Whose fault is the economic crisis anyway?
So let’s look at how we got here:
ILLUSIONS
Big part of what makes the American Dream is hope. However unrealistic, uneducated, and misinformed choices replace hope with illusions.
Buyers had the illusion that homes would always keep increasing rapidly in value. However, they failed to understand that the real estate market has cycles. Some of the factors that create a change in the market are increased amounts of supply or demand, deregulation of the financial industry, easy and available credit, low interest rates and much more.
People who bought homes they could not afford did it because they saw an opportunity to “invest” their life savings and achieve the American dream. They viewed this opportunity as attainable because banks made it possible, unscrupulous agents/brokers made them believe it was possible, and because they lacked the knowledge necessary to understand the responsibilities, risks and benefits of owning a home.
Other illusions buyers had was their wages. The had the illusion that their wages would go up enough year after year to cover their ever increasing debt due to a lavish life style. This illusion, the lack of financial education and self-control allowed for people to live well beyond their means.
Today people, banks, and our government are drowning in debt.
CREDIT
Competition in the market forces business to improve on their products and allows the consumer to purchase those products at affordable prices. However, competition between banks in a booming economy and low interest rates created a credit bonanza.
Instead of banks improving on their products and services, they began utilizing creative financial tools to attract more borrowers. They also lend money to risky borrowers with little regard of their qualifications. Anybody that had a pulse could literally get a loan.
Banks can’t accommodate the demand for credit only with their money reserves. So if they want to lend more money, they sell these mortgages to commercial banks and Wall Street lenders.
Financial Crisis: Who’s Fault Is It, Anyway?
Doesn’t matter.
Because just about everyone is to blame.
Republicans opened the door through debt-based credit derivatives and deregulation. Democrats further contributed by turning a blind eye to Fannie and Freddie and insisting that even those who couldn’t really afford mortgages be allowed to get them. The Bush Administration touted consumer spending as a means to boost the economy, and encouraged reckless consumer behaviors with billions in "stimulus"money, all while fueling the national debt through a disastrous war and tax cuts for people who don’t really need them.
And, of course, greedy banks and mortgage lenders went along, doing their best to bilk whoever came through door for whatever they could get — before passing the risk on to equally greedy investment banks and hedge fund managers. Consumers came along for the ride, abandoning reasonable financial practices and using credit to fuel materialism — as well as making poor decisions by buying homes they couldn’t afford with "creative" mortgage financing.
Nearly everyone shares some of the blame. This is not the time to bicker over who is most at fault. It doesn’t matter. The past is past. It’s time to move forward and fix the problem. REALLY fix the problem. With practical solutions (that’s right, follow the link for just one alternative — and better IMO — solution) that don’t involve throwing a large, arbitrary amount of money at the problem.
This is something that requires measured thought. And a change in how our society now views debt, money and the economy. There’s no reason to rush into a bailout plan right now. Instead, a little more analysis is needed.
