Friday, October 10, 2008

The Great American Greed

I recently read a post on where they put together a March Madness style bracket asking, "Who Killed the Economy?" The usual cast of characters were there, President Bush, Alan Greenspan, OPEC, hedge funds, etc... In the bracket the liberal readers have blamed the economic collapse on President Bush. Being that he is the person in charge I understand why people are quick to blame Bush but lets really take a look at whats going on because playing the blame game is going to lead to a waste of more taxpayer dollars on things like Grand Juries and investigations that will lead to nothing but a slap on the wrist.

First we have to look at the Greed of Americans, yes that is right you and me. Our greediness caused us to look past the obvious slow down and ask is what I am doing moral? No we didn't and why? To pay the mortgage, all three of them. You see the banks were handing out loans left and right to people who did not qualify under traditional lending measures. Which means people who couldn't afford to buy a home were getting loans. We can thank the Community Reinvestment Act for that. I won't get into the specifics because it again is playing the blame game but we must learn and then not make the mistake again.

We have seen a paradigm shift in these United States. People are no longer savers and have started building up large wads of debt. They are falling prey to the advertising they see on television, internet and in print. People would rather have it now instead of saving up and paying cash for merchandise. I can remember when I was 16 my dad taught me a valuable lesson, that at times I have chosen to ignore. He encouraged me to save my money up and buy my first car with cash. My first car was $1000 and it took me six months to save that much money. It was 1993 and I bought a 1985 Ford Escort.

When is the last time you saw someone pay cash for a car? I would estimate that 90% of all new cars sold are financed. I would also estimate that people flip flop from car to car these days every three years. That reminds me of our family car growing up, that is right one car. My dad and stepmother bought a 1989 Mercury Topaz and they kept it for ten years. In my driving life I have had 8 different cars. I have financed all but two of those and I have paid off 2 of the 6 that I have financed. Yes I know what you are saying, do what I say not what I do but I recently was awakened to this.

There was a time when people paid cash for homes. There was also a time when home equity loans were illegal. That is another problem people are using their homes like ATM machines. Instead of saving up cash to pay for a renovation they are instead appraising their home and cashing in on the equity.

So what happens when home prices sky rocket in a matter of 5 years to unprecedented levels and then drop all of a sudden. Well people are paying for an asset that is worth more then what they paid for it and now they cannot refinance because a bank will not give them enough money for the house. People are walking away from their homes and then buying them at auction for a thousands of dollars less then what the original loan was for. This is dishonest and I refuse to do business with anyone who does this. In fact I had a business owner in New Jersey who applied for a lease for some equipment for a dry cleaning business he was starting. He said he wasn't going to pay for his home again until the government fixed the housing crisis and the bank wasn't going to foreclose because they could not sell the home. I was disgusted. I told the man that not only is that dishonest but I doubt anyone will lend you money again. The sad thing is that someone probably will.

So what is my point? My point in this rant is that we do not control what Bush does, we do not control what CONgress does nor do we control what banks do, at least not directly. We do control how we buy. We would not be in this financial mess if our greed did not get in the way. American's wake up! Stop buying things on credit. Live within your means. Stop buying CRAP. Save your money and pay cash for things. If you cannot pay cash then you don't need it.

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