Financial Crises

The world is collapsing! The sky is falling! These seem to be relatively familiar to anyone who spends time reading the business or money sections of your local newspaper. The current financial crisis is terrible and unexpected. It's awful to see what's happening around us, and watching the stock market crash over 780 points in ONE day was not very nice. However, there are several comments about this current situation that really bug me.

1. "Predatory Lenders"
2. Resistance to the rescue plan
3. "It's Bush's fault!"

Let me attempt to explain myself one by one.

First of all, let me clarify that I am not claiming that the lenders are completely without fault in this current situation. They should have been looking at front and back end ratios. They should have been considering that people shouldn't be buying more house than they could afford by only qualifying them at the lower rates involved with interest only options. They shouldn't have been expecting the housing market to continue to grow at the ridiculous pace it had been. They should have been more cautious. But to call them predatory? I think that's a little overboard. These lenders didn't go out to people and tell them to buy more house than they should. They simply helped people to afford it. Was that a precisely good idea? No. But can you blame these people for wanting to make money? That's at the heart of everything we do for work. We work to make money. Sometimes that means that we offer credit to those who may not be as worthy. Look at all the people with credit cards, who have no idea how to use them. I'm not saying that lenders are without fault, but I do think it's crazy to refer to them as predatory and therefore make value judgements on them. They made some mistakes that cost a lot of people a lot of money. But every indication was that the market would continue its rise. Can you blame them for saying that you could refinance after 5 years?

But I also don't want to take all the blame away from the lendees. Why are they buying so much more house than they can afford? I mean, I understand that everyone wants to "keep up with the joneses", but it was clearly a terrible idea. At some point, didn't they think that the potential huge payment waiting for them at the end of 5 years was a bad sign. That they couldn't qualify for a fixed rate mortgage. That should have said something to the people. So let's not put all the blame on the lenders. The American people should know better. We must be educated to use these blessings.

Why is there so much resistance to rescue? The 700 billion is a lot, however it is to be placed out in different phases. 150 billion immediately, 250 billion in a couple years, and then discretionary use of the rest. Why can't we do this? The housing market WILL recover. It has to. Eventually these mortgages will be worth  money again. The government is the only organization in our economy that can wait the inevitable time that it will take for the investment to pay itself back. Don't we understand that it's not tax payers dollars that will be used to pay this back? Only making 1.5% on these investments will provide extra money to eventually pay down our national deficit. But, despite that, realize that our national deficit is above trillions of dollars. We're never paying that back. So, what will it hurt? Ok, so that's not the best argument, but we need to recover our economy and the housing market. I'd definitely prefer that to a horrible depression that will rival that of the 30's and cause a need for another "deal" that will end up taxing me at 94%. Ugly.

Lastly: It's not Bush's fault. Unless you believe that the government should be involved of every aspect of the free market, you can't possibly think that this is a result of Bush's administration. Many of these loans have 10 years options. Most of these people have done this before, "flipping" houses. This didn't start with Bush, and it won't end with Bush. He only has so much power to save the economy, and when our president suggests a possible solution, he gets shot down in congress. It's hard, but it isn't Bush's fault people. The economy is a living, breathing organism. Personally, I'd prefer that the free market roams and we have the possibility of problems, than have the government run our market and create a socialistic environment. It's never worked before, and it won't work in the US. Educate yourselves, people. Bush couldn't have prevented this any more than he could have prevented Hurricane Katrina. While many would criticize Bush for his reaction following Katrina, we can't do the same here. He tried. Congress has stopped him. A plan backed by Bernake and many other economists.

What do we do now? I don't know. But I hope we figure it out soon.

You know where the comments go.