Investing Outside of Wall Street – Section 8, another dimension to the story

On May 9, 2017, PBS Frontline aired an investigative case study called, “Poverty, Politics & Profit: The Housing Crisis.”  The focus of the case study was to expose tax frauds being committed by large-scale developers, attaining political favors, while hugely underserving those for whom the housing-development programs were intended to help.

Often, in these investigative reports, those who commit financial crimes are portrayed as villains.  While there is little room, if at all, to defend the criminals, these investigative reports – much like “While America Aged” by Roger Lowenstein” – never seem to go beyond discovery of facts and consequent judgment against them.

Only truly upstanding people, like George Washington, the first President of the United States of America, would voluntarily give up the power that has been bestowed upon them.  Most of us would like to believe that we, too, have similar moral characters to know what is right and wrong.

That said, when presented with an opportunity, it is human nature to take advantage of it.  It is not surprising, therefore, that, in almost every society, we see such crimes being committed against – and at the expense of – the little guys, like most of us.

As I have always said, no one cares more about your money than you do, especially when you are the one that has earned it by working hard to get it.  This explains why I do not trust anyone or any entity, such as the government, to properly administer the funds that they simply “took” from you and me.  While there are exceptions, more likely than not, politicians are not the best administrators of your money.  Human nature takes over and, ultimately, their decisions are based on what is in their best interest, NOT in the best interest of those whom they say they are trying to help.  Worse yet, the real problem is that they don’t even know how to manage the programs that they institute.  Why?

Think about it.  It is easy for anyone to come up with ideas on how to help those in need and talk a good talk.  Right?  Now, to execute that idea into reality requires a completely different set of skills.  As tax payers, who are funding such programs, we expect the result to be in alignment with the original good intention.  Realistically, however, what are the chances of such perfect alignment coming into fruition?  What do you think?

Personally, my answer is, “nil to none.”  Instead, just about every single government-sponsored program (originally intended to help those in need) ends up creating a situation fraught with financial disasters and opportunities for fraud.  Just to name a few:

  • Social Security
  • Medicare / Medicaid
  • Veterans Affairs

Getting back to the investigative case study, one of the issues covered was the Section-8 program.  Section 8 is a common name for the Housing Choice Voucher Program, funded by the U.S. Department of Housing and Urban Development.  In other words, you and I, the taxpayers, are paying for it.

The Section-8 segment exposed a glaring omission of another dimension to the story.  Small-scale property owners who, collectively, probably compose a high percentage of Americans, were not part of the investigative report.  We’ve had Section-8 tenants in properties we used to own in Mississippi.  We invested in them after Hurricane Katrina in August 2005.  We thought it would be a great idea to help provide a place to stay for those who were displaced by the horrific natural disaster.  What happened next made us realize how naïve we were.  Having Section-8 tenants in our units proved to be a disaster.

The stated objective of the Section-8 program, of course, is to provide a limited number of vouchers to those fortunate enough to get them.  Accordingly, the rules were supposed to be strict.  If the Section-8 tenants were to break any rules specified by the program, they were to lose their Section-8 privilege.  Here is the catch, however.  Rules that are not being enforced are useless.  As out-of-state property owners, this is where we saw the disconnect between the intention of the Section-8 program and the reality of how it was being executed.

We were relying on the local property manager to keep the units well maintained and collect rents on our behalf.  Section-8 payments would show up (so far, so good), but the portion for which the tenants were responsible would not.  According to the rules, supposedly, this is grounds for an immediate loss of the Section-8 privilege for the tenant.  Did those tenants lose their privilege?  No, never.

In fact, as it turned out, none of the rule-breaking tenants were being evicted.  Why were other Section-8-qualified candidates – who deserved to be given a chance to prove themselves to be far more responsible – not being allowed to replace the rule breakers?  I have no clue.

During our semi-annual visits to Mississippi, we noticed some of the Section-8 tenants were literally destroying the units in which they resided.  It was frustrating, to say the least, to see our investment properties, built brand new in 2007, being destroyed within a few years by those for whom we thought we were doing good deeds.

The PBS Frontline case study proved to be yet another classic example of government programs gone wrong.  Good intentions by the government always create unintended, disastrous consequences.

Here is what I think.  When given a chance, some people act fraudulently.  Understanding this reality about human nature, isn’t it much better to NOT create such a situation in the first place? Given a certain man-made rule, there is no way to control how people react to it, especially in a free society, such as the United States of America, which consist of people from all different cultural backgrounds.

Keeping the government as small as humanly possible helps stop enabling people to scheme up ways to “beat” the system.  I firmly believe that this is a philosophical imperative for those who think for themselves and truly value living in the United States of America.

 

Happy investing!

 

 

 

 

 

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