More Active Posts
Front Page
Over and over
 |
 7 Comments |
It’s not true that life is one d—- thing after another; it’s one d—- thing over and over.
~Edna St Vincent Millay
Events in the financial sphere would seem to bear that out. In 1929 it was stocks and in 2008 it is derivatives. In between we have Fed Chairman Alan Greenspan’s warning just ahead of the 90s’ burst: “How do we know when irrational exuberance has unduly escalated asset values?”
How do we know indeed. But the question itself seems almost quaint, throwback to a time when “asset” had a different meaning. Dr. Michael Greenberger, who served on the Commodity Futures Trading Commission, testifies of a new financial culture in which the concept of “asset” has transmogrified from a real value backed up by something real in the world, to a handful of bets — about whether houses will keep appreciating, or whether people will pay their mortgages.
Greenberger raises the question, “Should we have an economy based on whether people make good or bad bets? Or should we have an economy where people build companies, create manufacturing, advance our society, and make it productive?”
The thing that’s “over and over” about this deal is that the biggest losers are at the bottom of the food chain.
 |
Topic: Front Page, The World |  |
Email a friend |
 |
Keywords: |  |
RSS 2.0 |
 |
You can skip to the end and leave a response. Pinging is currently not allowed. |  |
Share this: |
Identity theft
Having been involved in real estate and mortgages in the past few years, the thing that I see that has been repeated over and over is greed and stupidity. Greed on the part of the lenders and stupidty on the part of the borrowers. The lenders came up with all sorts of odd products and gave loans to people who probably shouldn’t have had them and didn’t understand the consequences. And people signed documents they never read. They, too, wanted a piece of the pie — and in some cases were not satisfied with what they had and wanted more than they could handle financially.
“[s]hould we have an economy where people build companies, create manufacturing, advance our society, and make it productive?” Yes, but the people who do that have to be honest, not greedy, and not operate in their own self-interest alone. That’s human nature. What we need is a culture that has higher standards and expectations that we overcome our baser instincts.
NJ, I don’t think lender and borrower share equal culpability in this crisis and here’s why. First of all, home ownership is part of the American Dream. And many financially conservative folks, experts and parents alike, advise people to buy a home as a long term investment. “Renting is throwing your money away,” they would say.
Secondly, I don’t know when this changed but it used to be that the bank were very reluctant to give out loans unless they felt the loan would last until maturity. Many people in society have experienced the bank telling them no saying, “not enough collateral”, or “not enough down payment”, or “You don’t make enough money.”
In my opinion, these new home owners were not being greedy or foolish. They were duped by their own high expectations. “The bank wouldn’t have lent me the money if I didn’t qualify,” is the expectation. If I got the loan, it must be true that I, “make enough money, have enough down payment, and have enough collateral.”
You see, we can’t all be experts in every field. People who get sick can’t be expected to take an eight year doctorate program in order to know whether their doctor is using good judgment. Likewise, we can’t all be as financially savvy as those who are trained to do business. We expect that if financial institutions were miserly with their money in the past, and would not loan it out to anyone in danger of default, then getting a loan is as good as an expert statement of financial health. The people who do this for a living should know better and so we trust them, not because they like us, but because they have refused us in the past for good financial reasons.
I don’t think the desire to own a home is a “base” instinct. And I don’t think many of those in foreclosure were being greedy or stupid. I’m not sure what happened exactly, but something changed, either in the rules, regulations, or economic theory that allowed financial institutions to extend credit beyond good financial sense. But I believe the public was unaware of this systemic change, living on prior knowledge and expectations.
I made a similar comment to my husband yesterday, that the people least able to deal with the mortgage crisis are the ones being forced to handle it.
I don’t understand the deals I’m reading about in the paper and I’ve bought and sold four houses. I don’t understand how banks reach their conclusions about how much a family can spend on a mortgage and I was a budget counselor for many years. It seems to me if you don’t have enough for a down payment, you probably should save up enough before you go into a deal.
Surely, schools could tell kids the very simple: “If it sounds too good to be true, it probably is.”
I think greed, on both sides, has driven the issue. An entire generation of no limits and easy credit has grown up not realizing there are other ways to do things. And many parents, myself included, have not helped.
There is a subtle, yet crucial, difference between saving up your own money to spend on something, and borrowing the same money and paying it back. True ownership comes when you have to put down your own hard earned cash–it’s amazing how much different a transaction looks and how you treat your decision when it’s your blood, sweat and tears on the line.
As a homeowner struggling with a mortgage that in hindsight I wish the bank had not approved, I agree with Roger. My husband was unemployed at the time we had to move (the house we had been living in went with his previous job), so I applied for the mortgage based only on my income. We figured if the bank approved it based just on my income, that must mean I could handle the payments, even if it would be difficult. And once he found a job things would be better.
Shortly after closing on the house, the insurance company - having already insured the house as a condition of the sale - informed us we needed to replace the roof within a year. Since this was a few weeks after Hurricane Katrina and we expected construction costs to rise, we wanted to do it right away. The bank loaned us the money, rather to my surprise. As we were still settling into our new community, not yet clear on what typical utility costs would be, my husband had just started a job but we didn’t know how much his take-home pay woud be, it was pretty hard for me to tell how much money we would have left on a monthly basis. But since the bank approved the loan I figured we’d be OK as long as we were very careful.
This was before we took Dave Ramsey’s Financial Peace University class, and I hadn’t written out a budget - my approach was simply to pay the bills and be very thrifty in buying groceries. It took me two months to figure out why I was always behind on bills - because when I subtracted the required monthly payments on debt (including those from before we bought the house), plus utilities and insurance (life, home and auto), from our net income, I had less than zero left for groceries! What in the world was the bank thinking in loaning me that money?
(The roof loan is now paid off, and we’re paying the mortgage on time, though it will be years before our financial situation is close to what I will consider acceptable.)
Our snailbox is flooded with letters with “You’re Pre-Approved!” written on the outside. I generally deep six them while muttering “You are pre-Rejected”.
Along with inadequate training in so many other real world application fields, high schools and colleges simply do not mandate even a rudimentary understanding of personal finance. Maybe we need regulations imposed which would guide these lenders and lay down criteria for not authorizing a loan!
Half the country, the left, hates people who risk much to create companies, jobs, pay taxes and end up rich - if their hard work is successful. These folks have always paid the freight for everyone else The left loves everyone else who risk nothing, have nothing to risk and only gain what they can steal from others. Hardly a methodology for happiness or success but they are loved none the less.
Yes, the left has gone insane punishing the best for their success and rewarding the losers. This socialist ideology is what kills everything it touches especially those that try very hard to avoid it all costs.
Getting rich isn’t difficult but not being hated for it is now a days
Never forget the only ones who took a risk in the subprime housing / credit collapse were the lenders. They deserve to be be punished for their lending money to unqualified borrowers and they have been - they have lost billions of dollars. None should have be bailed out by the government.
The borrowers risked nothing and as a result only have themselves to blame for not being able to repay their debts that they gladly took on for what ever reasons they came or come up - then or now. They also should not be rewarded since they lost nothing.
“…the biggest losers are at the bottom of the food chain.”
Anyone care to join me? After doing the bills today and being asked by my love to make the dollars stretch just a little farther, I had a little breakdown. I already have Abe and George grinnin’ so thin their faces are likely to break!
We were fortunate to not become part of the mortgaging fiasco, but being a fiscally-conservative, single-income, financially-responsible family seems to have about reached its nadir…and the fertilizer trickling down from the top isn’t making ANYTHING around here grow, if you get my drift!
Our financial adviser explained that mortgages used to be rated (A–prime or B–subprime) and separate. Prime mortgages were given to low-risk, highly qualified borrowers. Subprime mortgages were more “creative” and risky, and therefore, there were less of them and borrowers paid for the privilege.
In the interest (bad choice of wording) of “not offending” high-risk borrowers–and because other “interest” was involved, prime and subprime mortgages were intermixed and provided a false sense of well-being in the housing market. (See above.) Now, since everything is all mixed up, appropriate distinctions are not made about the sensibilities of ALL borrowers because of the fall-out with “subprime (ie.,risky)” loans.
…And we, at the bottom of the food chain, are the biggest losers. However, to hark back to last week, at least it all has a happy ending!