaces on the political spectrum. Here’s how to score it at home:

    Mention of any of these terms = -1 point
    Any Western or Northers European country (that totally “gets it”, unlike us)

    These words won’t hurt or help:
    Red or Blue state or city

    These are worth +1:

    And, of course, +5 for using “Zombie”

    1. Well, Robbie, it’s interesting that there have been no reports of zombies having been victims of a predatory loan, but the practice of buying up zombie debt is still alive & well.

      Do I get 10 points? Do I, huh? 😀

  6. You all should read The Big Short by Michael Lewis. A lot of people all the way up the food chain made a lot of money by keeping the game going until it got unsustainable.
    Frankly I feel we missed a great opportunity to rebuild the financial industry from the ground up. An opportunity that will never come again in our lifetime.
    I also know that the banks have poisoned their relationship with the general public. When I walk into a bank these days my first thought is, who do these people think they are?

    1. I plan to read it. I really liked Liar’s Poker. But my impression is that Lewis profiled a few traders who bet against housing just before it imploded, sort of like John Paulson. Is that not right?

      1. Yep, that’s right. I haven’t read it yet, but I saw Lewis on tv talking about the book. One of the issues he was talking about was the new breed of traders and their mathematical models. It sounds like they get a lot blame in the book. For example, he asked one to run a model showing what would happen if housing prices went down, but their formula didn’t allow for a negative number on values.

        1. That breed isn’t all that new. See “When Genuis Failed” — the story of a hedge fund headed up by Nobel prize winners that made and lost a fortune in just a few years. Efforts to model systems this complex are doomed to fail, if you ask me. Now, about those climate models . . .

    2. >>Frankly I feel we missed a great opportunity to rebuild the financial industry from the ground up.<>An opportunity that will never come again in our lifetime.<< I sincerely hope you're wrong– you're probably not, but I hope so.

  7. Interesting article. In fact, I would also refer to an article that Krugman wrote almost two years ago entitled “Home Not-So-Sweet Home” (http://www.nytimes.com/2008/06/23/opinion/23krugman.html?_r=1&partner=rssuserland&emc=rss&pagewanted=all).

    I would agree with Krugman – why do continue to subsidize the effects of home ownership? There are many drawbacks many of which we are now currently seeing. The tax laws should be changed to remove the interest rate tax benefit that we currently enjoy. Make it stand on its own like many other industries (yes, there are many industries that are subsidized). But, that won’t happen as it is too politically unpopular.

  8. I agree with that CB. But I think the bigger problem is the perception that a home is an “investment.” With few exceptions, there is no reason not to consider a house a depreciating asset, similar to a car but with a much more gradual decline.

  9. One of Sonny Perdue’s first acts as governor was to repeal Roy Barnes’ anti-predatory lending law, which was written by consumer advocates and for about four months, was one of the strongest in the country. Banks hated it because it stifled the free for all they have here in Georgia. The banks ARE to blame in this state. Sure, consumers make poor choices, but the banks and loan officers are just as much if not more to blame because they have specifically targeted unsophisticated borrowers and in many cases flat out lied to the consumer. Georgia law is tilted in favor of the banks, not the consumer.

    Google this phrase
    william brennan atlanta legal aid
    Look up Bill Brennan’s work in the New York Times archive,Business Week the AJC archive, archives on all local TV and radio stations. Then you might understand the human impact of unfettered banks.

  10. A couple of thoughts:

    1) When I/we have done some very simple straight-forward financing, fixed rate or construction loans, nothing fancy at all, it was like pulling teeth to get anyone from the mortgage folks to share the documents ahead of the closing. They acted like it was a completely unreasonable, paranoid, insulting request. And when a lawyer made some suggestions for changing some of the wording, the mortgage folks plain refused. And the real estate agents moaned and groaned that we were ruining the deals for everyone. So it is hard for even a determined intelligent conscientious citizen to exert due diligence with home loans if they have no legal or real estate background.

    2) Is it true that a home is not an investment but a depreciating asset? If so, I want out. I hate yard work and renovations only look nice for a few years afterwards if you have kids and houses are incredible money sinks if you aren’t handy and/or unemployed. I bought the American-dream-mature-adults-own-a-home spiel, hook, line, and sinker.

  11. Note, Karass, that I said a house is a depreciating asset; the underlying land is another story. There are tiny ranches on one side of Dekalb that are worth multiples of what they were thirty years ago. The same houses on the other side of Dekalb are in some cases worth less now than they were then, when you adjust for inflation.

    1. Phew. We haven’t managed to run down the land, however bad housekeepers we may be. Before I bought my first home, a friend in Lake Claire said “they aren’t making any more land” as a justification for home ownership.

      Nonetheless, I still wonder if I wouldn’t have done better with renting and hiring a really smart financial advisor to do something else with the house down payment. On the other hand, I wouldn’t feel as entitled to speak up about Decatur and CSD issues if I didn’t pay property taxes.

  12. The reason so many community banks have failed in Georgia is not because of delinquent mortgages and bad consumer choices. Those home loans were packaged and sold in the secondary mortgage market. The community banks failed because of of bad aquisition and development loans to developers, and bad construction loans to builders. Metro Atlanta has always built a lot of homes, strip shopping centers and offices speculativley before a buyer was identified. We have years and years of finished developed lots (pipe gardens) ready for homebuilding. When the music stopped there were a lot of bank loans and not anywhere near the demand. Another problem for these community banks was a lack of diversity. They did real estate loans and cd’s. When housing collapsed they had no other viable revenue to cover some of their loses.

    1. They also failed because Georgia banking regulators were lax in enforcing already weak laws and regulations. I repeat – why has there been one bank failure in South Carolina in ten years while there have been dozens in Georgia?

      1. Comparing bank failures in SC to bank failures in GA is an apples to oranges comparison. It has very little to do with enforcement of laws and regulations and much more to do with the differences in a) actual number of banks, and b) the types of loans in the portfolios.

        I believe that GA has more community banks than any other state. Also, The article talks about TX and GA, which are somewhat comparbable as sun belt growth states. Why bring SC into it?

  13. “…Paul Krugman turns his Noble prize-winning, piercing brown eyes to Georgia’s growing army of failed banks and wonders “What’s wrong with Georgia?”

    Actually…there is nothing wrong with Georgia and everything wrong with keynesian Krugman; Nobel prize and beady eyes aside. The fact that these regional banks have failed is a testament to the power of the free market. Failure should be the logical consequence for ineptitude, arrogance and greed. These smaller banks were playing the same game as BoA and Merrill Lynch and profitted by doing so. Yet, when the bottom finally fell out they found themselves ‘politically lacking’. Not enough lobbyiests, I imagine. Krugman sees this as a tragic; the consumer should see this as a victory.

    Krugman and his keynesian economic philosophy are frauds. To say that his views are superior is to ignore the fallout that surrounds us yet he continues to defend the policies that got us here. He just wants to re-inflate the bubble. You will never hear him or his ilk say ‘live within your means, keep money aside for saving, buy American.’


    1. Personally, I think Russell Kirk and his supply-side economic theories are the real frauds. The policies that got us there are the direct result of Kirk, Friedman and Greenspan, with foundations in Burke.

      1. Valid point.

        I would argue that supporters of supply-side (conservatives) require less taxes to be imposed because under their philosophy less govt spending is needed. The keynesian approach (socialists) is to encourage centralized planning, which leads to malinvestment of capital, which is the cause of business cycles such as the housing bubble. Where supply side failed is the fact that govt spending did not decrease and the ‘trickle down’ affect was essentially stymied. The keynesian theory fails because it stifles innovation by removing the need to improve goods and services as the govt becomes more involved in providing those commodities.

        1. Amen Friend-o,

          Thank goodness the socialists have stayed out of the sugar business that commodity has not been improved or shipped out of Florida to rich tropical agro-industrial empires like Haiti.

          Hopefully, the socialists will get out of the coal business so that coal can be improved.

          1. Yeah, and homeless immigrants can die in cave-ins and explosion instead of red-blooded American citizens. Just like the sugar industry.

Comments are closed.