September 30, 2008
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Sub-prime Mess
This is the simplest clearest explanation of the sub-prime mess we are in that I have ever seen. It also happens to be hilarious in a sad, sick, and twisted kind of way:
http://www.businesspundit.com/sub-prime/
If you read this and don’t get pissed off, there’s gotta be something wrong with you.
Comments (7)
well yeah… I think there was a lot of bad-judgment going on in everyone’s part.
First people that can’t afford houses shouldn’t buy them even if they really want one, there is something to be said about saving up a lot before investing in something that big. It’s the whole credit problem again, and why americans on adverage are 7k in credit card debt.
Of course all those other people just wanted to make money and it didn’t matter who they screwed over (though small villages from Norway is a little far fetched though it could have happened, just saying) were bad too. It was really bad because they gave nice innocent people the hope of having the own home when really they were screwing them over after a few good years of low mortage payments they would be hit hard with an impossible house payment.
I think the real problem though is the first one, people should know not to buy things they can’t afford or can’t see ever affording. It’s like my roomate in college that would buy 200 dollar bed sheets when she couldn’t even afford to go the to movies was a little much. Sure she had family to help pay for her large credit card bills but still.
I would like to own a house some day but I didn’t have the money or resources to get one. In a year or two I will probably have the moeny and resources but since this happened I probably won’t even get a loan even though I have a prefect credit history and have a good downpayment. It really sucks to be in this econmy right now.
@raindrops23 - I agree but I also really don’t agree. While it’s true that people ought to have known better than to buy a house they couldn’t afford, that’s not anywhere near the biggest or most important cause we should be concerned about. Three areas to me seem to be better targets for affixing blame: mortgage brokers and banks who colluded to convince people to sign on to loans they couldn’t afford to pay of, banks and investment firms who colluded to magnify the problem by cooking the books to hide the liabilties inherent in these bad loans from public and private scrutiny, and lastly the government that failed to implement policy to discourage these practices amongst individuals and businesses. That last I think is really the biggest target for blame.
Sure individuals should know better, but it’s likewise true that people should have known not to own slaves, and should have known not to follow Hitler, and should know better than to eat fatty foods, and should know better than to pollute the environment. We SHOULD know better than all kinds of things. But you can’t solve any problem by trying to get individuals to act against their natural instincts, many of which are selfish or at least primarily self-interested. People tried to buy houses because they thought it was the BEST investment they could make. They thought they were getting over on the system. They thought housing prices would always increase and they’d be able to save their money in their house. But they weren’t economists and heck most of them didn’t even understand basic personal finance. A good many of the people were basically fairly poor and without reliable jobs. Others thought they were in good shape but any body can suffer an unexpected health or job related disaster. But they did it anyway. This was how they would ensure their nest eggs so they could retire, by putting their money into their super expensive house. It wasn’t wise, but it was understandable. They were gullible, prime targets. And of course EVERYBODY was saying it was a good idea. Buy a house. Live the American dream. It’s a GREAT investment. It was all BS.
The only way to fix this kind of problem from happening again and again is to change public policy so that incentives are aligned to promote wise and honest behavior all around.
Haha I still blame the people that bought the houses. ^_^ I mean just using the not eating fatty foods example. It’s like blaming MacDs (which some people actually did try to sue them) for being fat and offering fatty foods. People should know that eating too much of something is bad for you.
People should know that if something is too good to be true it’s probably is.
The mortages weren’t really hidden from the people that bought them, they knew that they were only paying interest payments the first few years and knew that it would increase after that.
my parents made sure that i wouldn’t sign one of those contracts and they told me to wait to save enough for a down payment because they thought thos contracts spelled bad news.
People were riding on the fact that their house would gain value and they could refanice it so that the increase payments wouldn’t be *that* much.
So the housing crash really hurt them but more likely then not even if that didn’t happen they probably couldn’t afford the new payments because a lot of times they didn’t know what the increase was going to be. That’s like shooting in the dark and hoping to hit a target.
these people were nieve and lied to. Okay fine but people make mistakes, and they need to learn from it. these people made a mistake and didn’t make the right choice. granted it was a huge mistake it’s not really the goverments job to bail them out.
you have a point, i’m not saying you don’t. those are bad people the ones with the banks and brokers. but those banks and brokers wouldn’t have been able to get away with it if people made better choices. *shrugs*
Haha I thought more people would have an opinion on this but I guess I was wrong. ^_^
ROTFLMFAO. I read this and didn’t get pissed off…
But only because I heard a really clear explanation of this very thing on “This American Life”.
Actually these set of slides gave a bit more explanation on small specifics I missed before. But yeah… I can’t really “get pissed” since I’m already pissed. All I can do is laugh… ironic.
@moonlitsage - yeah I was more pissed off when I first learned about this too. I already understood this stuff when I saw the comic too, but the comic clarified a few points for me. It is kinda funny. I’ve been reading about how this was going to happen for like five years and oh look it’s happening. Guess all those people called crazy who were on the “fringe” were right all along. Go figure.
@raindrops23 - yeah you’d think people would care more about the fate of the global economy. Go figure….