Where Did We Go Wrong?
09/29/2008 12:00 am EST
In the last 25 years, Americans went from saving to borrowing. Instead of working for the American Dream, we decided to charge it!
Our parents and grandparents knew better. They worked toward the American Dream, but they carried memories of the Depression. They understood the importance of paying off your mortgage-and even held "mortgage burning" ceremonies. They saved up for a down payment, or to buy a car, or for a new fridge. They didn't buy something until they could afford it. They would never have been caught in this trap of debt.
Where did we go wrong-and who is to blame? As we enter into a national orgy of finger-pointing at government regulators, Wall Street and corporate CEOs, bond rating agencies, and banks-perhaps it is time to remember that every time you point your finger, three are pointing back at you! (Try it: you'll see what I mean!)
There is plenty of blame to go around. CEOs are the most visible and the largest target-the bulls-eye for everyone to aim at.
But think about all the people who figured the laws of finance were suspended for them, and never doubted they "deserved" to own that new tract home, even though they hadn't saved a penny for a down payment.
Or the mortgage brokers who promised no-money-down loans, which would be refinanced when prices inevitably increased in value. The brokers got paid $1,000 a pop for bringing those loans to financial firms.
The financial firms didn't require documentation for the loans; they just sold them at a profit to Wall Street investment bankers, who didn't know the names of the banks, much less the property owners. They threw them all into the meatloaf mix, baked it in the oven of greed, then sliced it and sold it off to investors.
And, of course, there were the ratings agencies, who were paid to add seasoning-ratings to the slices or tranches-without even a taste. Now they're busy downgrading the financial institutions' debt-the ultimate irony!
And don't forget the credit card issuers, who sent out "authorization" to charge-whether to college students or those with low incomes, and aggressively signed up customers with shaky credit scores. Who's to blame that consumers didn't know enough to consider the costs? Should we have been teaching money in junior high?
They are ALL to blame, but as Pogo famously said: "We have met the enemy and he is US."
At some level everyone believed that the game would go on. Home prices would rise, allowing home equity loans, to pay off credit card debt, so the American consumer could lead the world to prosperity!
Now the house of debt has collapsed-nearly bringing down the entire financial system.
Does it do any good to point the finger of blame?
Do we always have to learn the hard way?
What are the lessons that you have learned from this?
What will you teach your children?
And, most of all, do you believe that it's not too late to fix things?
Please join the conversation and have your say!