Housing Crisis, Woe and Pain to be Felt by Everyone

I talk a lot about the economy here. But let me join the party and share my take on the current situation today. Oink! ^(oo)^

Everything is connected. That applies to our economic system. That is exactly why this dreadful housing crisis’ pain will and have to be felt by everyone. Allow me to explain.

It is easy for us — ranging from the lower and middle class to the less-than-filthy-rich class — to blame the government, the banks, the Wall Street, the Madison Street, the CEOs, or the monkeys who picked their stocks… so on and so forth. But it is foolish to play this blaming game. None of this would have happened if not everyone participated.

Greed. If we must identify one cause for the problem, greed it can be. It is not one single entity that leads us to today’s problem, but the greed that is in everyone’s mind. Who knows, if I had the money and power and was in the right place, I could have been part of any of the following… But alas, I was only a simple student couple years ago, so I missed all the fun.

Government / Fed

Their lack of oversight for the indulgence in this “free market” and the prolonged period of dirt cheap rate encourage much greedy behaviors by the following people…

CEOs

They are consumed by greed when they see how much compensation and bonus they can get by indulging in this short-term burst of high return. They are smart, intelligent individuals — definitely no fools — so they probably foresaw or at least had the intuition of what is to happen if they jump into the subprime and CDOs party. Yet, they could not resist and allow their companies and subordinates to partake. Honestly speaking, I think some of them, if not most, did not really care because they will walk away with a crap amount of money in a short period of time anyways.

Banks and Investment Firms

The only reason CDOs of the subprime mortgages ever existed is the banks insatiable hunger for greater profit. They lend the money out for a set rate of return as mortgage interests paid by the borrowers. That make them money already but that is not enough, apparently. Expanding in the subprime sector already increase risk exposure… but they further complicates the problem when they turned around and created CDOs for trading for even MORE profits, long-term or not. More profits mean bigger bonus and paychecks. One thing leads to another. Subprime mortgages and CDOs lead to other fancy financial products and ways to make money. Some collected fees up-front for processing… Some provided the insurance for them… And who knows what else. I don’t know all the details, but all these things together exacerbated the situation further.

Investors

Above I talked about banks and investment firms wanting more money for themselves (I-bankers, hedge fund managers, loan agents…), they also have major incentive to boost the rate of return in order to attract investors… actually, more like, just their money. They probably do not care if the client is a zombie if he has millions. Anyays… what the firms did was simply feeding the market what the investors demand. With demand there is supply. Simple as that. So, investors helped to feed into this circle of greed through their desire and demand for more and quicker gain of money.

Common People

The commond people here mean people who bought the houses. Specifically, these are people who bought houses they cannot afford. They buy into the fancy ways of financing through ARMs, interest-only, and what not. There would not be such a big subprime market (problem) if the people see the reality and stay grounded and buy a house only if they can afford to.

Everything is connected

I described above how everyone played a role to lead to the current dilemma. Together, all of us have indulged in irresponsible behaviors for too long to try to satisfy the desire for wealth and materials that can never be fulfilled, and that is why, before things get better, we will all feel the pain. The crisis is the manifestation of our greed.

Such sizeable greed demonstrates people’s lack of awareness. People joined the parade to get what they want, and only what they want. They are each in it for themselves. This crisis, as serious as it is, only came about because nobody cares much about each other, or the big picture. I think that is the most fundamental problem these days. People just don’t care that much about each other, truthfully. Heck, some do not even care about themselves. That is the source of many problems we are facing today. They are not aware. They do not see how everything is connected.

Solution?

I am not here to offer a solution. I do not have one, nor do I think there is one big fix-all solution. I simply offer my observation. I think there will be a lot of pain to be felt, and everyone has to feel it because this is a crisis caused by everyone and again. The only solution I perceive is for each of us take full responsibility for the self. I think if we do that, things will come together and we will naturally have more harmoney in the country all around. Being responsible, not blaming, continuing to learn, and always growing are the best things each of us can do.

About the bail out

I don’t know if the bailout bill should be passed. I don’t know what future it means for taxpayers whether it is passed. Either way, we will be going through a period of pain, correction, and learning for everyone.

However, I am in awe by how quickly people reject it because the conclusion is that “taxpayers will have to pay for it”. The truth is, by not passing the bill, we are still going to pay for it. Our 401k and portfolio could be down the drain for a long long time. In fact, after yesterday, some people who out-right rejected the bail out bill may be having second thoughts after checking their 401k and portfolio. To continue to describe the ripple effect…

Banks will lay off people left and right because they do not have the cash for payroll. Companes big and small will not be able to borrow money to sustain their business, which further increases job loss. Employees who got laid off will not be able to pay their bills and mortgages, and thus more foreclosures. Without jobs and money, we cannot buy things and the business will suffer further loss. Without credits, we cannot buy things, probably for the better, but it also means students cannot get loans to pay for school and familes cannot get mortgages to afford a home even though they can afford the payment.

You see, everything is connected. Wall Street and Main Street… I do not think it is one against the other. Hence, we need to accept the situation and make the best possible move together. Sadly, I am uncertain if the people, the officials, and hence, the government is capable for a suave maneuver out of this. There is too much blaming going on. A bumpy ride is inevitable. It is a matter of HOW bumpy.

For now, even though this last bail out bill was rejected. My prediction is that one way or another, sooner or later, the Congress will pass a revised or some other version of a bail out plan. It may take a few more 800-pt drops to push it through the Congress though.

Now is certainly an interesting time to be alive to witness what is going on.

Originally posted 2008-09-30 23:31:26. Republished by Blog Post Promoter

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