Let's take a quick look at what's happening. Lending companies are going in the tank and that's effecting Wall Street, the housing markets, and the value of the dollar. People are quick to point fingers at Federal policy... maybe that's part of it. But the majority of the story and the blame, really belongs elsewhere. Let's look briefly at the foolish new American past time known as "Subprime Lending."
Subprime loans can be helpful, especially when coupled with a loan at prime for qualified buyers who are relatively stable in employment, and who are purchasing a home in which they plan to stay. But truthfully, even in those circumstances, they aren't a wise way to go. People end up leaving a lot to chance and can quickly get themselves into a heap of debt for which they have no income to escape from...
Even at that, there are far too few of these kinds of "rational" subprime loans being administered by these failing companies. Instead, there are many other types of "whacky" loans being granted to people who do not qualify for regular prime loans.
From wiki, some of these include loaning money to people who are in credit trouble. For example, they have issues because they have:
- Two or more loan payments paid past 30 days due in the last 12 months, or one or more loan payments paid past 90 days due the last 36 months;
- Judgment, foreclosure, repossession, or non-payment of a loan in the past;
- Bankruptcy in the last 7 years;
- Relatively high default probability as evidenced by, for example, a credit score of less than 620 (depending on the product/collateral), or other bureau or proprietary scores with an equivalent default probability likelihood.
Now I'm no genius, but here's a simple newsflash: stupid is as stupid does. What on earth do lenders think is going to happen when you loan money to people with a shaky track-record of paying back past debts? How would an increased interest rate, or an interest-only loan, lead people with demonstrated deficiencies in managing money to financial independence?
Again, I'm no genius, but here's a possible solution -- don't lend money to people who won't pay it back. Unless bankruptcy is something you desire, this probably isn't the way to do business. Is it any wonder you're short on capital when you just spent your hours roping in loans from people that can't get them anywhere else? These guys should be removed from the economic market, not bailed out by the Feds. That part, Obama has right. They should be held accountable for making stupid decisions.
And here's another tidbit of advice: Don't borrow money you won't pay back. I know we have to keep up with the Jones' and all, but come on. Pay off your debt before you go gobbling up more. Live simply and with a meager humility. Pay what you owe. Build your net worth, when you've demonstrated you can do that, maybe you're ready to borrow some big cash. Until you can be faithful in the small things -- like your credit card debt -- don't even think about jumping into the big leagues. Turn off your cell phone. Cancel your cable. Eat hotdogs and spaghetti for a year. Frame a photograph and make that your Christmas gift until you can afford those pretty pearl earrings for mom. Hello? Is anybody out there listening?
Our financial woes have very little to do with "policy." They've got everything to do with the average American Joe out living large, writing checks his account can't cash, and getting himself in a pickle. Stand-up against ignorance people. Don't buy into the hype. Take accountability for your own life and make our American history proud. My grandfather is rolling over in his grave about now.
Let me summarize it again, for any who might have missed it:
1. Don't lend money to people who won't pay it back.
2. Don't borrow money you won't pay back.
OK, are we all clear on this? If we can spend the next ten years living the way we were intended to live the last ten years, then our financial institutions will be just fine. I give you back to your regularly scheduled absurdity.
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