Waxingandwayneing’s Weblog

April 20, 2008

Put it Down….You’ve Had Enough

Filed under: The Meaning of Life — waxingandwayneing @ 11:36 pm

When I was kid, my mother used to tell me my eyes were bigger than my stomach.  I would regularly be unable to finish what was on my plate.  Wasting food was not good, she would tell me.  People are starving around the world.  Of course, she was right.

Today, we are faced with an economic crisis caused mainly by excessive consumption and greed.  For the past several years, Americans have been consuming well beyond what they really need, or, for that matter, beyond what they could really afford.

Propped up by artificial real estate prices and  baseless lending practices, consumers were presented with liquidity they did not deserve.  Shouldn’t we all have been a bit suspicious with advertisements for home loans at 100% of appraised value (leaving no cushion for error), or the 125% home equity loans promotions.  Why didn’t we demand  scrutiny when lenders were willing to do loans with no income verification or sign loan documents to borrowers that the lenderS knew did not understand what a rate reset would really mean.

This liquidity fuel artificially propped up the economy enabling most economists and legislators to believe we were in a healthy growth mode.  Once the pipeline of play money stopped last year, the engine started to sputter and the economy  faltered.  It seems to me that what is happening now is an economic slowdown that will caused a marked job loss and the need to evaluate what drivers really exist.  WE ARE IN A RECESSION.  Let’s just grow up and admit it.  This is not voodoo.  Saying the dreaded R word will not make us slipped further into this malaise; we are in it, so let’s now figure out what we have to do to get out of it.

One thing I feel we must do is tame our consumption.  We have been buying like a drunk sailor at a bar for so many years that we finally have to sober up and stop.  The time has come for someone to finally say, enough is enough.  Or, to steal a phrase from the Passover seder, Dayeinu!

As with any situation, the media loves to find a victim.  The poor borrower, lured into a loan he never should have signed.  Let’s bail him out.  Nonsense!  It’s wrong to bail people out of mistakes like this.  Certainly if any lenders violated lending laws, then that should be dealt with.  But for the government to bail out borrowers in loan foreclosures would set a bad precedence.  On top of that, we don’t have the money.  (We are pissing it away in Iraq!)

We also should not be providing any assistance to the lenders or equity holders of these loans.  Banks have never been able to assess risk properly.  Charging a couple of hundred basis points for a riskier borrower is the wrong way to compensate for higher risk.  Those extra percentage points hardly compensate the lender when the loan goes into default.  Yet, banks continue to price risk based on interest rates.  If we are going to throw any money at them, send them back to school to learn how to properly structure loans.

This recession should give all those affected a chance to evaluate what got us into this mess.  Years of greedy consumption paid for by resources we didn’t even own fueled our economy and allowed us to falsely believe everything was fine.  It’s now time to stop and evaluate what we truly have and what we can actually afford.  If you are making $50,000 a year, you cannot afford a $2,000 a month mortgage and the house that goes a long with it.  Do you really need that RV or to go on that 2 week vacation for $20,000 (financed by your home equity loan)?  NO!  Start to live within your true means and not in a “wanna be” world.

Like my mother used to say, “Put it down……you’ve had enough.”


1 Comment »

  1. […] Waxingandwayneing’s Weblog wrote an interesting post today on Put it Down….You’ve Had EnoughHere’s a quick excerpt (We are pissing it away in Iraq!)… […]

    Pingback by Iraq » Put it Down….You’ve Had Enough — April 21, 2008 @ 1:49 am

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