Personal Responsiblity and the Economic Crash

Recently one of my friends complained that the whole economic crisis we're currently living through is all because of those bad old CEO's walking away with giant bonuses.

There's so much more going on here than some fat cat CEO's getting big bonuses and bad decisions made by giant corporations.

It all comes back to personal responsibility.  I worked in the new home industry in Southern California.  Let me tell you, there are some real shaky home loans out there.  For instance, one woman bought a house that she could only afford if she took out an interest only loan.  That means that she didn't have to pay back any of the principal on the loan for five years.  And even then, she had to rent out a room to make just the interest payment.  She had to take out a loan for the down payment on the house.  Her thought was that in five years when the loans came due, the house would be worth more and she'd be able to borrow against her equity to pay down the principal, then get a smaller loan.  She was basically counting her chickens before they hatched. 

It's now five years later and those chickens have come home to roost.  The loan market has tanked, home values have crashed and she's one of the millions of people that WE are being asked to bail out.  You and I are going to have to pay higher taxes because SHE took a chance with OUR money.

And she's not the only one.  There are so many people who got greedy, spent more than they could afford and now need to be bailed out so they don't lose their homes.

Take a step beyond them.  There are thousands of businesses out there that made these loans.  They stretched every fact given to them to make people eligible for loans.  Even beyond them, they were directed, as far up as the Federal Reserve, to count welfare and unemployment payments as income to get people to qualify for loans.  They knew that any ripple in the economy would cause those people to default on their loans.  But it was easy money.  So they made the loans.

Now you and I are being asked to help bail them out so they don't lose their businesses.

Every one of those people in every one of those circumstances had a chance to say "NO". 

The lenders had the ability to deny the loans.  They had the opportunity to use more conservative methods determining the amounts people were eligible to get.  They had the option to try to direct their customers into safer, smaller loans. 

The home buyers had the opportunity to only buy a house they could afford.  They had the ability to tell their lenders they wanted a more traditional payment plan that fit into their budgets.  They had the option to spend less, get less and plan to move up later.

But none of them took the road of responsibility.  They were all blinded by the Great American Dream of Easy Money.  They ignored the risks and jumped right in. 

Well, we've had that ripple in the economy.  And it's all crashing down now.  But instead of finally facing their responsibility, we're hearing a great cry of "Save us!" 
 

Let's bring it down to a very personal level.  Let's say your child spent all of his allowance on gum and candy.  Now it's Friday and time to buy a birthday present for a friend.  There's no money left.  As a parent, do you give him more money so he can buy the present?  Or do you let him go without, maybe even miss the party, because he was irresponsible and selfish with his money?  He's complaining that it's not fair that you have all that money and he has none.  He's saying it's not fair that the candy store was so enticing and let him spend all his money.  He says he deserves to buy that present and he deserves to go to the party and he shouldn't have any consequences at all.

As a parent, is that the path you're going to let him take?  Of course not.  You're going to make him take responsibility for his bad decisions and help him make better decisions next time.

Now, I'm not saying the government should be like a parent.  Although, at this point they're acting like a spoiling and overindulging parent by throwing money at the problem.  I'm saying that in this country founded on the principles of self reliance and America's "can do" attitude, we need to look at the reasons behind the failure and come up with some realistic steps to take to correct the problem and avoid it in the future.

That seems to be a novel approach.  We have a housing bubble that bursts roughly every 15-20 years.  We get really good at conservative lending practices for about 10 years, then get comfortable again and forget about the risks.  Each time the risk taking gets worse and worse, so the resulting crash is worse.  It's time to do some serious re-thinking or the whole thing before our next crash kills us.