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You Caused the Financial Crisis Didn't You?!?

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It's no shock that our country is in an enormous financial crisis, but how did we actually get to this point? Two moms face off.

financial chart

Vice President David Hallman from United Capital broke it down for us this way:

1. Banks lent money (mortgages) to borrowers that were not qualified to purchase homes. Banks didn't worry about these unqualified buyers, because home values were going up up up.
2. These non-qualified borrowers began to default on these loans -- unable to afford the payments. They were forced to sell these home,s resulting in an over-saturation of the real estate market.  
3. These mortgages were investments of the banks and because of the down market, their investment value went down -- hurting the financial stability of the banks.
4. Banks were forced to stop lending and had to raise money from the private sector to cover their debt.
5. The situation went from bad to worse. Banks eventually couldn't raise money anymore and investors lost confidence in the banks.

So whose fault is it, the government of the homeowners? Should the government be bailing these homeowners out? Two moms face off on this heated issue.

Mom Julie: It's the government's fault.

It is the government's fault we're in this mess. They allowed the banks to give loans to people they knew couldn't afford them. They didn't require mortgage companies to do proper credit checks or ask for proof of income. The government allowed Freddie Mac and Fannie Mae to make loans that no experienced mortgage lender would have made without government insurance. They offered risky sub-prime loans and adjustable-rate mortgages that set people up to fail. What did they THINK was gonna happen? But they didn't care that our economy would soon go in the crapper. All they thought about was lining their own pockets. They sold us all a bill of goods that "anyone could afford the American dream." Blaming the homeowners is not the answer. These people shouldn't have been allowed to borrow the damn money in the first place!

Mom Melissa: It's the homeowners' fault

Call me a bitch if you want but I'll tell you why I'm against the bailout. I am against the $700 BILLION DOLLAR bailout because I don't think that responsible Americans should have to pay for the greed and stupidity of others (mainly bankers, homebuyers, flippers and mortgage brokers) One of the reason that we are in this mess is because (greedy) Americans took out loans that they had no business accepting (or even applying for in the first place.) What makes people think that if they make $5000 a month, they can live in a million dollar home? Sure, I'd love to live in a fancy, fully-renovated house in the best part of town but I can't. Why? Because my husband and I don't make enough money, and we know that so when we bought a house three years ago we bought a shack. We bought our shack because it was what we could afford!! So, why should my family pay so that others could live a lifestyle that they can't afford? To be honest, I really do feel bad for the children of the people who took out these loans and then subsequently lost their homes. But, I have to tell you, I'm not sad for them because they're living in a two bedroom apartment now (something their parents can actually afford!). I'm sad for them because their parents are greedy AND stupid and are going to cost the rest of us A LOT of money and possibly change the way WE live. Thanks a lot.

next: Son Assigned Same Dorm Room Dad Had, 30 Years Later
14 comments so far | Post a comment now
mom22 September 25, 2008, 11:29 PM

Amen Mom Melissa! We are in an no interest mortgage that keeps going up — so WE made a bad decision and do not expect anyone to bail us out. We just make sacrifices b/c our home is most important right now to our kids & our security.

Anonymous September 26, 2008, 12:08 AM

I totally agree with Melissa, it’s the greedy homeowners’ fault. When we bought our house 4 1/2 yrs ago, we bought a home we could afford at a decent interest rate. The bank tried to convince us to go with the (temporarily) lower interest rate using a 5 yr ARM but I knew the rates were only going to go up so using my good sense we went with a 30 yr fixed and sure enough, we still have our house because we can still afford it.

Anonymous September 26, 2008, 8:56 AM

Someone sent me this and it sounds good to me !!
This idea sounds just crazy enough to possibly work, so naturally it won’t be given serious consideration. How great is our bureaucracy!!

I’m against the $85,000,000,000.00 bailout of AIG.

Instead, I’m in favor of giving $85,000,000,000 to America in a We Deserve It Dividend.

To make the math simple, let’s assume there are 200,000,000 bonafide U.S. Citizens 18+.

Our population is about 301,000,000 +/- counting every man, woman and child. So 200,000,000 might be a fair stab at adults 18 and up..

So divide 200 million adults 18+ into $85 billion that equals $425,000.00.

My plan is to give $425,000 to every person 18+ as a We Deserve It Dividend.

Of course, it would NOT be tax free.

So let’s assume a tax rate of 30%.

Every individual 18+ has to pay $127,500.00 in taxes.

That sends $25,500,000,000 right back to Uncle Sam.

But it means that every adult 18+ has $297,500.00 in their pocket.

A husband and wife has $595,000.00.

What would you do with $297,500.00 to $595,000.00 in your family?

Pay off your mortgage - housing crisis solved.

Repay college loans - what a great boost to new grads

Put away money for college - it’ll be there

Save in a bank - create money to loan to entrepreneurs.

Buy a new car - create jobs

Invest in the market - capital drives growth

Pay for your parent’s medical insurance - health care improves

Enable Deadbeat Dads to come clean - or else

Remember this is for every adult U S Citizen 18+ including the folks who lost their jobs at Lehman Brothers and every other company that is cutting back. And of course, for those serving in our Armed Forces.

If we’re going to re-distribute wealth let’s really do it…instead of trickling out a puny $1000.00 ( ‘vote buy’ ) economic incentive that is being proposed
By one of our candidates for President.

If we’re going to do an $85 billion bailout, let’s bail out every adult U S Citizen 18+!

As for AIG - liquidate it.

Sell off its parts.

Let American General go back to being American General.

Sell off the real estate.

Let the private sector bargain hunters cut it up and clean it up.

Here’s my rationale. We deserve it and AIG doesn’t.

Sure it’s a crazy idea that can ‘never work.’

But can you imagine the Coast-To-Coast Block Party!

How do you spell Economic Boom?

I trust my fellow adult Americans to know how to use the $85 Billion

We Deserve It Dividend more than I do the geniuses at AIG or in Washington DC

And remember, The plan only really costs $59.5 Billion because $25.5 Billion is returned instantly in taxes to Uncle Sam.

Kat September 26, 2008, 10:47 AM

Absolutely, AMEN to Melissa AND The anonymous poster proposing the “WDID” Theory. I wish you would have ran for president!

Anonymous September 26, 2008, 10:53 AM

LOL TY But I didn’t write this a good friend sent it to me and she said her BIL wrote that, It is great!!

Lindy September 26, 2008, 12:01 PM

I agree with Melissa 100%!

xyzpdq September 26, 2008, 2:43 PM

I’ve never understood why it is that people can get a home loan for obviously more money than they can truly afford. Due to not so great credit, when my husband & I wanted to buy a house we had 2 options: (1)a 30 yr mortgage with 12.5% fixed interest rate or (2) a 30 year Adjustable Rate Mortgage (ARM) fixed for 2 (yes that’s right just 2) years at 9.5% and then it would become ADJUSTABLE. BTW… We qualified for up to $300,000 loan. Go figure?!?!?
So what did we choose? … the $300,000 fab new home w/12.5% interest rate? NO… and NOT the FIXED loan either! What we did do was found out what we needed to do to fix our credit and bought an affordable $140k 900 Sq ft. 2/1/1 home. We knew our rate was fixed for 2 years so we took that time to pay off our debts and clean up our credit. Then, BEFORE the rate ADJUSTED we refinanced into a 30 yr fixed at 6.5%
We had planned on selling so we could move into a bigger house but we really like the neighborhood so instead we’re building an addition.
Since I actually had an ARM I feel offended that others who had them are WHINING that that they didn’t know their payments were going to go up. They knew it and they knew what they needed to do so they could stop that from happening! They chose to not fix their credit, to not pay off debts and subsequently they could not refinance. Hey they signed for the loan and bit off WAY more than they could chew financially. WHY should people who take affordable loans and make their payments Bail Out people and businesses who don’t?

lilly September 26, 2008, 4:13 PM

I have to agree with Melissa.
It is our greed and need to Beat the Joneses that has caused this economic crisis.
I’m in the real estate business and I see it everyday….People want million dollar homes when they should be on a dime store budget. Banks should not be telling people that they qualify to buy homes that make them house poor and people should have the commonsense to know if they can afford a $2000+ per month mortgage payment OR NOT.
When working with buyers I always ask my clients what monthly payment they can comfortably afford. We then work from there to find a home that they like AND can afford to live in.
Even with that information most people still want to buy at the top of that budget.
Example: Client X qualifies for a loan up $250k … w/3%down payment approx. mtg payment $1939 including tax & insurance
X can afford $1400 monthly but thinks that $1200 monthly would be better
X SHOULD spend no more than about $155k to stay near that $1200 monthly payment
Because X doesn’t like homes the lower and more affordable price range X winds up buying a home for $175k w/$1400 a month mtg payment. Still more than X can comfortably afford. But not all buyers are like that… most wind up with the $250k home and much higher payment which eventually breaks them financially and eventually they wind up in foreclosure. … and here we are today.
Our nations’ greed, desire to have the best no matter the cost, and unwillingness to discipline ourselves has led us to this economic disaster.

Roba September 26, 2008, 6:31 PM

I think you better check your math, I suppose it would be rude to ask if you work for a mortgage broker.

cara September 26, 2008, 10:06 PM

I agree with Melissa…. You know,there was a program on PBS (and everyone gets pbs!!) at least four years ago about how much we (usa) borrow everyday, how was I the only one to see it? True, our government threw cash our way, I feel, to make us forget about what was really going on, but it falls onto us as individuales. We need to come to the understanding that NONE of this (matierial-ism) matters. Sadly, I feel we will learn this, as with everything else, the hard way. What we need is to go back to the way of the natives i.e: sharing, feeding and taking care of the community, everyone’s extended family and then rejoicing all together. Giving thanks and praise. ( I highly recommend reading Kurt Vonnegut’s last written speech as in his farewell book Armageddon In Retrospect - I read it yesterday, it pertains to this, as the title presumes, and it was so spot on. ) And maybe, this is what it will take. You know, I’ve been to the gutter, living on handouts, and you know who where the most kind and the most generous….my fellow gutter folks, those who barely had enough for themselves, border jumpers, even prostitutes. Usually, those who had never been without would look away or try and take my kids away even SPIT on me and most certainly condemn me..but never help. America needs to be humbled, because with me now, now everything I have, which materially is little, but everything after my kids, our freedom and a safe roof, IS CAKE!!! And I am happy. I am happy because I am grateful for all that I do have. To have my eyes rest apon beautiful meadows while I jog, as opposed to grimy, city piss stained streets, is cake. To have what I want for dinner, as opposed to day old muffins or $0.25 pudding pies, is cake. I call that time of my life my “christ like exsperience” because of what I saw and learned. I feel many would do good with loosing the shirts off their backs. They’ll find out what they are made of and if they live through it, they will come out better for it.

Sharon October 9, 2008, 12:14 PM

Very good Cara!
I haven’t quite been to that point, but no matter what I have had I have always been thankful and remember there are people in worse circumstances: physically, financially… I have taught my children to pray thank you for food, shelter, and clothing. (Remember people, THOSE are needs, not the rest. We have our needs and many wants, but I have tried to instill that from the start, & people and behavior is important…not things!)
Anon. I also received that or something similar and did not check the math, but no matter what it is, I’d rather have it spread out to all than trust the govt & greedy CEOs and exec with it! It seems more logical to me!
Lilly, I just wanted to say how impressed I am with you as well! You are a rare commodity in the real estate business. My guess is you are not in a major urban market.
My husband is in banking, a small local bank (several locations around Ohio) they are not having problems. People in areas like this just aren’t as greedy (or the same kind of greedy at least usually).
I had someone basically tell me I was naive (or superior, something) for a similar statement once. For one, when people actually know you and see you, and your family, etc. People can’t get away with much, even if they wanted to…

Anonymous October 10, 2008, 9:46 PM

theory is incorrect - it is actually $425. but good try

seo st petersburg fl December 7, 2010, 10:07 AM

Hello, just reading your blog here and I want to let you know your right. Really helps put things in perspective. Your avid reader, Brandon Styles.

ppc st petrsburg December 8, 2010, 9:08 AM

Watsup, just droppin by and I just couldn’t help but say thanks. It’s amazing how things work these days. Warm regards, Cathy Williams.

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