Outsourced Mortgage Mess?

At the end of the Y2K software conversion effort American business realized they could save money by embracing globalization. That came about after the influx of H1B visa technology workers, who came primarily from India. The expansion of the H1B visa programs were the result of pressure on both political parties by American Business interests to get technology salaries down. Business executives saw paying technology worker as giving away a slice of what they felt were their hard earned profits – though most technology workers were never paid the value they brought to these companies. Millions of well paying technical jobs which had helped underwrite and pay for the real property pyramid scheme were moved offshore. These positions were often the leverage to get real estate prices up, in a community looking for growth. Today community growth in America has more to do with real property sales and the associated presumed value than any other single factor.

During the early 1980’s the number of graduates of technical professional programs – particularly computer science increased sharply. Demand for our skills was so high that perhaps half of us even bothered to graduate. The demand for these skills was primarily horizontal – a lot of companies wanted us, but most didn’t need all that many of us, so within approximately five years, when we were stating families, we hit the salary ceiling. After our first child was born, I received a 3% raise from a major soft drink company. Earlier I had been told I could not get a raise because they had to take care of staff members with “responsibilities” – meaning families with children. This resulted in fairly immediate job searches. The really big companies however always needed large numbers of software developers as well as engineers. These companies provided the base around which developed a significant technical consulting industry. Work was usually available, salaries were significantly higher than in a clients shop. The work was transient however. I had a friend from Ireland who with his wife toured the US doing a few months here, a few there, and eventually spend several years in the rockies, before moving back to Europe. Those of us with “responsibilities” often looked for contracts which would run a couple years, because of the ware and tear on the family. We managed follow on contracts in the same metro only once in 17 years of technical consulting.

In general I think technical professionals moved to wherever the work happened to be, and generally paid whatever was demanded for housing and associated services. When these technical positions went offshore, many of technical professionals were left making far less than they had for years previously. As a technical professional, I have found it extremely difficult to find work outside the technical professions. This is because American business people are intimidated by anyone they think might know more about any particular business, or business process, than themselves. The other thing which makes it nearly impossible to find work has to do with age discrimination. Today, it is almost impossible to find a full time corporate job if you are over 40.

The business and investment community blamed the whole dot.com stock disaster on supposedly worthless American technical workers, instead of their own stupidity. There were even books about all of this. Technical workers had absolutely nothing to do with the dot.com mess, but the business and investment community retaliated by sending most technical work offshore, thus destroying careers, incomes, and investment potential. This had the net effect of removing perhaps 100 billion dollars from the US economy in 2002.

Take five million technical workers with average salaries of $50,000 per year. Send half of their jobs offshore and fire them. Then do the math: 2,500,000 * 50,000 = 125,000,000,000; So $100,000,000,000 is at least a very conservative estimate. You must remember the technical people displaced were the ones who were making bigger bucks – so as to save the most money. Some of these people were middle management. Lots of us were senior level technical people. It could be the median was more like $75,000 per year. In that case: 2,500,000 * 75,000 = 187,500,000,000;

In our small community there were five families who lost jobs due to technical work moving off shore; None of us could take advantage of the re-education programs because we were never actually replaced – our positions were eliminate during corporate or takeover shuffles which eventually resulted in the work of whole departments being outsourced offshore. There was significant fall out in the area. Many other types of business were forced to close, or move offshore, by decreasing demand, and the resulting fall in product prices.

Trickle down economics DOES happen, just not the way the theoreticians thought. What started as the laying off of a bunch of “overpaid technical glory boys” which the business types had never bothered to understand, always resented – we were smarter then they were – resulted in the exporting of most, if not all American jobs which add value. That includes manufacturing and all the technical professions. The local grocery store laid off the night shift, dropped the open 24 hours, back to 15 hours, and finally back to 12 hours per day. People lost their homes. One even went to work offshore.

By my guess-estimation this trickle down was significant – maybe enough to bring the sum up to a cool trillion bucks. After seven years of this nonsense, we are talking about maybe 7 trillion bucks. That kind of economic impact will eventually land somewhere – when it does, there will be “difficulties” well beyond simply serious. Much of that sum has fallen directly out of real estate, because the great beneficiaries of a well paid and mobile technical workforce was always the real estate community. If you want to know just how this workforce effected local real estate prices look at what happened around Maitland, Florida in 1982-86 after the information systems division of a major telecom player moved there from New Jersey.

Or check out the rise and fall of housing prices around RTP, NC in the 1990s and early part of this decade. This rise and collapse in central North Carolina went largely unnoticed because the dot.com “investors” moved their money to real estate, grabbing up foreclosure bargains, essentially swapping bubbles, not realizing they had recently murdered the golden goose that had supported those continuously inflating real property prices. After all no one in China, India, or Russia, brought their earnings to the local American realty agents looking for a nice place.

This has lead to Realtors attending “income loss” support groups in our current community instead of sales meetings. Real estate lawyers are also affected. Fewer sales – less work – higher bills – less cash. Builders if not the industry are headed for chapter gone out of business. If you hadn’t figured it out yet – this is a pyramid scheme in a state of full collapse. Essentially the real estate bubble happened because of thoughtless over marketing, corrupt business practices, and massive greed at many levels in the US economy. The process got it start when business made a series of “herd effect” short term business decisions, which looked good on paper, propped up the bottom line, but had catastrophic long term consequences.

No way, you say. Several years ago we were in the process of moving from Cincinnati to Huntsville. After driving down, over night we found or hotel and went looking. We went to one of the mid scale strip mall restaurants for lunch. Next to our table there was a group of ten or so local Realtors having a lunch meeting. Huntsville, Alabama was booming. Median prices were moving up. These local Realtors were swapping war stories. This lady gets her turn as they go around the table. She tells of a recent client who was moving down form NYC. He had cashed out a house in the New York area. Prices in New York at that time were $500,000 up for anything decent, demand was high, and to get a house, you had to bid above the asking price. At the same time in the south housing was much less expensive, starting at maybe 70,000 for a new “luxury” home. Nice houses, but not mansions. A million bucks would buy more house than you could imagine or live in, anywhere in the north Alabama area. This Realtor had shown her perspective customer a house which was priced at $94,000. The next day he brought her an offer letter of $120,000. That afternoon, the prices of nice mid size homes raised to $120,000; A certain family moving in from Cincinnati had to settle for a small rental house ten miles out of town instead.

Huntsville is a tech and military town. Rocket Science, Engineering, and Computer Science. Someone had won a new contract – work to be done in Huntsville. The Realtors were the first to know because the hotshot bosses department called from NYC to find what was available first. By the time the rest of us got there we had no choice but to pay whatever the seller, Realtor, or landlord ask. This type of scenario repeated itself everywhere we went. At one point in Chapel Hill, new home prices were pushing half a million bucks. Prices were so high in the triangle area that builders had to live out of town. Ten years later I drive though another “up scale” area on my way to work. The signs don’t say “$560,000 up” anymore. Now they read: “Reduced – $200,000”; When I get to work I answer the phone in a gym, instead of programming a mainframe.

This is exactly how the real estate bubble got itself started – and busted.

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