News Analysis: Financial troubles hit home

President Bush isn’t exactly known for his ability to encapsulate the zeitgeist, but his speech writers did it rather well last week.

“Easy credit, combined with the faulty assumption that home values would continue to rise, led to excesses and bad decisions,” Bush said in a brief address to the nation Wednesday evening, offering a fair summation of how we got into our current $700 billion crisis.

It’s all anybody can talk about, and not just because it’s all the cable news networks are talking about, and they keep the same hours as the nonstop copper mines just west of town.

It’s that “faulty assumption” that got everybody into trouble, as is often the case.

It wasn’t long ago that the biggest worry in Rancho Sahuarita and similar booming lumber-and-stucco bedroom villages in the Santa Cruz Valley was the constant theft of building materials.

Contractors complained that thieves would steal any lumber that wasn’t under guard, and the trend was seen as being largely the result of a shortage of building materials owing to, of course, the worldwide building boom.

The homes were selling as fast as they went up, and why not? When you offer somebody an interest-only loan, ask for nothing down and forget to inquire whether the homebuyer has a job, being a mortgage broker becomes about the easiest job on earth.

Too many homes

But the perpetual motion machine that is supply and demand is unforgiving, and the market doesn’t care that you always wanted to own your own home.

Too many homes and not enough buyers — even with the easiest credit in history — led to a drop in prices, and suddenly many buyers found themselves upside down.

Now, in Sahuarita, a town made by the boom, there are currently 58 homes in foreclosure, another 37 in preforeclosure, and, next month, 17 will be auctioned off by the sheriff, according to www.foreclosurelistingsaz.com. These numbers are likely to swell.

We all will be paying for what Bush called the “excesses and bad decisions” of homebuyers, brokers, and wall street executives for years to come, like a hangover after a party that turned ugly, no matter how the final draft of the bailout package looks.

For many of us, the ups and downs of the stock market are nearly meaningless; rather, it’s the job market, state revenues, and energy and food prices that affect our lives. These are, in Arizona and elsewhere, down, way down, and way up, respectively.

In Green Valley

If your financial life is tied to the stock market, as is the case with many of Green Valley’s active and affluent retirees, your current strategy, according to several local financial advisors used to working with retirees and small business owners — the major players in the local economy — should be something similar to the catch-all advice writer Douglas Adams offers in his “Hitchhikers Guide To the Universe” series: “Don’t Panic.”

Terry Cogan, a Green Valley CPA for the past 15 years, said last week that he was taking a stream of calls from nervous clients who had just watched their retirement assets shrink — on paper anyway.

“We kind of assumed that Green Valley would be somewhat immune to the housing crisis,” Cogan said.

“But I’ve had several clients go out of business this year, especially home builders; and when they go out of business, their subcontractors suffer, and that trickles down through the local economy — those guys can’t go to the restaurant and eat anymore, so restaurant revenues are down and so on ... everybody is trying to cut back and this is trickling through the whole economy.”

Cogan said he was particularly surprised when a Realtor friend told him recently about an uptick in foreclosures in Green Valley, a rare circumstance to be sure.

As of last week there were 24 homes in foreclosure in Green Valley, 20 in preforeclosure, and six scheduled for auction next month. However, most of the area’s financial experts agree that these numbers don’t mean that you’ll be seeing members of the Greatest Generation begging for change on the Esperanza on-ramp. Rather, these homes are likely those purchased by “speculators” who were hoping to cash in on the boom.

Still, Green Valley isn’t immune to the national panic — no place is this time.

“Most of my clients are fairly conservative, but some aren’t that should be,” Cogan said. “Once you get out of your working years you need to protect your assets instead of concentrating on growing them, but I have a lot of clients that are older who are still heavily in the stock market and they are losing right now.”

Cogan and others said that the housing market elsewhere also has an affect on the economy here.

When a retiree moves to Green Valley, bringing with him or her a lifetime of wealth and energy to the local economy, most have sold out in Michigan or Wisconsin or elsewhere. But if they can’t sell out Back East because of a sluggish market, they can’t move out here, and a retirement community relies on a constant influx of new arrivals to replace those who have died to keep things humming along.

“Don’t panic”

Again, though, the phrase of the day is “don’t panic.” If you’re heavily invested and you’ve lost wealth over the last few months, remember what Green Valley CPA Steve Soli said: “Nobody has really lost anything yet; you only lose money when you sell out.”

Soli said that last week he took a number of panic-ridden calls from clients, and brokers he works with have given him heads-up calls telling him to expect harried calls from unhappy clients.

“A lot of the clients who have called me have been watching too much TV news and they are entering into panic mode,” he said.

But he’s not panicking, and he’s advising his clients to follow his lead. He said the current situation reminds him a lot of the tax season following the economic downturn after the terrorist attacks of Sept. 11, 2001.

“I saw the difference then between people who panicked and sold out and those who didn’t,” he said.

“The people who waited had their losses come back; the ones who panicked and sold are the ones who really lost. Hopefully, you’ve had a good broker lined up for quite some time and they have anticipated this and can weather this.”

But it’s not always easy to convince someone to take the middle road, to settle down and wait and see while everybody else is jumping off the cliff.

“Someone seriously said to me that they were taking their money out of the market and putting it under their mattress,” Soli said. “But the majority of Green Valleyans are well positioned” to ride this out.

Some confidence

Green Valley financial adviser Bill Stevens seems to be feeling a bit more confident than most of his counterparts these days. That has a lot to do with the fact that he’s a subcontractor with Raymond James, one of the Wall Street firms that actually may come out this thing “smelling like a rose.”

“They never got too involved in this sub-prime stuff,” Stevens said.

He said that the best advice he can offer an investor is to stick to the plan they’ve got, assuming that they had a plan to begin with.

“When you start thinking the market and the economy is always going to grow, that’s when the problems start,” he said. It gets emotional, and emotion doesn’t mix well with money.

“This is when I’ll be valuable to my the clients,” Stevens said. “I am advising them to not make stupid, emotionally driven decisions; if I can encourage better investor behavior, then I’ve earned my money.”

But the vast majority of us who aren’t affluent or relatively affluent retirees don’t have investments, don’t care about the stock market, and live paycheck to paycheck, assuming that we are still getting a paycheck.

What really matters

What do we do, besides leverage our financial futures so that those “excesses and bad decisions” don’t spin the whole system out of control? By the time this is published, there may already be a bailout package in place; but it likely has very little in it that matters to the average consumer.

What would matter to this heroic breed, the American Consumer — that Wal-Mart- and Target-perusing power-shopper whose spending habits have buoyed the American economy for the last 20 years?

Well, how about a government credit card bailout? Bush and others can say all they want to about the easy credit that led to the excesses, but we all know that the easiest credit in American comes in the form of a small plastic card.

Just about anybody can get one, and soon after just about everybody finds themselves with a heap of unsecured debt and little to show for it save a monthly payment that takes a big chunk out of your decreasing take-home pay. And a sizable chunk of the consumer spending that has kept this economy growing for years now has been financed by plastic.

More than any other strategy, a consumer credit card bailout would put real money in the pockets of average Americans and would inevitably lead to a rise in confidence and good feelings about our nation’s financial future. But that’s not going to happen.

Many of us have been irresponsible with our credit cards, just as all those Masters of the Universe were irresponsible with their complicated mortgage-back securities.

The difference is that they get a bailout, and we don’t.

Tim Hull is a freelance writer for the Green Valley News.