Do we blame the banks?

Hello all, just a newbie here. I was wondering how many people out there blame the banking industry for the housing crises we seem to be in. Some people are even blaming the govt. but I personally feel like it is the responsability of us consumers to just step back and actually live within our means. What'ya say?

I'd say the blame first goes to the consumer for lack of proper due diligence as well as failing to remove the rose colored glasses. The blame then transfers to the banks for failing to run their business in the best interest of business instead of only in the best interest of immediate gain. The government has no blame in this. It isn't the business of government, although the liberals will say otherwise.

LDB good points, also the no doc loans were bad on the parts of both the consumer and the banks, it's no wonder so many of them are going bad.

I agree with the current posts, the consumer is first to blame BUT.......

I think the due diligence of the consumer isn't a realistic expectation since we don't educate anyone on financial decision!!! Isn't this crazy?? There isn't personal finance taught in k-12 (other than how to balance a checkbook) and most college don't require it either. I still do believe that consumers should do the basic math of adding their income then subtracting their expenses before doing a mortgage but at the same time most of these loans that were being sold were not your typical straight forward 30 yr fixed with regular payments. I happen to love personal finance so I have self educated myself but when someone says this will be your payment on that home the average consumer will typically say "ok if you say I can afford it I'll do it".

I do believe many of the "bad loan programs" offered the past 5 or so years ARE bad for most american but they do make sense for some that can be disaplined and have specific financial plans.

Summary, consumers are first to blame then the banks and I'd say govt/state just because they dont' require personal finance but do require algebra, biology or chemisty. All important but the greatest good for the greatest number comes to mind.

So who do you blame for not educating them? I'm thinking of moving to Milwaukee, WI, and I have never had a class on moving to another state. Blaming not having a class was like a Sheriff (true story) who taught a D.A.R.E class in my elementary school who chewed tobacco. When asked about it, he said it was because he didn't have D.A.R.E. when he was in school. I'm sorry, but that rationale is stupid. "I'm sorry, officer, I robbed this bank because I wasn't in the B.U.R.P. (Bank Robbers Prevention) program."

Okay, I took the slap in the face and was called stupid for my personal opinion on a public forum so I would kindly ask what you think?

I assume you do not think it is the consumers fault after the emotionally charged post I just read.

To quickly make a point I hope you understand by addressing the lack of personal finance education a person gets was just one bullet to my general thought that consumers are first and realize I wasn't saying that is the only reason they are first in line for responsibility.

I can't wait for your response to the original question, this should be good.

PS - You nearly got me charged up over this but I just realized again that individuals are allowed to have opinions even if they don't agree with yours. This might be a new concept for some that is as opinionated as your self that he feels big words like "stupid" are appropriate to use to complete strangers. I can't wait to tell my corporations CFO that his decision to allocate funds to a particular account was "stupid".

Bad analogy, Joseph! We don't rob banks because we have morals, which are -- can you believe it? -- TAUGHT to us!!!

NotintheBiz has a point. Personal finance ought to be taught. It would be nice if it were taught by parents, but many parents still retain the mindset that "It's impolite to talk about income and debts, especially with one's children." Baby Boomer kids grew up under Depression-era parents, who might have been so ungodly tight-fisted that their lessons (assuming they delivered any) may have seemed nonsensical. Save used dental floss for what?!?!? But then, the Baby Boomers raised their kids in an era where your Dad's income was None of Your Business And If You Ask Again You'll Be Sorry. I never knew my Dad's income -- I do know that when I got the first job in my career (making $30k a year) he said that was more than he ever made in his best year in sales.

My husband's father is deeply embarrassed that his name and the properties he owns can be accessed online through the county's property records department. That's private information, in his mind! When we showed him how to pull up the information online, he wouldn't speak to us or the rest of the day. And we were shocked, actually, at how much he (and his wife, who has her own property) owned, because neither of them have told us. Now we wonder what we will find when they are dead. Oh, have "the gentle talk" with them, you say? HA! Just try it! His generation would as soon talk about their sex lives than their money. If "the talk" is going to happen it will be because HE initiates it, not us.

A class on finances is not a bad idea. In fact I'd say every year needs an age-appropriate class -- teach kindergarteners how to count change, teach fourth graders to comparison shop, teach high schoolers about credit cards, saving, interest etc -- and so on.

One day, I was shopping in my local grocery store when a group of students -- maybe about 7th grade -- came in with their teacher. She gave groups of them $40 in play money, and a general shopping list ("meat", "diapers", "baby food", "Vegetables"), and were told to buy groceries enough to last a family of four for a week. I'll wager it was one of the most important lessons they learned that year.

Okay, I admit it. I am slightly disturbed and worked up over jd's comments.

I feel I need to further explain my stance on who's to blame for the mortgage mess.

I am a firm believer that we all need to be accountable for our own actions. e.g. If someone drives drunk and is arrested then they are personally responsible for that action. They should not blame the bartender for allowing him to drink too much or blame his friends for letting him leave the bar to go home. This is just like my first post that same consumers are the first to blame because they were the one's that signed their John Hancock to the mortgage document.

Now, my comment on how crazy it is that america does not offer personal finance. This was simply a way of trying to state a reason why consumers put themselves in situations like the current mortgage mess. I PERSONALLY feel (my opinion so please hold the stones until I'm done) many americans are simply uneducated to the point they honestly don't understand what they can and can't afford. So when a mortgage banker tells a consumer that they can afford the monthly payment to buy a home the consumer think they can. I think my point on how uneducated the average consumer is should be pretty evident since financial advisors are amoung the best paid and highest in demand right now. Most home buyers haven't seen a depression so they live by what I earn is what I can spend and don't worry about looking out for themselves. Another thread on this forum addressed how the average person does not save a penny and actually spends more then they make each year so again my point is touched on how uneducated americans are.

If your point was to state it is the consumers problem to figure it out as you so politely stated it by comparing moving to WI. but didn't get taught how to move to WI. I would have to ask for a better comparison. I don't see how driving a vehicle on the road anywhere compares to making the largest financial decision of your life. I'm sure you can go into great depths to explain this to me but surprisingly I think I got your point. My point was simply to say a person needs to take responsibility for their own actions first and foremost, bottom line no excuses. BUT I was trying to be human and caring to a certain extend and see how someone with zero experience with making financial decisions could be talked into getting a bad mortgage loan.

Finally, you asked who I would blame for the lack of education, I did state who I would blame so please reread. If I had more time I could probably come up with a few other people but for this discussion I will stick to the consumer for now.

I have probably opened myself wide open for some more bashing but I can handle it if it comes from the more respected people on this forum rather than the one's that toss around big works like "stupid" or use very precise and directly related comparisons like a cop that chews.........

Actually, notinthebiz, my apologies, my post came across the wrong way and I will take full responsibility for that. What I said was "stupid" was really the sheriff. It always bugged me that someone who was supposed to have a leadership role and keep kids off of tobacco tried to excuse himself by saying that there "was no class" for him. I really did not mean you or your opinion was stupid, so please forgive me.

I also agree heartily that there truly ought to be a personal finance course in collegiate institutions and if I were to become the president of a university, it would be a required course. However, currently personal finance courses are NOT required courses and I still stick to my guns that it is the consumers responsibility to educate him/herself on what they can or cannot afford.

Lastly, I DID miss where you said it is the consumer's fault (can I blame it on Kiplingers for making the text so small?) so once again, I beg your pardon.

Puck, touche my friend.

-Joe

Let me throw in something about the mortgage market to include real estate brokers. A few years ago I went to a small town in CA (Twenty-nine Palms) looking to buy a home for a 3 year tour of duty there, I found a nice small single family home for $140,000 I ask the real estate agent if we could go to look inside the house. They told me, I would have to provide them with a pre-approval letter from a bank before they would let us view the inside. We went to the bank and ask for a pre-approval letter for $150.000 and the bank told us that the way it works is they take our application and provide the letter based on what they are willing to loan. Here’s where it gets good, the bank sent the letter to the real estate agent saying we were pre-qualified for $750,000. The agent called my cell phone and said I have some houses to show you (knowing that I told them that I didn’t want to pay any more that $150.000 for a house). The first house we looked at was amazing, hands down better than the one I had found on my own, but when I ask what the price was and got the $719,000 I almost flipped out. I then reminded the agent of my $150,000 cap and we went to a second house. The asking price for the second home was only $650,000. I once again told the agent about my cap, and he told me “you can afford this house and a house is the largest investment you’ll ever make, so you want to get the best you can”. I than got a new agent and did buy the $140,000 home.

The point is that the bank used my income and retirement savings (net worth) to come up with their number (at the time I was debt free) and the agent was doing all she could do to convince me to use every penny of that $750,000 that the bank said I could afford. When I knew I would only be there 3 years and that at some point I would need to replace one of our cars etc.
I could not afford that loan but the bank was willing to give it to me. How many people are out there that were in the same boat but thought that if the bank said they could afford it than they must be able to afford it!!!!!!!!

Once again the blame falls on both.

Rhodz -- well said. I agree with others in personal responsibility. But it's funny how we scream about personal responsibility in certain areas (teen pregnancy and finances, for two), but modern society raises way too many kids to learn that nothing is their fault. If they can't concentrate, it's because they're ADD, not lazy. If they can't manage their time and complete their homework, it's not because they never learned time management skills, it's because of the immense pressure of school and home life. Everything has a cause -- even a refusal to be potty trained is because of some deep, psychological trauma that must be worked out, before the child will be trained! If your kid doesn't make the team, it's not because he's not a good athlete -- it's because the coach hates him, or another parents paid the coach off, or anything else. And then, once you reach about 16, SUDDENLY the world wants you to take responsibility. It goes against a lifetime of training.

And even when you get some training in finances, "they" can really fool you. The house thing is one, although there's such a difference in $150k and $750k I wonder how anybody can be fooled! Much more likely, though, is that you feel you can afford $150k, and they say you're approved for $200k, and they say, "hey, it's only $300 more a month", and you start thinking you can afford $300 more a month, forgetting that your car won't last forever, that the house needs regular maintenance, that the baby your wife is expecting at the time could be born with expensive physical problems, that the furniture you just HAVE to have for the new house will also have to be financed, the landscaping you're planning, the wallpaper that has to come down, etc etc etc. But you have credit cards for that, and even if you max out the card it's only about $120 a month, and we can swing that, can't we?

The invisible hand is to blame.

Which is to say, everyone and no one. The bottom line is that everyone acted in their own best interests. The banks, the customers, the government. None can really be "to blame" because quite frankly, none saw it coming. It's easy to look back now and say, "well obviously" this and "of course" that. To assume blame, one would have needed the foresight to see a rather lengthy chain of events, and then keep that foresight to themselves.

But EVERYONE suffered from this. The "predatory lenders" clearly did not come out ahead. No U.S. bank that I know of is worth more now than it was a year ago. Normally, one would assume that whoever is to blame is whoever came out on top in the end. So who would that be?

If I may also comment on the education point...Unfortunately, I don't see that solving any problems either. The truth is, most of the people affected by this mortgage crisis went through high school and college during a time when financial education would have included zero information on the world they would be faced with today. A thirty-year-old was barely learning what a computer was when they were in high-school (dot matrix and DOS, anyone?). 98% of mortgages back then were fixed (thanks wikipedia). What could they have possibly learned AND RETAINED (as highschoolers and college kids) about option ARMS and neg-am loans that would have prepared them for last year?

I won't speculate on what I think should be taught in schools. I will simply say that education can only do so much. And short of teaching those kids the future, no amount of education would have saved them.

So I say blame everyone, and blame no one. Or, since everyone is already paying the price, forget blame, and move forward.

I agree with everyone... and although our only choice is to move on now, threads like these in forums, discussions are important so we can further understand our mistakes (even if its everyone to blame or no one) so we do not repeat our idioacracies again.

I dont blame anyone in particular. I blame the whole financial system for enabling the fiasco to occur.

Every one is going to look out for their best interest. Thats all you can expect from anyone. It is the task of the system to put in place rules regulations and proccesses to maintain the system. my oh too

I'm a strong advocate of more personal financial management resources being available in the classroom as well. It still amazes me the amount of adults who are absolutely clueless on how to retain any shred of financial vitality.

On the flip side of this questionable coin, keeping the masses ignorant of basic and simple monetary concepts may also reap lucratively for those more slyly in the know.

If I had the consent of my friends to shake them out of their perpetual iPhone fogs to plant their butts firmly down in the financial management section of their local library for a few hours, I would in a New York minute ;)

Good discussion.

The consumer bears the lions share of the responsibility. I believe there are a small percentage of borrowers who did not understand what they were getting into but I believe most did understand the terms and simply were not concerned about what would happen 3 or 5 years into the future. It’s the same reason people don’t save, we live in a “I want it now generation”.

The banks deserve what they get because they did not look out for their long-term interests, again individuals with the “I want it now attitude”. Then again if bank sticks to it’s principles and its competitors grab all the easy money what happens? That bank gets left in the dust, people don’t want to invest in it, and those sticking to their principles probably get fired for not keeping pace with the competition.

It hacks me off to watch my portfolio go down because of this “crisis” that I did not participate in. But when I think about it I realize that the run up we have experienced over the previous years was partially fueled by all the spending that never should have occurred in the first place. So over the long term it will all even out. The question for the individual is are you prepared to ride out the difficult times? Did you use the spikes to help prepare for the dips?

FinAdvisor I disagree with your assessment of the education process. The education among other things should include how to budget, how to live within your means, how compounding interest works, how inflation works, and understand what you are signing. Just because ARM’s were not much of a thought 30 years ago does not mean that a basic understanding of finances would not have prepared someone to properly evaluate how to use or not use this tool. Following your logic if the mortgage industry comes out with some new gimmick next year we are all doomed again because we don’t understand the actual gimmick. I don’t agree.

Jim, we're actually not that far apart in thought. I do agree that we should know the basics to finance. Everything that you mentioned (budgeting, compound interest, etc.) is certainly worth teaching, because for the most part, they are constants, and will be useful to know regardless of what changes occur over time.

My issue is really with the last part, "understand what you are signing." It is quite simply...not that simple. Just visualize the curriculum for this course. Either you have to educate someone in the intricate details of contract law, investments, finance, and anything else that involves a signature...or you can just re-state the name of the course "Understand what you are signing!" over and over again (You have to say it loud, or it won't stick).

I'm not trying to be combattive. It's really just frustration. The reality is (in my opinion) that no level of preparation will truly prepare the general public for something like this. Even many of the brokers didn't understand what their clients were signing. I refuse to believe that all those people "screwed over" their own clients on purpose. They were just as naive as their clients, and they were "educated" in these matters.

For crying out loud you are signing your name or initialing a huge stack of papers a dozen times over the course of a half-hour. Most of these clients are more concerned with whether they should sign "John Doe" or "John J. Doe" or "Dr. John Jacob Doe, M.D." It's one thing to say "understand what you are signing," but let's be realistic. How can you know to ask about the ramifications of rising interest rates? The financial institutions didn't even ask those questions.

My "assessment" is not that those classes are irrelevant or unnecessary. It is simply that no amount of education could have averted this crisis.

I would much prefer "Budgeting 101" to woodshop.

FinAdvisor

You are right we are not that far apart. I will also hedge a little on my pervious statement that you should understand what you are signing based on my own experiences at the closing table. You have to sign a mountain of paperwork and it is simply not possible given the time restraints to read it as you go. I have actually asked what one should do if they actually want to read everything. I was told that you should let the closing lawyer know in advance so they can provide you with a separate room the day before closing to go over everything. Businesses have attorneys who do in fact go over everything. I don’t think it’s reasonable for the average homeowner to go through this process.

Now having said all that one thing that is always made clear in no uncertain terms is the conditions of the loan. “You have a fixed rate for 5 years after that the rate can go up as much as 2% a year up to a maximum of 6 %” or what ever the case may be. A basic understanding of finances will allow you to figure out what the payment can go up to. I stand by my statement that people (consumers and institutions) simply did not care what was going to happen in 5 years. TODAY was all that mattered.

You made the statement “How can you know to ask about the ramifications of rising interest rates?” I’m sorry but if you are signing an arm this is a finance 101 question. I also totally disagree with your statement that the brokers did not even understand the documents. The basic conditions are really not difficult to understand even for the general public. Consumers didn’t get caught in some little legal mumbo jumbo loophole. They got caught by the very basic principle of the ARM. Your interest rates can go up after the fixed term.

How about a government bail out for the money I have lost in the market this year. I mean I heard them when they said investments can and do sometimes lose money but I didn’t think they really meant it.

Personal responsibility can only decline so far before we all are in big trouble.

BTW

Does my statement about a government bail out do to stock market losses sound like a joke? Remember a few years back when politicians were floating around the idea of letting individuals invest part of their social security in the market. If that had actually passed what do you think people would be screaming for today?

I suppose I'll amend some previous statements as well. This conversation has been an enlightening one.

I'm not going to touch the privatized social security argument, but your bailout comment raises another interesting point. If the general public should be expected to figure out the effect of rising interest rates on their payment, and the brokers knew what they were doing, then how is it that these multi-billion dollar companies NEED to be bailed out? Surely being able to determine the after-effects of people defaulting should have been easy for a financial institution. The rate hikes weren't a surprise. It was the plan all along to raise interest rates until they reached a neutral position. Why then are huge companies now susceptible to default over something that should have been easy to predict?

I agree that it is not a complex product that these people were dealing with. I actually think it's much more basic than Finance 101. It's just simple logic. If rates go up, my mortgage payment goes up. To expand a bit on what you said about "TODAY," I think the problem had nothing to do with being uninformed or uneducated. It was simply that each person buying a new place was too enamored with the fact that they could afford a much bigger home than initially planned. I actually think they didn't WANT to know the specifics about the effect of rate hikes. It might have deterred them from buying their dream home, and still would have been "worth the risk" given the fact that real estate "can't really go down, it might just slow down a bit." As long as the house grew in value by a piddly 6% per year, they could always sell it and downsize.

And no, not ALL of the brokers knew what they were doing. Goodness, how many of your friends or coworkers decided to get a job somewhere in the real estate industry in the last two years because their cousin had made 400k the year before? There were so many newbies in the industry, who were also enamored in this case with their potentially giant paychecks, who may have been licensed (real tough process that is) to broker a mortgage deal, but certainly didn't understand the potential economic ramifications of these rate hikes. And once again, they didn't WANT to. Because, just like their cousin, they actually WERE making good money in the beginning. Who wants to change that? Their logic was the same as that of their clients. They were also more concerned with today than tomorrow.

I'm trying to tie this all in with the education piece. My point remains that no amount of education could have averted this crisis. And I continue to believe that the invisible hand is to blame. Greed and Fear will always drive the markets, I don't care how much information we are able to put into the minds of future generations. We will always try to make the easy buck, and will often fall flat on our faces because of it.

I could write a book on this subject instead I will keep this short and sweet.
Subprime morgages,shame on me.
ARMs that were sold that went hand in hand,shame on them.

Well i think that whole financial system has to be blamed and not any individual, for this crisis situation. As every often looks for his benefits and their best of interest. I think its the resonsibility of the financial system to manage the things properly and maintain a good flow of finances through the channels.

Blaming this fiasco on Banks really does not make any sense. Every one of us is responsible for our financial selves and banks would not lend money to investors, home owners and individuals if they were not allowed by the government. Sub prime mortgages should never be allowed. Adjustable rate mortgages should be under control.