[krasnaya]

I guess everyone has thoughts on what caused the current financial crisis . In some ways we all want to find someone who we can point the finger at and blame. Somehow we think that having someone to blame in some way eases the situation?

Is it something that any one country did? Or something that was caused by money hungry financiers? Or something else?

Michael Laitman PhD talks about his view on this subject. I found it interesting, and thought you might too.

I find his point of view makes sense - indeed more sense than most theories that have been bantered about of late. I would be interested to know what you think.

Ks

[SJG]

While no one thing led to our economic crises, a large part of the problem was inappropriate consumer spending. Appropriate consumer spending: spending within our means helps to stimulate the market. Overspending (credit card debt, purchasing a larger home than you could afford or need, skipping downpayments, not saving) can crush a market in the long run. Creditors (and businesses with the help of creditors) took advantage of this callous spending and allowed consumers to THINK they could and should buy more than they had. My husband and I always shook our heads at the commercials that suggested dangerous loans (loaning to people without credit, no money down loans, interest-free only loans, adjustable rate mortgages for long term purchases, etc.) We also were very careful that we didn't over-extend ourselves. We limited our debt on credit cards, making sure that we did not put on more debt than we could pay off each month. We purchased used items and avoided purchases altogether. We never purchased a home without waiting to accumulate a decent down payment, and we limited our home purchases to far below what we could afford. We are not smarter than anyone else, but we both came from families that were very cautious spenders because they had to be to survive.
Certainly this economy will effect everyone, no matter how they spent or didn't spend money. No one is immune. The companies that allowed this to happen knew better and took advantage of everyone.
Certainly it must also be said that the government has a lot to do with this economy. The US did not protect or encourage American products, nor did manufacturers that sought cheaper products outside our boundaries. Clinton's administration lifted the monitoring of the creditors that exploited our nation.

Here's a story that might sum it up: Before the economic crash, my father-in-law went to a furniture store to purchase his first set of new furniture in 15 years. The salesman suggested that he buy it on credit - no money down, zero percent financing, no payment for 1 1/2 years. My father-in-law took advantage of this great deal, paying 1/3 of the pricetag that day and planned to pay the rest of in installments. So he asked the salesman, "I plan to pay this off before the year is up. How will you make any money off this deal?" The salesman laughed and replied. "For everyone one of you there are at least ten people that pay three times the purchase price in late payments and interest.

[marilynmonroe]

Mostly greed on Wall St and greed in Washington. Greed is greed. It's not unique to America. The mucky mucks felt one Gulf Stream jet wasn't enough. Another big problem was social engineering from left wing organizations. They strong-armed banks to loan money (a lot of money) to people who couldn't afford homes. Under normal conditions, no banker in his/her right mind would ever give a home loan to someone without the income to back it up. But, apparently, at that time, verifying a person's income was racism or something. Gross mismanagement has plagued the automotive industry for decades. Now, hard working Americans and future generations will be taxed to death. We're turning into a corrupt nation like the countries in S. America. I fear eventually the middle class will be wiped out. I'm very depressed.

[mcmama]

Marilyn, I worked as a realtor in NJ during the insanity with mortgage lending - and I can tell you, it wasn't a left or right wing conspiracy - and people did go through being qualified - sometimes. It really depended on the quality of the mortgage broker.

I worked in an area where we had 100 agents in the office, and between us everyone spoke english - but some also spoke spanish, korean, japanese, chinese, greek, italian, urdo, arabic, hebrew, farsi, hindi, french, german, and gaelic. Our mortage broker was bilingual spanish/english - good command of both, and great knowledge of loans.

We had people coming in, insisting that they were entitled to the "american dream" when the income to sustain a $400,000 purchase was cobbled together from several family members. Mind you, in this area, a shack was $300,000. At one point, there was nothing on the market for under $300,000 except a trailer.

So our guy would break it down for people - who were coming into our office with internet prequals that were not worth the paper they were written on - and he'd show them loans they could POSSIBLY get, and what the monthly payment would be - WITH PMI, WITH CLOSING COSTS (no, they didn't know about that) and of course with TAXES and INSURANCE.

Well then, the answer was "but we're going to get a two family and rent it out". Right. And then I as a realtor would have to tell them about illegal occupancy of basements, attics, and how the towns would ACTUALLY CHECK this stuff out.

We'd also talk about the reality of commuting to NYC, where their jobs were. And the reality of heating a house. And the reality of replacing a roof. A water heater. A furnace. Appliances.

Oh, the answer would readily come. But I'm handy.

Folks like this would have been better off renting. But they were sold on the "american dream". The radio commercials, the TV commercials, the internet blaring that interest was low, mortgage money was flowing, own your own home. And in NJ the price tags were more enticing than in NYC - also the schools - but the taxes were prohibitive.

Banks were thrilled to lend money. As long as you had the income and the qualifications. And there were many loan products you could qualify for with stated income.

I always found it interesting that these folks drove vehicles I could not afford either. Big ones. New ones.

This phenomenon crossed racial, language, ethnic lines. It was weird to do open houses and have people actually FIGHT about who wrote up an offer first.

I saw deals die because these folks would have their credit catch up with them before closing - yeah, they had to have another car, couldn't keep up two jobs, etc. That sure didn't put money in my pocket. Or they'd make written and accepted offers on several pieces of property, stringing sellers along - and they'd delay attorney review on the ones that were second and third choice until the one they wanted was under contract. Then they'd get the attorney to disapprove the contract. And we could not prove a thing.

These were usually the folks who would come into the mortgage guys office, and before he could ask them enough basic questions to qualify them for certain loans, they'd be arguing "WHATS YOUR RATE??? WHATS YOUR RATE???MY BANK SAYS I CAN GET THIS RATE, CAN YOU BEAT THAT???" And the guy would try to explain to them that he could not quote them rates until he could see what they qualified for. He could certainly tell them what rates were available in the market, but that did not mean that they would qualify for those loans.

We also dealt with unscrupulous lenders who would not disclose all fees until closing. Then, if you wanted the house, pay up. Otherwise you were in trouble for breach of contract. That is now illegal.

People just don't have good financial education, and there are predators who will take advantage. But deregulation of lending, coupled with ignorance, panic, and a willingness of banks to issue jumbo mortgages to janitors and cleaning people caused a lot of the heartache over mortgages you see today.

[ruthann8]

I think overspending is a major cause of the crisis. I think it is a mixture of financially uneducated consumers, greedy consumers, & greedy business practices.

I like to think of myself as somewhat financially educated. Basically I don't spend more than I can afford. But I do take advantage of all those special loans. If I really need something I first decided what I can afford and then look at what is the cheapest in the long run. I have always paid my interest free loans before they came due. And pay credit card off each month, of course with an exception here and there of an emergency bill.

When we went to buy a home in 2005 we applied for a loan prior to looking at homes. You wouldn't believe what they wanted to give us. But I said no, I only want this much, no more. Thankfully we didn't overspend b/c my dh's job is not going well and we have about half the income we had and we have a baby. I always look at what is cheaper in the long run and stay away from all those bells and whistles. We got a standard 30yr mortgage, but we did qualify for a special first home buyers thing where for the first year the bank paid for a certain amount of the interest and you then were supposed to take that extra couple hundred dollars a month and fix up your house. And we did! We had bought an old home that did need some work.

Thankfully as soon as things started to seem to get ugly we started saving as much as possible. We have about 6 months of mortgage payments saved up for if my dh gets laid off, and I am still working. If things improve and get better we will put any extra money into our daughters 529 account.

But if thing get much worse we may be adding to the financial crisis! My dh's mom has stopped paying her mortgage. She has one of those loans when you only pay interest for the first 5 years and then have to refinance. They haven't been able to sell there house or refinance because they owe more than it is worth. And even if they were able to refinance they couldn't afford to pay more than just the interest. I don't understand why these types of loans are even available. I hope we make it through.

[mcmama]

We saw a lot of those interest only mortgages in 05. And really, most people I advised against it - for two reasons. One, if you have to sell quickly, you are in trouble. Two - what is your income going to look like when the interest only period is over and maybe one of you has lost a job, or your company goes out of business.

Oh, well, no, that just didn't apply. Happy days were going to go on forever.

Any realtor or mortgage broker who promoted those to people in somewhat uncertain circumstances - first time buyers needing to build equity, people depending on a salary who saw this as a vehicle to buy more house than they could buy conventionally, etc - was being irresponsible. But the fact is, you got the deal closed any honest way you could - and people make their own choices. Hopefully, they made those choices with good advice - but that was not always the case.

If you were looking at interest only without being able to make a solid downpayment, it probably wasn't a good deal for you. And since refis were very common, no one really could deal with the consequences of the days when they would be less common, because of negative equity.

But - if you had solid income, backup income and assets, made a good downpayment that you could kiss goodbye in case you needed to sell, and were planning to stay in place for 10 years, they were good for you because of individual tax situations and also being able to buy the house you really wanted. But with a risk - that you were supposed to absorb with your eyes open.

I feel really bad for your mil.

[pattiewrites]

I do think it was greed, deregulation and unethical business practices. These mortgage brokers and lenders didn't really explain to people what would happen to their mortgages. They gloss over the ARM terms at settlement, saying it could go up or down a percentage point or two. They need to tell people, "in two or five years, your mortgage payment will double. From there, it will continue to increase quarterly." But they don't because they'd lose the sale. The inflated real estate boom also hurt a lot of people. Homes were selling for far more than they were worth. There needs to be some regulation of the real estate industry to prevent this. I heard on CNN that one in four families are now upside down in their homes, meaning they owe more than the home is worth. This means they cannot refinance out of the shady ARM loans that amount to no more than legal loansharking. The banks won't refi a house for more than 80% of its value in this climate and if a family owes more than the value of the home, they really have no choice but to walk away from their homes. The greed extends to all facets of society and the current economic crisis is the fruit of that greed.

The sad fact is that people are greedy. Just look at the Wall Street creeps still taking $18 million bonuses after getting bailed out by our government. More regulation is needed to safeguard the system and consumers. We can't trust the market, financial industry or big business to regulate themselves, obviously!

[marilynmonroe]

McMama, While there are several factors that contributed to the economic meltdown, it started with bad lending practices vis-a-vis home lending giants, Fannie Mae and Freddie Mac. Barney Frank, a Dem from Mass, was Chair of the House Financial Services Committiee, had (still has?) an agenda of making housing "accessible to poorer families". Frank and other Dems, Nancy Pelosi and Harry Reid, neglected warnings from Republicans that Fannie Mae and Freddie Mac needed tighter regs. (Interesting note: Barney Frank's boyfriend, Herb Moses, was an executive at Fannie Mae)That being said, most of us in America lived way beyond our means, making it harder to weather a crisis this big. What an expenisive lesson to learn!Interesting, the Wall Street Journal had an article about 2 weeks ago that surmised the US economy fared much better when we all lived beyond our means. Apparently saving our money keeps it out of economic circulation which is exactly what our economy doesn't need right now, thus Obama's $819 billion stimulus package. Just be glad you're not in Iceland where the government totally collapsed due to the global financial crisis. We can make it through this.

[MissyChrissy]

Greed and deregulation.

[KayceeMercy]

young lady the financial crisis was caused by individuals who spent more than they made.Many of these people lost houses that they could not afford in the first place.There is no crises but an inconvenience.A crises would have bread lines and riots,in the streets.I have no crises and no-one in my family has a crises.Do you personally know anyone in crises?Or is it that teachers or t.v. has told you about them?
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