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How Much of the $700 Billion Bailout is YOUR Fault?
By mentor24 | September 26, 2008
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Ah, I remember it well. It was September of 2004 and my wife and I were about to make an offer on our first home. I remember our real estate agent advising us, “Just pay whatever the seller is asking or someone else will come in and offer more.”
To which I replied, “This isn’t right. Real estate is over-valued and somebody has to hold the line! I need you to negotiate tougher”.
But she said with confidence, “It doesn’t matter what you pay. It’s just going to keep going up. Real estate never goes down”.
And then she uttered this vintage 2004 line (and I’m not making this up), “In fact, the more you pay the better for you, because you’ll make that much more from the appreciation.” Classic!
I knew then that was complete and utter bullshit. But my wife and I were starting a family and living in a tiny apartment and we wanted to buy a house, and I knew prices weren’t going lower just because I thought they should, so we went ahead and bought the house for the asking price.
Later, when we were filling out the application for our nothing down, zero interest loan, I said to our mortgage broker, “This is why housing prices are so out of control. Two years ago no one would have made this loan to someone in our financial condition. Now, anyone can buy a house that’s way beyond their means.”
To which he responded, “I know. The industry’s gone totally insane. So…. how much did you want to say you earn?”
That was four years ago!
I predicted back then that the longer they kept artificially inflating real estate values through exotic lending practices and “can’t lose” propaganda the harder the fall was gonna be. And here we are.
So here’s a question: Do I have some kind of extraordinary prescience to be able to predict these events four years ahead of the majority of Americans who all seemed to share my agent’s opinion, let alone the so-called experts who seem to have been totally blind-sided? If so, you may want to poke around the Building of the Beast website a bit and see what other events I see in our future.
Or is everybody else just plain stupid? Because this outcome was so obvious even Bush should have seen it coming!
Anyway, that little vignette was just prelude to the actual point of this article, which is to place blame squarely on the shoulders of the people responsible — Everybody.
Now I do hold special contempt for the people at the top of the pyramid–those Wall Street fat cats who engineered the financial Rube Goldberg machine that was so complicated even they didn’t quite understand how it seemed to keep pumping millions into their bank accounts. But complicated or not, if a Main Street guy like me (and I do know I’m not the only one) could see this coming four years ago, I think they could have had a clue somewhere along the line. And I think they did. The question is whether they were incredibly stupid or simply blinded by greed. I tend to believe it was the latter.
But the blame doesn’t stop there. Every dealer needs their junkies, and that was us. Everyone who refinanced their mortgage to buy that new boat, vacation or granite kitchen took their little share of that imaginary wealth. Every entry-level manager’s assistant who really believed they could afford a $600,000 house pumped a little more air into the balloon. And every two-bit real estate investor who leveraged into multiple properties on flimsy fulcrums has only themselves to blame when it collapsed around them. (And BTW, I include myself in this group).
Of course the king pins at the top didn’t deal directly with the junkies. They had their mules and street peddlers. I’m talking about the developers, mortgage brokers, real estate agents, construction workers, tradesmen, etc.–all of them earning a very nice living from an industry fueled by a shared delusion.
I’m not saying we’re all bad people. But I am getting a little weary of all the whining about Mr. and Mrs. Main Street being fleeced by Wall Street.
We shouldn’t think of that $700 billion as a bailout of the super rich. We’ve all been spending imaginary money over the last few years. Think of it as a loan that has just come due.
And don’t worry. I’m sure we’ll find a way to refinance it.
Technorati Tags: economy, bailout, real estate, financial crisis, loans, mortgage, housing crisis, wall street
Topics: Economy, Politics, Society, Uncategorized |
October 7th, 2008 at 5:06 pm
Great post, but here’s a little different way of looking at it. If you’re still willing to make the payments on the loan, then 0% of it is your fault - you paid a price you were willing to pay and you’re still paying it. People struggling to make their payments and still making them aren’t the ones to blame.
And by the way, Bush did see it coming, a year before you bought your house. He proposed increased oversight of Fannie Mae and Freddie Mac in 2003.
October 8th, 2008 at 7:34 pm
Touche on the point about Bush, Tom. Give credit where due.
And as for your first point, if you got in over your head and are trying to pay it off then good for you; you are being part of the solution. That doesn’t mean you weren’t part of the problem in the first place. Anyone who bought a house irresponsibly during that time fed the frenzy. I take my share of the blame.