Let me 'splain. No wait, let me sum up

So I can't keep my hole shut any longer on this $700 billion dollar bail-out. By popular demand (ok, just my mom), I'll let my two cents (a lot less expensive than the bail-out) out there on the internets for all to see.

The big question everyone is asking: Whose fault is it? Why are we in this mess in the first place? Is it the banks? Is it the government? Is it the mortgage companies? Is it me? Is it you? Is it my dog? The answer to all of these questions is a resounding YES.

Let's start at the top. The government. Or as I like to call it, "Don't ask don't tell as long as we're fat and happy". How is the government to blame? Well, as usual, they started this mess. About 10 years or so, the government started this big push to "promote" homeownership among the American people. To achieve this goal, they (Fannie Mae and Freddie Mac) loosened their credit lending guidelines so that more of the population fit into said guides. Now granted, not all banks and lenders out there sell their loans to Fannie, Freddie or FHA. But most DO underwrite their loans by their guidelines so that those loans are easily transferable on the markets. How loose did these guides get? Let's take an example.

Say it is 1992 and you want to buy a home. You apply for a mortgage. The bank asks for one months'worth of paystubs from your job, W2s for the last 2 years, and 3 months bank statements to prove you have enough money in the bank to cover two mortgage payments (on top of the 5% you are putting down). They also require that your total housing payment can't be more than 28% of your gross income, and that your total debt doesn't exceed 36% of your gross income. Fast forward to one year ago, 2007. The bank asks for maybe one paystub (to prove you still have the job you say you do), no W2, maybe a bank statement (if you are actually having to prove any assets). You might be lending money on a program that doesn't require any of these things. Heck, the program might not even require an appraisal on the house to prove it's worth! So, step number 1 in a financial free-for-all: Loosen credit guidelines.

The next group to blame? The banks, mortgage companies and mortgage brokers. Because the government allows such loose credit guidelines, the home lending folks take advantage of them! Imagine that! And, in the name of customer service, they put their borrowers into loans that don't require any documentation of assets or income! Just because, you know, borrowers don't want to dig around for their last paycheck or God forbid, their last W2. It also doesn't hurt that, because the borrower is now putting ZERO MONEY DOWN OUT OF THEIR POCKETS, they can afford to pay more in closing costs and a higher rate. So the loan originator makes more money. Does the lender have a moral obligation to place the borrower into a loan that makes sense for that person, to "Do no harm" to their credit? Absolutely. Did they do that? Hell no. Step 2: Allow greed to overcome common sense.

Lastly, I'd like to place the blame squarely on the shoulders of the American people. The average American has been spending money like it gives them a rash, and taking every bullshit financing opportunity that is offered to them. You're going to increase my credit line by $20,000? Ok, I'll take it! And I'll use it to buy a new snowmobile! The bank allows me to have a mortgage loan payment that is over 50% of my gross income? Sure! It's not MY fault, the bank said it was ok! News flash, people: no one is going to take care of you financially (or any other way) but YOU. Except for a few small exceptions (the elderly, or mentally challenged folks), most of us understand that we are over-burdened with debt. That we really can't afford the things we have. That we should be saving our money for an emergency or for the future. We know this, yet we don't do it. Step 3: Bury your head in the sand.

In conclusion: Everyone, from the government down, is to blame for the current poop sandwich we all have to eat. Learn to save your pennies, spend wisely, and quit pointing fingers at the other guy. I hear ketchup helps to swallow the sandwich...


-K