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An Everyman’s Guide to Our Current Financial Crisis
September 24th, 2008 Posted in Judo ChopsFor those of you who lack the advanced financial expertise necessary to decipher news surrounding the current mess, I’ve interviewed an expert to help us make sense of the headlines.
Q: How did we get into this mess?
A: Two entities created and overseen by Congress, Freddie Mac and Fannie Mae, flooded the mortgage market with cheap, taxpayer-backed money. Plus millions of Americans accepted the crazy idea that it’s okay to finance more house than you can really afford, using 95/5 and even 99/1 mortgages. It was a toxic mix of incompetence and greed.
Q: Doesn’t Wall Street have some culpability here?
A: Didn’t you hear that part about incompetence and greed? Besides, “Wall Street” is an abstraction. It’s kind of like The Force in Star Wars, or . . .
Q: Congressional oversight?
A: Exactly.
Q: What’s the government’s plan to fix this mess?
A: They’re going to buy all the troubled assets, and then create lots of rules that give them more authority to oversee financial institutions.
Q: You mean oversight like the kind that encouraged Freddie Mac and Fannie Mae to back millions of housing equivalents of the Bridge to Nowhere?
A: You got it.
Q: How does the average American get in on this “buying of troubled assets” deal?
A: It’s simple: you either need to be the overpaid CEO of a firm that stupidly overleveraged itself in marginal mortgages and their derivatives, or one of those home speculators who bought three houses in Florida hoping to flip them, and is now claiming to have been misled, abused, etc.
Q: What about those of us who only bought a house we could afford, and have been working diligently to make payments?
A: Well, you’ll have to work a little harder to bail out the rest of us.
Q: It sounds like we’re rewarding the guilty and punishing the innocent.
A: Welcome to Washington.
9 Responses to “An Everyman’s Guide to Our Current Financial Crisis”
By susan Smith
on Sep 24, 2008
The baby boomers are going to stick it to us until we bury the last one, I’m afraid.
By Kurt Settles
on Sep 24, 2008
An accurate (and entirely more humorous) description of the very thing I wrote in my personal journal this morning. Our government is in the process of overstepping its bounds (biblical bounds, that is) once again. And, for those of us who determined to live within our means, even when given a different option, the thought of financially supporting the ignorant through our taxes is a burr under the saddle that’s both uncomfortable and not easily remedied.
By Fred Mok
on Sep 25, 2008
Jim Jubak on MSN makes the parallel between our market and China’s - socialist when we lose money and capitalist when we make it. Your post sounds very libertarian and I tend to agree with what you’re saying but at the same time, I wonder if anyone really knows what would happen if the Fed did not step it. If you were in Paulson or Bernanke’s shoes, would you do nothing?
By Sawgunner from WORLD
on Sep 25, 2008
Thank you Tony! Great article and I do wish it could be forwarded to folks I know.
By Sara R.
on Sep 26, 2008
Thanks for this post and your others. I just discovered your writings on the World Magazine blog spot. Great stuff! Keep it up.
By Brent
on Sep 27, 2008
As one of those who bought their first home at the age of 50 with 7% down, I didn’t view my wife and myself as particularly greedy. We are now, like most everyone else in our neighborhood, upside down. We are able to afford our home mortgage and will be still here in 15 years after the value has more than rebounded. Many of our neighbors, unfortunately, are in worse shape here in the foreclosure capital of America.
While it is true that many bought on mortgages that had negative amortization or balloons, not everyone was “greedy” and even fully informed.
For those of you who want to constantly remind us all of how smart you were to live within your means, don’t forget to add the part where you lift your eyes to heaven and remind God of how thankful you are that you are “not as other men are”. Luke 18:11-13
By Lenise
on Sep 27, 2008
I wish these big banks had to go to Bill Gates, hats in hand, and ask humbly for aid, acknowledging that they messed up and don’t deserve to be bailed out, like in the good old days (which admittedly weren’t good in many areas, but there used to be an expectation at least that a person was responsible for his own stupidity).
By Donna B.
on Sep 28, 2008
My husband and I refinanced our 30 year mortgage when interest rates went down… about 1993, I think.
Instead of lowering our payment, we chose a 15 year mortgage that raised it $2/mo. We were having no trouble meeting that payment. In addition, we paid $100/mo extra directly to the principal.
We’ve really owned our home for several years now.
One thing to note, because our loan was VA backed, we never made a down payment.
Another thing to note is that when we refinanced - after paying almost 10 years on the original 30 year loan, is that we ended up refinancing the very same amount. We’d barely paid enough on the principal in 10 years to cover the costs of refinance.
And that brings me to note the real winners of this huge financial mortgage scam - those who took no risk whatsoever, but got to keep those origination fees.