Wednesday, October 15, 2008

10-15-08: What McCain and Obama Won't Say About the Economic Crisis

On the drive in to work this morning, I tried to piece together what I understood about the credit crisis. Here's what I got:

For the past several years, housing had been going through a huge boom. House prices were going up and up, and people wanted to make money on this, which caused a little thing called positive feedback and prices just kept going up. More houses were built because people had more money to spend, mostly because it was so cheap and easy to get money with low interest rates (thanks to the Fed led by Greenspan). Things were good.

Then, when the good ol' law of Supply and Demand took over when the supply of houses got too high, the bubble burst. Good, honest people, couldn't afford to make payments on their mortgage because the value of their home was now less than what they owed on the loan to the bank. You see, let's say you can afford a $300,000 home, but really want a $400,000 home. You see all this good stuff going on with the house prices increasing, so you figure you can borrow against the equity in the future and pull things together. Then, BAM! Housing bubble bursts, and that $400,000 is now $400,000 you can't afford.

So what did people do? They walked away from their debts. Not exactly the right thing to do, but understandable. Banks foreclosed on properties, making nearby homes' values sink even lower, and the trend continued downward.

Now, things wouldn't be so bad if investors hadn't bought in to the housing bubble by taking big risks in securities backed by sub-prime loans. But who is to blame for these loans? Wall Street? Hardly. Sure, they deserve quite a bit of blame, but not nearly all of it. People who didn't deserve the loans were given them by banks who were overconfident in their earnings potential ("Hey, what harm could one more little loan do?") and got greedy and swindled people into getting into these loans. It's like keeping a pet tiger. Sure, you can train it all you want, but it's a fucking tiger and it could still kill you in an instant. You have to be smart, and these people simply weren't.

But blaming Wall Street is so easy for politicians to do. Wall Street and Washington. But you simply don't hear McCain or Obama, or any politician for that matter, blame everyday Americans who got themselves into these bad loans. What ever happened to personal responsibility?

I was almost shocked that Sarah Palin, early on in the Vice Presidential debate, talked about personal responsibility and how we need to live within our means. It almost seemed like she was talking about how we need to act as a result of this crisis and explaining how we got into this. I thought that was pretty good. Then you had Biden just blame Bush and McCain. Sure thing, Joe. President Bush made sure Sally Smith and John Q. Public signed those sub-prime loan agreements.

I'm not saying people weren't swindled, but you have to take some blame if you took on a loan you knew going in could not afford. It's not fair, but it's high time people started to take some more responsibility. It's the mature thing to do. And, at one point in time, it seemed like the American thing to do.

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