Stop keeping up with the Joneses
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Steve Schmith
Published: May 15, 2008
After reading today’s opinion piece from The (Waynesboro) News Virginian, (Borrowers beware of government’s hand), I just had to chime in.
Anyone with a basic understanding of economics could see things weren’t quite right in the real estate market over the last couple of years. The rise of the “McMansions,” no down payments and interest-only loans were key indicators. Who in their right mind would borrow hundreds of thousands of dollars with an interest-only loan to buy their home? Apparently, millions.
Now the government wants to bail them out for their excesses. Although the mortgage lenders are equally culpable, many of those who purchased these homes should have known better and could have saved themselves from this crisis if they had made more modest investments. Instead, they took enormous risks, betting on the market to continue its upward spiral so they could cash out later with a profit.
For a local example of this insanity, take a look at the dozens of homes currently for sale in the River Falls community. This is an upscale golf course community, yet many of these homes are in foreclosure or pre-foreclosure. At the peak of the market boom, these homes were selling for between $800,000 and $1,000,000. How does anyone in that income bracket foreclose on their home? We could explain two or three examples of folks who lost their jobs or suffered some other life crisis. However, there are just too many failures that can be explained away for these reasons.
Now the government wants to bailout the borrowers. What will be next? Will the government consider bailouts for people who bought automobiles they can no longer afford? How about those who cannot pay off their credit card balances because they cannot afford to pay more than they owe in interest? What happened to saving up for that next big purchase?
We have become a society that bites off more than we can chew. Americans are spending more money than they earn. We “need” the biggest house we can purchase, the fanciest car, and whatever else we see and decide to purchase on the spot with our credit cards. Keeping up with the Joneses has become a way of life for too many of us. It’s a darn shame.
STEVE SCHMITH
Lake Ridge
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Reader Reactions
Posted by ( SGS ) on May 16, 2008 at 11:06 am
I was asked how I felt about those two issues. To answer your follow-up questions:
I am not in favor of any government bailouts of either borrowers or lenders.
On the second question, how do you penalize those executives? They may have put their companies at risk, but the boards of those companies still rewarded them. Unless they can be convicted of a crime related to this crisis, there’s nothing that can be done by anyone outside of the company.
Posted by ( RonCharest ) on May 16, 2008 at 9:06 am
Mr. Schmith,
You didn’t answer my question. Please allow me to re-ask;
- Are you or are not in favor of the huge government bailouts of major lending institutions (which profited handsomely from those questionable loans while times were good) that are at the heart of this current financial crisis?
- Are you or are you not in favor of financially penalizing the senior executives (who personally profited handsomely from those questionable loans while times were good) of those companies for putting their companies into jeopardy?
Posted by ( SGS ) on May 15, 2008 at 1:19 pm
There is plenty of press coverage about the lending institutions and the excessive salaries and bonuses of corporate executives. I stated in my letter that they are equally culpable in this housing “crisis.” I wanted to comment on the fact that many affluent Americans are also defaulting on their mortgages and some will benefit from the proposed government bailout. See an article on the same subject in today’s Washington Post. It uses Loudoun County as an example.
Posted by ( RonCharest ) on May 15, 2008 at 12:49 pm
Mr. Schmith,
A question: How do you feel about the many lending institutions who are getting billions of taxpayer dollars in bailout money after making all those no down payments and interest-only loans?
As a follow-up question: The CEOs and senior executives of those institutions are each receiving (and keeping)millions of dollars annually in salary and bonuses, after making the decisions and policies that are causing their companies to receive billions of taxpayer dollars to avoid bankruptcy. How do you feel about that?
Posted by ( Equality 7-2521 ) on May 15, 2008 at 8:25 am
Good work, Mr. Schmith. I agree whole-heartedly. The government needs stop enabling people and companies that make poor financial decisions. This problem should be a lesson learned and the government should look for ways to prevent it from happening again. It should not, however, use this as an opportunity to throw good money after bad. It already fell asleep at the wheel (surprise, surprise); it’s now time to let the market correct itself.
Posted by ( raywilliams ) on May 15, 2008 at 6:37 am
The mortgage lenders should be forced to bail out the homeowners they made these questionable loans to. Repackage the loans to freeze the interest payment and take what the homeowner can pay each month. They sucked the straw of profit while these loans were popular and made their big commissions, let them enjoy the empty cup for a few years. The government should bail out neither.