Tuesday, December 11, 2007

Does No One Believe in Consequences Anymore?

I never thought this would be the case, but I am furious with Hilary Clinton and President Bush right now for the exact same reason. (Granted, I've been mad at them at the same time before, but always for different things.)

What's the issue? The whole sub-prime loan mess.

Now I'll be the first to admit it is a mess. And the idea of anyone losing their homes doesn't make me happy. But let's break this down.

For the unitiated, the sub-prime loans offered loans to individuals for less then the prime interest rate. In essence, the banks were paying customers to take out loans. Now, there were several varieties. Some only required you to pay a small amount each month, adding the difference in what you should have paid to principal. But all of these loans called for the interest rate to rise substancially in a few years.

And guess what. The interest rates are rising. And the people who got those loans suddenly can't pay for them.

Now, I'll be the first to admit that these offers look appealing. After I bought my condo, I got plenty of offers with 2% interest or promising me payments of $200 a month.

But if it looks to good to be true, it probably is. It's the fine print that comes back to haunt you, and that's what it is doing here, too.

But people didn't read the fine print. They used these sub-prime loans to buy houses they normally wouldn't be able to afford. They figured they could afford it now, and they'd figure out how to pay for it later. Or they didn't bother to read the fine print. But now that their interest rate is rising, they can no longer make the payments.

I do blame the banks equally for this mess. After all, who loaned them the money? I'm sorry, but banks are supposed to make smart loans, and these were smart on either end.

And what was the result? House prices skyrocketed as too many people tried to buy houses. And it got to the point that people couldn't afford anything any more.

Now we are faced with lots of foreclosures from people defaulting on their loans. And that means that house prices are plummetting. Heck, my condo has lost most of the gain since I bought it in one year. If prices keep like this, I'll be upside down a year from now.

So, why am I upset with Bush and Clinton? Because they feel it is the government's job to bail these people out. They are asking banks to keep the sub-prime rate where it is for years. And they are suggesting that the government needs to pay off some of these mortgages.

I'm sorry, but that is just plain wrong. That means that I and other responsible people will have money taken from us via taxes and given to people who made poor choices. Sorry, but it isn't the government's job to bale anyone out of their problems.

And to make things worse, our national debt is completely out of control. With plans like this, I wonder why.

Yes, loosing a home is a horrid thing. But it does happen. It happens to people who make wise choices. And it happens to people who make poor choices. But the government shouldn't be bailing any of those people out of their messes. The government's job is to govern, not take care of us.

2 comments:

Kiefler said...

Hey Mark, your resident banker checking in. Right in principle, wrong in detail... if you want more details give me a call, but the basic detail I want to correct is that sub-prime isn't the rate you were charged, its that you were given a loan at all, based on your too-low credit score and income.

Mark said...

Point taken. However, it still doesn't let banks off the hook for giving those loans and people off the hook for taking more then they could afford.