My Personal Reflections on the Economy

Shortly after Bob and I were first married, I wanted a house so badly I could taste it. I was tired of living in an apartment. I had already lived here over a year, with my two preschool-aged boys, before we were married, and the place seemed much smaller after Bob moved in.

So, Bob went to the bank and asked about a mortgage. The banker asked him how much he wanted. He wanted to know how much we qualified for, assuming that a bank would not lend more than we could afford. He was told, that with his excellent credit, we could get however much we needed. (I am sure it helped that we qualified for the first time home buyer program, requiring no money down!) He decided on a small amount, an amount that today would not even buy a house, and left with a printout of the payment and fee breakdown.

As we looked over the information, we realized that there was no way we could afford the payment, even if we cut out every unnecessary expenditure we had. Yet the bank was willing to lend us even more money!

You can imagine that the home-lending meltdown came as absolutely no surprise to us. We assumed that we were not the only people being offered loans they could not afford. We also assumed we were in the minority of people who turned them down.

I am just thankful that I have such a prudent husband. As I said, I really wanted a house. And I complained about it daily, but he would not budge.

Eventually, I saw that he was right and, over the past six years, I have developed my own sensible position about money and credit use. And we still live in this apartment. [sighs...]

I do not know what the government should do, if anything, about the current financial situation, but I do know that it was caused by people doing things that they shouldn’t have. Banks lent mortgages to unqualified buyers. The government encouraged banks to lend mortgages to unqualified buyers as part of a contrived social justice mission. People bought houses that they couldn’t afford, then borrowed on the equity created by an over-inflated market. Financial institutions let greed, not ethical practices, be their guide and made money re-packaging these bad loans. None of these things should have happened and there is plenty of blame to go around.

It is a fact of life that when there is a period of great excess, the opposite is needed to achieve balance.

But the opposite of great excess is painful. Whatever the government does, there is bound to be a period of pain while the economy corrects itself.

The question now becomes, how do we mitigate that pain without inadvertently making it worse than it needs to be?

People who are looking for the government to fix this quickly and painlessly are not going to get what they want.  Politicians promising to fix the economy quickly and painlessly are not going to deliver. It just isn’t possible.

Barring another unforeseen bubble to ride, which would only prolong the inevitable yet again, we are in for a time of economically painful correction. We would stand to benefit from leaders who are willing to admit that and guide us through sensibly, without promising impossible miracles.

The more likely outcome, however, is that politicians who emerge promising an easy way out will be elected, enact massive government spending programs intended to fix the economy, but only end up making things worse.