Last week, history showed up on our doorstep and demanded 800 billion dollars. For 30 years, the American people ate, drank, and danced into the night, celebrating the national explosion in home ownership, toasting the real estate gold rush, and basking in the availability of cheap credit.
Now the party is over, and the bill has arrived. The cascading failure of sub prime mortgages is whirling through the financial sector like a tornado, mercilessly uprooting homes and banks alike. Lending institutions have locked the doors in a desperate attempt to weather the storm, and now our entire economy is wheezing from credit asphyxiation.
As our hangover fades over the next several weeks and we slowly realize that we have created 20 years worth of bureaucracy to bail ourselves out of this crisis, perhaps we should consider learning a lesson or two. Take heed, because at $400 billion each, these are expensive lessons.
On Greed
Inarguably, greed captained our sinking ship. But it is not the greed of Wall Street that should command our attention. I am amazed at how many people are shocked - shocked! - at the greed on Wall Street, as if this is some sort of new discovery. Wall Street is pure profit motive, wrapped in the boggling financial calculus of percentage points and market ratios. Wall Streetians are not tasked with curing cancer or building mousetraps, but with managing our investments and retirements. They darn well better be interested in profits above all else. As much as we might wish for an easy target, Wall Street is not our enemy.
Nor should lending institutions or loan officers receive the brunt of our rage. While these entities happily provided us with the contracts, we were not compelled to sign them.
The greed we must eschew is more personal. It is the greed of financial negligence. The greed of signing a mortgage we cannot afford because we love the vaulted ceilings and two-car garage. The greed of "if all else fails, we can just declare bankruptcy." The greed of making a deal we cannot fulfill.
The first lesson we must learn is that owning a home is a privilege, not a right.
On Responsibility
Our second lesson is more painful. As a nation, we are living well beyond our means. According to the Federal Reserve, the average American now spends $1.22 for every dollar he makes. The average household owes almost $20,000 in credit card and automobile debt. If we include principal debt on mortgages, the average household owes more than twice its yearly income. One in six mortgage holders have refinanced at least once, and yearly bankruptcies have doubled since 1993.
Our fondness for debt is so pronounced that monthly payments now guide our financial decisions. The car: $300 per month. The house: $1,500 per month. The computer: $65 per month. The question is no longer whether we can afford to purchase a new luxury, but whether can we shoehorn another payment into our budget.
The greed manifested in our collective fiscal irresponsibility is insidious. By continually borrowing and refusing to save, we cannot provide for our own retirement. As such, we are relying on the wavering social security system, family, or charity to exit the workforce. In short, we are intentionally trading today's luxury for tomorrow's famine. From a financial standpoint, this love of debt is simply untenable.
Shakespeare's Polonius warned us long ago: "Neither a borrower nor a lender be." In this day and age, following the wisdom of Polonius may be an impossibility, but living within our means is not.
We have two choices: continue carelessly on our downhill path of debt, or tighten our belt and begin to climb. This choice is not made on Wall Street, but on First Street. It is not made by anonymous bankers, but by you and me. And it is not made once, but incrementally and habitually.
Perhaps we should consider this choice before we succumb to the lure of our plastic siren and take home that new widescreen television for the low, low price of $79 per month.
Jubal McMillan is an Escalon businessman, Video Xtreme, and will provide a monthly column for The Times. He can be reached via email at mr.jubal@gmail.com.
Now the party is over, and the bill has arrived. The cascading failure of sub prime mortgages is whirling through the financial sector like a tornado, mercilessly uprooting homes and banks alike. Lending institutions have locked the doors in a desperate attempt to weather the storm, and now our entire economy is wheezing from credit asphyxiation.
As our hangover fades over the next several weeks and we slowly realize that we have created 20 years worth of bureaucracy to bail ourselves out of this crisis, perhaps we should consider learning a lesson or two. Take heed, because at $400 billion each, these are expensive lessons.
On Greed
Inarguably, greed captained our sinking ship. But it is not the greed of Wall Street that should command our attention. I am amazed at how many people are shocked - shocked! - at the greed on Wall Street, as if this is some sort of new discovery. Wall Street is pure profit motive, wrapped in the boggling financial calculus of percentage points and market ratios. Wall Streetians are not tasked with curing cancer or building mousetraps, but with managing our investments and retirements. They darn well better be interested in profits above all else. As much as we might wish for an easy target, Wall Street is not our enemy.
Nor should lending institutions or loan officers receive the brunt of our rage. While these entities happily provided us with the contracts, we were not compelled to sign them.
The greed we must eschew is more personal. It is the greed of financial negligence. The greed of signing a mortgage we cannot afford because we love the vaulted ceilings and two-car garage. The greed of "if all else fails, we can just declare bankruptcy." The greed of making a deal we cannot fulfill.
The first lesson we must learn is that owning a home is a privilege, not a right.
On Responsibility
Our second lesson is more painful. As a nation, we are living well beyond our means. According to the Federal Reserve, the average American now spends $1.22 for every dollar he makes. The average household owes almost $20,000 in credit card and automobile debt. If we include principal debt on mortgages, the average household owes more than twice its yearly income. One in six mortgage holders have refinanced at least once, and yearly bankruptcies have doubled since 1993.
Our fondness for debt is so pronounced that monthly payments now guide our financial decisions. The car: $300 per month. The house: $1,500 per month. The computer: $65 per month. The question is no longer whether we can afford to purchase a new luxury, but whether can we shoehorn another payment into our budget.
The greed manifested in our collective fiscal irresponsibility is insidious. By continually borrowing and refusing to save, we cannot provide for our own retirement. As such, we are relying on the wavering social security system, family, or charity to exit the workforce. In short, we are intentionally trading today's luxury for tomorrow's famine. From a financial standpoint, this love of debt is simply untenable.
Shakespeare's Polonius warned us long ago: "Neither a borrower nor a lender be." In this day and age, following the wisdom of Polonius may be an impossibility, but living within our means is not.
We have two choices: continue carelessly on our downhill path of debt, or tighten our belt and begin to climb. This choice is not made on Wall Street, but on First Street. It is not made by anonymous bankers, but by you and me. And it is not made once, but incrementally and habitually.
Perhaps we should consider this choice before we succumb to the lure of our plastic siren and take home that new widescreen television for the low, low price of $79 per month.
Jubal McMillan is an Escalon businessman, Video Xtreme, and will provide a monthly column for The Times. He can be reached via email at mr.jubal@gmail.com.
