Thursday, January 31, 2008

Told You So

Okay, in the spirit of Vi Mo and some cruel tutelage, let's look at the current economic "crisis" centered on the housing "crunch" or whatever they are calling it now. A big part of the problem was that the crooked banks were giving people insane loans to "buy" more house than they could really afford. You see, this variable interest thing has been around for a long time, but only in the last few years have many people been fooled or just plain stupid enough to fall for it. And you can be certain that the banks were pushing these loans very hard, though I really have trouble understanding why an industry would shoot itself in the foot like that, unless they just refused to acknowledge that ignoring long term risks while focusing on short term profits is not a good plan.

I mean, imagine that you're a banker with some money to loan on a big house that is really more than the buyers can afford, but you decide that even if they default on this loan you'll have this house to cover it. You've assumed that the house will either retain its value or go up in value, so it seems like a pretty fair deal. But the buyers really need a more affordable payment, so you offer them a variable rate loan with an "introductory" very low or practically non-existent interest rate for a couple of years. Everybody's happy, right?

But if we think about it a little more, even if the economy doesn't falter and the house doesn't go down in value, can you really expect that the buyers will have the money to pay the higher payments in a couple of years? Nothing in history tells me that anyone should depend on such things. In their greed the banks and the buyers have shot themselves in the feet. I don't want to pay for their mistakes.

While some dummies want to blame Capitalism itself for these problems, they too are just being too short-sighted and narrow-minded. Saying that all capitalists are greedy and crooked like some bank executives is just as stupid as saying that all Muslims are terrorists. There are bad apples in every bunch but you can't say that all apples are rotten. Duh!

Well, it might be tempting to blame the consumers and call them all stupid, but that would also be too simple and wrong. I do feel some empathy for those who were pressured into bad loans because we all have had experiences of being "sold" on a bad thing. However, when it comes to homes and ownership, there have been a lot of 'get rich quick' schemes around that have encouraged people to "invest" in homes and rental properties, etc. I guess I'm conservative enough to keep my "investments" (in the liquifiable sense) separate from my basic needs, such as shelter. Anyway, good advice is always "buyer beware," and it's unfortunate that nowadays buyers must beware of even those who are supposed to be helping, like real estate agents who certainly do make arrangements with lenders to push certain types of loans.

My solution to this particular problem with the bad loans, etc., is to say to the banks, "You should have known better." Who else but financial institutions should be most careful with money? I think that they should foot the bill for the whole mess that they were mostly responsible for creating. We have trusted them to use our money (which ultimately it is our money that they've been carelessly lending out) wisely but they haven't. I would say, "You play, you pay."

We don't use a traditional bank anymore. We use a credit union. Maybe big banks are becoming obsolete in the same way as labor unions.

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