There is a group of people among those whose morally culpable behavior contributed to the current meltdown in the financial markets whose blameworthiness is being swept under the rug.
We have heard people putting the blame on greed and irresponsibility on Wall Street. those few highly paid wall street executives who can drive a company into the ground and then retire with a multi-million dollar “golden parachute”.
We are missing is any discussion of the contribution that came from the greed and irresponsibility on Main Street.
Politicians, certainly, cannot deliver the message. They need to tell the voters, “This is not your fault. You are the victim. They did this to you. Vote for me, and I will make sure that they pay for their crimes.”
The fact of the matter is that some of the culprits are probably in the audience at every political rally. The honest politician would have to look out into that audience and say, “Given the way some of you have run your household finances, you have made your contribution to this. If we have a right to be angry at the prospect of bailing out greedy wall-street executives, we have just as much a right to be angry at the prospect of bailing out the financially irresponsible homeowner.”
A lot (though certainly not all) of the moral responsibility for the country’s current financial mess rests with those who took out loans that they could not afford. These people received a package in the mail or saw an advertisement on television from somebody promising to lower their monthly payments by hundreds of dollars, or to get them into a house that was larger than they dreamed they could ever afford, and the leapt at the opportunity. Or, they refinanced their homes in order to cash out some of the equity built up by rising home prices. Or both.
They were greedy. They wanted things, and they were not going to let a little issue like fiscal responsibility prevent them from satisfying this hunger. They went into debt – more dept then they could afford.
When the grace period on these loans ended and the value of their payments went up, they found that they were now being asked to pay more than they could afford. Some went into foreclosure. The bank seized the property and then sold it. But, with a lot of property being sold, the prices started to drop.
Others tried to sell their homes to get out from under their debt, but their homes were now worth less than the debt they needed to pay.
The world is full of risk. Often even the most responsible person will find herself the victim of a universe that cares nothing about his or her happiness delivering random blows that force them into bankruptcy. The most financially responsible person cannot guarantee financial solvency. So it is not the case that everybody who lost their home is to blame. At the same time, some of them could have acted more responsibly than they did.
If we are going to get angry and say, “Why should we bail out wall street?” then we should be equally angry and say, “Why should we bail out financially irresponsible homeowners?” In both cases, they could have helped the nation avoid this mess if they had only acted responsibly.
Ultimately, I do not advocate the type of cold callousness of refusing to help those who have gotten themselves into this kind of bind. We would be worse off living in a society where everybody was that callous. However, this does not change the fact that many of the people who took out loans, the people now dependent on our aid, put themselves in that position. They created a burden for us, and this should be figured into our response.
We have reason to turn to our neighbors and demand some measure of fiscal responsibility, to offer praise to the financially responsible neighbor, and condemnation for those who are financially irresponsible. We certainly have many and good reasons to promote financial responsibility in the community at large.
Here are some of the rules for financial responsibility.
(1) Create a savings account that you can draw on in case of emergencies. Instead of depending on other people to rescue you from some financial setback, give yourself the tools you need to rescue yourselves. Keep yourself in a financial position where you can say, “Don’t worry about me. Go help those who really need it.”
(2) Put a substantial percentage of each paycheck away in savings. If you are accustomed to living off of 80% of your income, and you have no debt, then you will be better off than you would be if you are living off of 110% of your income and this includes $200 per month in interest payments on credit card debt.
I constantly hear from people, “I cannot cut my expenses. All of the money that I get goes to essentials.” This is nonsense (in most cases). If you are making anything above subsistence level, then you can save money.
(3) Avoid debt. You do not need credit cards. Next time you put some debt on a credit card, think of it this way. That new purchase is going to go to the bottom of your debt pile. You will pay for that movie, game, tool when it reaches the top of your revolving credit list. How long will that be? And how much will it cost you when you add on all of the interest payments from the time of purchase until the time it reaches the top of the credit card list.
If it currently takes you 6 years to pay the current principle on your current debt and you have a 12% interest rate on your credit card, then the $50 dinner you buy today will end up costing you $100 by the time you actually pay for it. You can either pay $100 for a $50 night out, or you can buy two nights out (by not having any debt).
(4) Buy things that you can afford to keep if something goes wrong. It turns out that, in this housing crisis, it is the price of high-end houses that are dropping. People who bought modest homes well within their budget are not only staying in their homes, but their homes are not dropping in value either. People who are foreclosing or trying to get out from under staggering debt are selling larger homes and buying more modest homes. So, while the price of high-priced homes has dropped, the price of modest homes has stayed steady (depending on location).
The people who obeyed these basic principles of financial responsibility are not the ones who got our country into this mess. If everybody had behaved like them, then there would be no mess for us to dig our way out of.
It’s the moral difference between being a part of the problem, or being ready to be a part of the solution.