- The Washington Times - Friday, November 28, 2008

In past years, I have often taken today’s column to reflect on the economic environment in America and discuss what aspects and events deserve our thanks.

I have to admit that this year’s column is a bit harder to write. Let’s summarize what’s facing the American people as we approach the end of 2008. These statistics come from my perusal of economic data on the Internet as I write this column. I’m afraid it’s not pretty.

The Dow Jones industrial average has fallen below 8,000. This is the lowest level since early 2003 and more than 6,000 points below its high in the third quarter of 2007.

Jobless claims rose to 542,000 for the week ending Nov. 15. This is the highest level since July 1992.

The $700 billion federal “rescue” plan of the financial industry is slow to show results, according to most analysts.

Leaders of Detroit’s Big Three automakers took their private jets to Washington and begged for $25 billion in federal aid to avoid bankruptcy.

Foreclosures and mortgage delinquencies are at record highs, according to the Mortgage Bankers Association.

The credit crunch continues to pressure the economy, despite the government’s efforts to thaw the credit markets.

How am I going to paint a picture of thanks and gratitude with this kind of information? It’s not easy. However, history tells us that economic downturns are followed by extended periods of prosperity. When Hurricane Hugo hit Charleston, S.C., in 1989, much of the city and surrounding areas were heavily damaged, but only a few years later it became one of the fastest-growing areas in the country.

While I cannot sugarcoat the state of the economy, I can tell you that we learn from our past. During the Arab oil embargo in 1973 and subsequent oil crisis of 1979, the United States lost a relatively small percentage of oil from the Middle East, yet it resulted in a severe gasoline shortage. Since then, the federal government imposed oil reserves that may be tapped.

When the dust has settled in the mortgage market, my guess is that there will be a lesson learned. “Affordable housing” doesn’t mean lending money to folks who can’t intrinsically afford the debt. In its push to increase American homeownership, both the Clinton and first Bush administrations ignored this concept. Mortgage brokers, banks and Wall Street investors chose to ignore this concept as well, in part because property values continued to soar.

Now that we are all feeling the weight of the economic pendulum swing in the other direction, we will have learned a couple of lessons.

While real estate is likely to increase modestly over time, it is not without periods of decline. These declines follow periods of frenetic growth, driven by “irrational exuberance.”

Mortgage money needs to be earned. Common sense should prevail. For someone with bad credit, the first step should be to focus on financial discipline, make timely payments and improve the credit rating rather than take on additional debt in the form of a big subprime mortgage.

The stimulus and rescue plans implemented by the federal government may, indeed, result in better days ahead. But cycles happen. I don’t know when, but the economy will get back on track eventually.

Henry Savage is president of PMC Mortgage in Alexandria. Reach him by e-mail at henrysavage@pmcmortgage.com.

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