Saturday, April 12, 2008

Some (ill-informed) thoughts on the foreclosure crisis

I think we can all agree that this is a mess. That may be about the only thing we can all agree on. This seems to be a pretty polarizing issue, with one camp focusing on personal responsibility and moral hazard and the other on predatory lending .

I lie somewhere in the middle.

There are people who took calculated risks by getting ARMs and lost out, and there are plenty of middle class families I know who're one minor crisis away from disaster, not as a result of an unfair system, but as a result of huge consumer debt they voluntarily assumed to pay for luxuries I can only dream of. I understand the grumbling about how we shouldn't finance other people's irresponsibility.

At the same time, I don't buy into the idea that the victims of predatory lending, which does exist, have no one but themselves to blame. In an ideal world,everyone would be well informed. However, we're not equipping people with the tools they need to make good decisions about money.

I think about my mother's co-worker, whom I tutored a couple of times. He's thirty and a nice guy. He has a high school diploma, which means he had more formal education than most of his family, and works as a cook at his aunt's pizzeria. He doesn't want to work there forever so he started taking classes through a well-known online university. When he got really far behind in his introductory algebra class, he called me for help.

He struggles with fractions. Problems involving simple interest were a mystery to him so there's no way he could figure the compound interest associated with his car payment. We're sending people out into the world who are functionally innumerate, giving them no formal guidance on financial matters, and expecting them to sink or swim in a society where easy credit has become almost a birthright. What did we expect would happen?

4 comments:

Mrs. Micah said...

I lie in the middle as well. We're supposed to be able to trust professionals, and thus to trust people when they tell us what kind of mortgage we can afford. But the professionals often don't have our best interests in mind. And people haven't been educated.

At the same time, some people haven't chosen to educate themselves...or have made greedy decisions. *sigh*

M.B.G said...

The banking associates are sales people. They didn't care that their clients were not able to afford the loans they sold them. This is not the way banking used to be done, and it not the way it should be done. Both sides have responsibility to shoulder, but it should be apparent that the people who created this mess were the lenders who were simply looking for an easy buck and lured vulnerable families into irresponsible plans that the banks would not have to guarantee.

M.B.G said...

The banking associates are sales people. They didn't care that their clients were not able to afford the loans they sold them. This is not the way banking used to be done, and it not the way it should be done. Both sides have responsibility to shoulder, but it should be apparent that the people who created this mess were the lenders who were simply looking for an easy buck and lured vulnerable families into irresponsible plans that the banks would not have to guarantee.

Anonymous said...

What ever happened to personal accountability? Why in the world would you sign something that you don't understand? There are a TON of free first time homebuyer classes located all over the country, take a class - the majority of them are even FREE. Seek out resources at the public library. Interestingly enough no one goes back to the car dealership or the mall to blame the salesperson because they now cannot afford to pay their car payment or credit card bill. It really irritates me that I'm bailing out people that gambled and lost.

I’m all for requiring high school graduation and adding in personal finance as a requirement. I think that it is very nice of your to help out your friend.

Longtime Lurker,
K