The recent crash in our financial markets that destroyed our economy for the last two years has been blamed primarily on banks (although, for some reason, our beloved leaders in Washington are focusing on fixing Wall Street.) I worked for 13 years in banking and can honestly tell you that the banks ARE largely to blame for some of the practices that lead to this fiasco. They sold complicated loan products to people to buy houses they couldn’t afford. They encouraged people to refinance and take money out for debt consolidation and for home improvements. They even gave loans that were purposely worth more than the house was appraising for at the time. And that makes it all the bank’s fault right? Let’s punish those greedy, evil, fat cats sitting in their plush offices, because they are responsible for predatory lending. Right?
Yes. At least partly so.
But let’s not forget that other people had a part in this too. The government required banks to give loans in areas that were high risk and to people who were high risk through the Fair Housing Act of 1968, the Home Mortgage Disclosure Act of 1975 and most importantly through the Community Reinvestment Act of 1977. They then established companies like Sallie Mae and Freddie Mac who guarantee credit for student loans and home loans to those who cannot afford (or cannot qualify for) them under normal lending guidelines. These laws, while well intentioned, helped create a house of cards that was destined to fall. So let’s blame the government. Right?*
It’s funny how we like to take complex situations and narrow the blame down to one single person or group of people. That way, we feel better about ourselves forget that the problem ever happened.
Except, there is one more group of people that we mustn’t forget. Not Wall Street Investors. Not Bankers. Not the government. Who could we possibly blame then?
It’s you and I. It is us and all of our friends and neighbors. To quote the old Sunday cartoon, Pogo, “We have met the enemy and he is us.” We are all at fault.
- Every person who took out a mortgage on a house that was well outside of their budgetary range and didn’t realize how deep they were is responsible.
- Everyone who signed on the dotted line for an adjustable rate mortgage that they didn’t understand is at fault.
- Each person who accepted cashout on a mortgage to buy things such as cars, boats, toys, or other items because the broker told them that they could do it shares the blame.
- All those who had B and C credit who went to mortgage brokers and bought a home or got a second mortgage with a future balloon payment or a 125% equity product because they believed the loan officer about their ability to repay it shares the liability for the failure.
- Anyone who financed their car for five or six years so they could buy a more expensive car with lower payments because the finance guy showed them how it would work, shoulders part of this burden.
We have to be honest that it is our own greed and lack of education that got us here.
This is our last and final financial lesson in this series. You HAVE to educate yourself.
Yes, financial issues are complicated. These concepts are hard to understand. If you can’t define amortization, APR, equity, cost basis, accrual, escrow, LTV, per diem interest, PITI, no-load index fund, capital gain, prime rate, ZBA, REIT, or RESPA; then you need to get educated before you go into a bank or before you begin investing.
Yes, this stuff is hard. I'm sure there are some strange accounting types for whom this stuff is enjoyable. They're probably good a poker too. I'm not one of those people. I worked for years in banking and only learned a small portion of the financial information that I need to know. I did tax analysis on some of the most complicated taxes for companies and individuals seeking financing. I worked with first and second mortgages, with a mortgage broker, and in dealer financing. I understand lending quite well, but when it comes time to invest money, I have to study the products. When it came time to do my taxes as a pastor (the IRS has some really weird regulations regarding pastors), I had to learn about it.
Don’t let your rush to purchase something blind you to the need to understand it. Don’t fall victim to your finances because reading all that paperwork is mind-numbing and difficult. Greed and laziness will be your downfall when it comes to your money.
If you want to be poor and in debt all your life, keep buying things with credit, keep trusting what bankers and brokers tell you, and never get educated on money and finances. There is no one responsible for your financial issues but you.
Don’t stand there and blame everyone else. Take responsibility for your finances and do something about it.
Want to get educated? Here are some of my recommendations:
Dave Ramsey – www.daveramsey.com – writer and radio host, Dave teaches you about how to become debt free and how to gain control of your money. I believe that he would agree with much of what I have written in these last ten segments. My wife and I recently found his program and, though we were already working towards living debt free, we changed to his model because there are parts that make a lot of sense. I recommend following his baby steps, found in his book Total Money Makeover.
Crown Financial Ministries – www.crown.org – a Christian ministry that provides financial education for people. I have not personally used their program but know several churches that do.
Feed the Pig – www.feedthepig.org – lots of great tools and information on saving money and getting control of your finances.
FDIC Money Smart - http://www.fdic.gov/consumers/consumer/moneysmart/index.html A government program for educating people about finances. They have some good resources, but I have to wonder if anyone in congress has had any financial education.
My Money – www.mymoney.gov – Another government website teaching financial literacy. Wow, with all these tools, you’d think we could pass a balanced budget.
The Dummies Series - http://www.dummies.com/how-to/personal-finance.html - I love the ‘for Dummies’ series of books. They are written by subject matter experts, but are written in laymen’s terms. They have a whole series on personal finance and budgeting. They are definitely worth your time.
Disclaimer: I am not a trained financial advisor, I just play one on this blog. Seriously. Get good financial advice in life. My information comes primarily from personal experience, working in consumer lending in the banking industry, and watching friends, family, and parishioners struggle. But, much of this is common sense; most people just don't use their common sense when it comes to financial matters.
* Note: If you are a Republican, feel free to blame President Obama or Clinton. If you are a Democrat, feel free to blame President Bush or Reagan. It’s never your party’s fault.**
** If you fail to note the extreme sarcasm here, please insert your voter registration card in your nearest paper shredder. Then, take the pieces and burn them with a lighter. Take the leftover ashes and flush them down the toilet and never, ever vote again.
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