How Horses are to Blame for the Housing Crash

In my days in banking if there was one thing that went hand in hand with rich men applying for loans, it was horses.

If you had a shady real estate developer, there was a horse.

If you had some rich doctor or lawyer, there was a horse.

If you had some trust fund baby now slowing watching his parent's fortune erode, there was a horse.

And the reason there was a horse was not because they came riding into town on one, or were racing them, but their wives, without fail bought them.

This manifested itself on the personal financial documents of the people applying for loans. Typically what you'd see was a rich man making all the money (or at least borrowing all the money) and the wife, who was literally doing nothing, running some token business on some money her husband gave her to keep her out of his hair (I affectionately referred to this as "KHOMA" money - Keep Her Off My Ass - in m book). So what you'd see is the husband listing an AGI (adjusted gross income) of say $560,000 and the wife showing a perpetual loss on "Frieda's Farms" or "Heather's Horses" or some such dumb name on their schedule C.

Now while for the most part, if the husband was bringing in a decent amount of cash, I could see it definitely being worth dropping a couple grand on some horses to keep the wife out of his hair so he could effectively run the real business while she lost a grand or two on her horse hobby and play "Make Believe Businessman." But what was scary was just how many times I saw the horses (combined with other consumer spending on the part of the wife) that actually crippled and threatened the man's financial solvency.

One guy was an overweight guy and without a doubt had essentially bought his wife because he was too physically unattractive to find one. Naturally the wife, along with children, would rack up credit card bills that would wipe out what he earned, almost penny for penny. And of course
the single largest expenditure was her "horse business." So when he came in for a loan for his wife's "horse" business I was curious and started asking questions;

"So does she breed the horses?"

"Uh no."

"So she races them then?"

"Uh no."

"So she uses them to teach riding?"

"Uh no."

"Well, what does she do with them?"

"Well, she rides them and maintains them."

Meanwhile he wanted us to lend against this never-profitable operation.

Another hilarious instance was when one guy actually wanted to use his wife's horses as collateral. That if he defaulted on his business loan, then we could go and repossess the horses and sell them to recoup the money.

Well "yip yip yip yip yahoo."

Just what banks and bankers wanted to do.

Repossess on a "horse," feed it, store it, and then try to sell it.

What is sad though is that because horses were so prevalent when it came to dealing with the upper classes, they inevitably became collateral for more real estate deals than most people realize. Through the personal guarantee of the borrower, sometimes they would put up "All Business Assets" as collateral for the loan. And not just all business assets, but all personal assets as well. And though horses were never intended to be the primary form of collateral, invariably they did boost personal financial statements enough to make it look like the borrowers were solvent enough to guarantee the loan.

Alas, big dumb animals were tangentially backing up various real estate and other business deals.

Ultimately what I found is that horses are more or less a tell tale sign you're dealing with a "Bon Fire of the Vanities" type couple. The wife typically cares more about the horses than her husband. The husband is feverishly working to support his wife's spending habits and keep her loyal to him. And both are so vain about their appearances that every bit of asset and property is borrowed against and leveraged to the hilt.

But what gets me about the horses is "why horses?"

What is the freaking pull?

I suppose I could be asking the same question on any kind of frivolous consumer spending such as;

"Why shoes?"

"Why purses?"

"Why a boat you'll never use?"

But there is something about horses and trophy wives that I can't put my finger on, but I know is there.

Alas, perhaps the aspiring, junior, deputy, official or otherwise economists can tender some theories.