Smart Borrower Blog

All The King’s Men


Sep 19th, 2008 @ 3:58 PM by Alden Smith


The obvious news this week has to be the fall of AIG, and the government’s intervention that insures it will not fail.  As taxpayers, we now own two mortgage companies and an insurance company, and reaction to this news is not good.  The nightly news sees this as something that must be done in order to keep the economy stable.  That may very well be, but when you see us taking on 1 trillion dollars more in debt as taxpayers, we get a bit anxious.

Not since the Great Depression have we been in such a financial mess.  All of it stems from the mortgage market, and it is the reasons behind this that needs looking into.  Actually, the economy is doing fairly well, with GDP seeing growth of 2.2 percent since the first of the year.  Then why is the mortgage market in such a mess?

We cannot say we weren’t warned.  As far back as 1998, at the University of Texas at Dallas, we were warned that we were headed for trouble with the way we were headed with shoddy underwriting practices.  No one seemed to be paying attention at the time, or else that information was just plain swept under the rug.

It is said that the shoddy underwriting practices were practiced because there was a “noble goal” that would allow Americans to become owners of homes and properties.  For a view by Stan Lebowitz, who was one of the UofT contributors, go here for more information on that subject.  It is a worthy read.

Call it what you will.  The fact remains that too many people had their fingers in the mortgage pie, and that just brought out the unethical lenders looking for a buck.  I have personally been a part of the unscrupulous practices of just such a lender, and had the good sense to get out quick, especially when he wanted to “pad” my income because I work for myself.  To quote Sarah Palin, “Thanks, but no thanks.”

I think you can hardly blame the people that made a buck and then run.  It was easy money, because there was no one minding the store.  Then we get what we have here today.  There is no easy and pain free way out.  We have to do what we have to do to put an end to this crisis, and if the government promises that this will do it for us, then we have no choice but to go along and keep our fingers crossed.

One thing is for sure – there will be a long day of reckoning in the near future.  It will be interesting to see what our new President does with the legacy he has been handed.  Because both parties promise “reform” and “change”, one can only hope that this will be the case.  Again, we wait and see…

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