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Thursday, July 15, 2010

In The End, It Is Bad Decisions That Cause Economic Grief

Since the economic meltdown of 2008, I have grown tired of hearing liberals blame banks and lenders for the collapse.
They were too greedy!
We entrusted them with the safekeeping of our money!
They only care about profits and their executives!
Blah blah blah blah blah.

Since the meltdown the idiocy has ramped up even more. Uttering statements about how the banks should take huge losses to let homeowners out of upside down mortgages. Or how the lenders are still greedy because they can't just wave a magic wand to lower someone's interest rate, or to cut their principal down.

The reason all of that has grown so tiresome to me is because that so many of the cases I know of personally, it was bad decisions that fueled the problems for borrowers. Bad decisions by the borrowers themselves.

First, I know several people that, over the course of 15-20 years, remortgaged homes and took more and more money out of those homes. The result? 20 years later, after the housing market tanked, they owe a lot more on their home than it is worth.

These people will blame everyone else, and will say many of the things quoted above. In reality it was stupidity on their part that got them into their current predicament. These people will accuse lenders of telling them that they didn't have to worry because real estate was just going to continue to surge in value. My response is always: "And you believed that?"

Anyone with half a brain knew that real estate was overvalued. Homes that should have been $200,000 were going for $380,000. Homes that should have been $90,000 were going for $130,000. Any real estate neophyte could have looked at the market and realized that it couldn't continue that way.

And even if it was true, it was still a bad decision to take additional money out of your home's equity! These people should have been enjoying watching their equity increase, as the value went up and as they continued to pay down their mortgage. But these people let other things get in the way of equitable growth.

Some of the reasons I personally know of that people took money out of their equity for:
One person took money out of their home to pay off their Ford F-150.
Another person took money out and put it into savings.
A couple took equity out of their home to pay off credit card debt, only to run up more credit card debt.
Another couple took equity out of their home in order to buy horses, boats and other items of luxury.

Could they not see that these were bad decisions? Taking away equity to pay for a vehicle that was only going to continue to depreciate? Taking equity out of your home to put in to a savings account in order to make 2% interest on the money? Paying off credit card debt and then turning around to run up more? Or the people that used the equity in their home as disposable income?

All of these people then turned around and complained that their house was too expensive, that they owed too much, and that the bank should do something to help them. But it wasn't the bank that made the decision to do these things. Oh sure, the banks might have advertised home-equity loans for things like this, but that doesn't mean these people were forced into doing it.

But the bad decisions get worse from there. Not only were people making bad decisions related to home financing decisions, but in financial decisions in general.

Here are some examples:
Going into foreclosure despite driving brand new cars on leases.
Taking money out of a 401K to save a house, only to lose the house to foreclosure later anyway.
Housewives taking on a job just to pay for a kid's wedding, instead of paying down debt.
Complaining about being behind on car loans and a mortgage, but showing up to work after a weekend with a brand new digital camera.
Complaining about money despite eating out every night.
Complaining about money, but funding cellphones for the entire family with unlimited minutes and texting.

These people then turn around and play the victim. "We couldn't afford our house!" "The bank won't work with us even though we owe $155,000 on a house worth $100,000." "I only have $100 to live on all month because of my bills!" "The bank said I don't qualify for government money because I make too much, but I am paying on a $100,000 mortgage and the house next to me just sold for $50,000." "I might not be able to go on my cruise this year because of my finances."

The decisions they make they don't want to be held responsible for. They want bailouts and governmental intervention despite the fact that they themselves are to blame for the position that they are in!

Oh, and many of these people were all for the bailouts for the auto companies despite being staunchly opposed to bailouts for the banking industry. Even in their political views they are hypocritical!

The bottom line is simple. The people that find themselves in financial distress 9 times out of 10 can trace their problem back to their own financial decisions. They can try and blame lenders and everyone else as much as they'd like, but those that live within their means are better able to withstand economic downturns. It is a fact of life.

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